Risk-Based Due Diligence in Third-Party Risk Management

Podcast Transcript

Hi – my name is Christine Kitamura with Venminder.

In this podcast, you'll learn how risk-based vendor due diligence can help drive efficiency throughout your third-party risk management program.

Here at Venminder, we have a team of vendor risk professionals who can guide you on best practices that will support a more effective third-party risk management program.

If you’ve ever been involved in the third-party due diligence process, you probably know the time and effort required to obtain and review the necessary documents. It’s not always a straightforward process, and there’s often some back and forth that you have to do with the vendor. Sometimes you’ll need to follow up with the vendor to ask for some additional documentation, or you just want to clarify a small detail that your team has discovered. This process can be extremely time-consuming, and this is only one part of the overall third-party risk management lifecycle.

So, it helps to know how you can save time on various activities without sacrificing quality. A due diligence strategy, based on risk, is a great way to streamline your third-party risk management program. This way, you can request and review only the documents that are relevant to a third party’s risk rating. 

There are three ways that risk-based vendor due diligence improves your efficiency:

First, this strategy prevents unnecessary due diligence reviews. 

Consider all the vendors that you partner with in your organization. Chances are some are considered high-risk and critical, like a payment processor. Other vendors are low risk, like janitorial or landscaping services. 

Since low-risk vendors won't have access to your organization's sensitive data, it wouldn’t be necessary to request a detailed due diligence document, like an information security policy, or something really advanced like penetration testing results. Many low-risk vendors may not even have these documents, so it wouldn’t be practical to request them. Using risk-based due diligence prevents you from performing these unnecessary and time-consuming reviews. 

Second, risk-based vendor due diligence is a repeatable process. 

Maintaining a regular record of your due diligence activities is difficult when you have several dozen, hundreds, or even several thousands of vendors. You should conduct due diligence at different times for different vendors depending on their risk and criticality. 

So, here’s a good timeline to follow:

• Review your high-risk and critical vendors at least annually
• Review moderate-risk vendors every 18 months to two years 
• And review your low-risk vendors every three years, or before their contracts expire 

Risk-based due diligence is a repeatable process that keeps you organized so you know when to review your vendor documents. But keep in mind that a repeatable process isn't necessarily the same for every vendor. Due diligence should still be collected and reviewed based on the particular risk profile of each vendor.

And finally, risk-based due diligence drives efficiency by identifying any gaps in a vendor’s controls.

This allows you to address any third-party vendor issues more quickly because you’re already familiar with what you need to review. 

For example, let’s say you’re performing initial due diligence on a high-risk vendor. Because they’re high risk, you already know that you need to review the vendor’s business continuity plan and testing results. You discover that the vendor hasn’t updated or tested its plan in over 5 years, so you may decide not to use this vendor. Or, depending on your organization’s risk appetite, you might decide to use this vendor, but require that they test its plan before you sign the contract.

A vendor’s risk can change over time, but risk-based due diligence is a good strategy that provides consistent results. Having a clear understanding of what to collect and review for low, moderate, and high-risk vendors ensures that your time and efforts are put to effective use. I hope you found this podcast insightful.

Thanks for tuning in; Catch you next time!