The 3 Vendor Risk Management Frameworks

Podcast Transcript

Hi – this is Christine with Venminder.

In this podcast, we’ll discuss three of the most common vendor risk management frameworks, as well as the benefits and challenges of each one. Vendor risk management can be a complex practice, with many independent processes, tasks, and stakeholders. Each organization must determine the framework they’ll use to assign responsibility and accountability for vendor risk management tasks and oversight. 

Here at Venminder, we have a team of certified industry experts that help organizations of all sizes and industries establish and implement effective and compliant vendor risk management frameworks every day.

If you’ve ever heard the saying, “there’s more than one way to crack an egg,” the same might be said for vendor risk management. While regulatory guidance and best practices should inform your organization’s vendor risk management requirements, there’s certainly more than one framework organizations can implement to assign responsibility and oversight. 

Let’s explore three common vendor risk management frameworks:

• The first is the centralized vendor risk management framework. A single individual, team, or department is responsible for vendor risks and performance. This model provides a high level of oversight and accountability, drawing on expertise from various risk domains, including cybersecurity, business continuity, and finance. With most tasks handled by the same team, there’s typically better efficiency and a more consistent approach, because the end-to-end process is handled by the same people. This approach can work when there are fewer vendors in the organization or if the vendor offerings aren’t particularly complex.
  
  However, it’s important to consider the potential downsides of a centralized vendor risk management framework.  For example, the business line employee who interacts with the vendor daily may not prioritize the vendor's risks or performance or may lack the incentive to promptly identify and address any vendor-related issues. This could lead to confusion for the vendor, as they may be unclear about who they report to – vendor risk management or the line of business, resulting in conflicting messages, missed deadlines, and rework.
  
  
• The second approach is a decentralized vendor risk management framework. It’s characterized by various lines of business working directly with vendors, without a formal vendor risk management program or team. This approach is often seen in organizations with multiple branches, where branch managers are responsible for their individual profit and loss. A decentralized framework may offer flexibility, but with so many varied stakeholders, this approach is generally discouraged due to the dispersion of tasks like due diligence and risk assessments across the organization. A lack of collaboration between departments can lead to confusion and inefficiency. 
  
  In a decentralized program, it's still important to set vendor risk management standards to reduce potential risks. Not having these standards can lead to challenges and setbacks. In a fully decentralized system, the lack of a vendor risk management office reduces the effective exercise of control and authority. Even with strong standards, inconsistent oversight can lead to unenforced requirements, unidentified and unmanaged vendor risks, and un-remediated issues. The decentralized vendor risk management framework is considered the least standardized, organized, and effective method, potentially resulting in increased vendor risks and regulatory scrutiny.
  
  
• Finally, there’s the hybrid vendor risk management framework. This is most frequently recommended, especially for larger organizations, as it can be the most practical. In the hybrid framework, there’s a well-organized and disciplined vendor risk management team setting the guidelines and checking the results, while working very closely with the business units to ensure consistency and timeliness of practices. Vendor owners in the business units, those with day-to-day vendor relationships, are responsible for managing their vendor’s risks and performance, according to the guidelines and requirements established by the vendor risk management team. Ultimately, the hybrid vendor risk management framework results in a more effective distribution of responsibility, ensures consistency, and defines oversight and authority.
  
  Although, the hybrid framework will have some challenges if:
  •  The vendor risk management team doesn't have the full support of the board and senior management
  • Second, if there’s lack of autonomy or authority
  •  And finally, if there aren’t enough resources to execute responsibilities effectively

So, there you have it: three common vendor risk management frameworks. Every organization has unique needs, so it's important to implement the framework that will help your organization manage its vendor risks the best.

I hope you found this podcast insightful. Thanks for tuning in; catch you next time.