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State of Third-Party Risk Management 2022

Venminder's sixth annual whitepaper provides insight from a variety of surveyed individuals into how organizations manage third-party risk today.


Outsourcing Vendor Management: When Does It Make Sense?

5 min read
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Increasing competition, shrinking margins and unpredictable global events can make navigating today's business environment difficult. While there is no one solution to these issues, leveraging external expertise and capacity can help organizations minimize costs and improve risk management outcomes, especially when it comes to vendor risk management.

Consider the research from our recent State of Third-Party Risk Management 2022 Whitepaper. Sixty-one percent (61%) of respondents stated that they have between one to five employees running their vendor management programs. Furthermore, 46% revealed that they're managing between 101-500 vendors. It's no surprise to find that some vendor risk managers are performing multiple roles within an organization, making it difficult for them to focus on their core vendor risk responsibilities. In an environment where so many vendor risk managers juggle priorities while managing so many vendors, it isn’t surprising that they’re often overwhelmed. Sooner or later, something will give.

FTE Cost Analysis

According to the Small Business Association (SBA), the typical cost of an FTE is 1.25 to 1.4 times the salary, depending on certain variables like benefits, insurance and other employee perks. Employees with industry expertise will demand an even higher premium, impacting your profit and loss. Remember that vendor risk management work volumes can be unpredictable, especially as your vendor inventory expands and contracts.

Suppose you have built the business case to justify hiring an FTE. What is the likelihood you will be able to fill all expertise gaps? Maybe you decide to hire more but less experienced people to address the capacity issue. The learning curve can be steep for an inexperienced vendor risk management team and savvy vendors will quickly gauge if they're dealing with someone lacking in skills.

Lack of Subject Matter Expertise and Vendor Risk Management Capacity Are Real Issues

Experienced vendor risk managers are always an asset. However, it’s exceptionally rare for any single vendor risk manager to have complete expertise in every aspect of a vendor risk management program.

10 Areas Within a Vendor Risk Management Program Scope:

  1. Contract Management
  2. Research and Negotiations
  3. Business Continuity and Disaster Recovery
  4. SOC Report Analysis
  5. Financial Analysis
  6. Regulatory Compliance
  7. Performance and Relationship Management
  8. Line of Business Interaction
  9. Board Reporting
  10. Federal and State Regulatory Exams

This list isn't comprehensive, but it gives you an idea of the scope of expertise required for a successful vendor risk management program. It's unlikely that every item will be in your vendor risk management department's skillset. And, even if you’re lucky enough to employ a unicorn or two, it's unlikely they’ll have the capacity to do it all.

Often, vendor risk management departments are dependent on subject matter expertise pulled from other parts of the organization. The review and assessment of an organization's SOC 2 report and cybersecurity controls may be left to an information security professional who is already overextended by too many projects and competing priorities. Or, the compliance manager who typically assists with vendor regulatory reviews has been instructed to focus instead on marketing compliance reviews for the organization's soon-to-be-released product. Meanwhile, the vendor risk management team continually waits for any assistance they can get, and due diligence and required risk reviews get further behind. These situations are, unfortunately, everyday occurrences for many organizations.


Maturing Your Program as a Vendor Management Officer

Whether your vendor risk management team is understaffed or lacks the diverse spectrum of expertise required to meet all the program's needs, you'll need a strategic approach to address the issue.

Outsourcing to Access Expertise and Improve Capacity

If you’re struggling with capacity or if your vendor risk management team lacks subject matter expertise in certain areas, it might be a good idea to consider outsourcing vendor assessments or other aspects of vendor risk management.

Doing so can help accomplish the following:

  • Track and manage contract renegotiation and renewal dates
  • Support vendor risk monitoring
  • Collect and organize vendor due diligence questionnaires and documents
  • Provide the review, analysis and qualified opinion of vendor controls through the review of:
    • Financial Reports
    • Evidence of regulatory compliance
    • Systems configurations, access management, and cyber security controls
    • Independent third-party reports, including SOC documents
    • Business continuity and recovery plans and test results
    • Privacy policies and practices
    • Vendor risk management practices and fourth-party inventory

How Outsourcing Can Help Overcome Internal Vendor Management Hurdles

Many organizations are starting to realize that recruiting and hiring additional FTEs can be difficult, expensive and doesn't always successfully address unpredictable vendor risk management's workload or expertise needs. The truth is that strategic vendor risk management can deliver more with fewer resources. And nowadays, companies are specializing in vendor risk management services, often on a pay-as-you-go basis.

Outsourcing portions of vendor risk management is beneficial for several reasons. First, it can complement a program in which the subject matter expertise component is handled by other departments that lack time to perform those duties because of their core responsibilities. For example, the vendor risk management team can improve vendor due diligence reviews' quality, consistency and timing. That means the business can plan vendor onboarding more effectively so the organization can start realizing the benefits of vendor relationships in less time.

Second, strategically outsourcing vendor assessments and other risk tasks and functions enable your existing team to play to their strengths and focus on the vendor risk framework, internal oversight and compliance with the program. As an added benefit, you'll be able to contain employee costs while still meeting regulations and your organization's vendor risk management objectives.

More Effective Programs and Reduced Costs

Vendor risk management is sometimes dismissed as a line item that doesn't generate any profit. However, effective vendor risk management can help your organization avoid the costs related to inconsistent contract management, poor vendor quality, inadequate vendor business continuity/disaster recovery, improper management of customer complaints, and preventable regulatory fines, to name just a few.

The bottom line will benefit from a well-managed vendor risk budget. And the cost savings of vendor management outsourcing will become apparent compared to annual FTE costs. Today, vendor risk management as a pay-as-you-go service has never made more sense.

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