According to Mordor Intelligence, the vendor risk management (VRM) market is expected to grow from $11.98 billion in 2024 to $21.59 billion by 2029. This clearly indicates the growing importance of a comprehensive approach to mitigating vendor risks.
In this guide, you’ll learn about the many arguments in favor of maintaining a proactive approach to third-party risks through a systemized VRM program. We’ll then discuss some actionable tips for implementing VRM on an organizational level to minimize inefficiencies and wasted resources.
What is vendor risk management and why does it matter?
Vendor risk management is a set of practices that help organizations identify, assess, and remediate threats arising from their relationships with third-party vendors. It’s an essential part of today’s interconnected business environment, where an average organization partners with dozens of vendors, such as suppliers, software providers, and distributors.
Each vendor exposes your organization to various risk categories—operational, technological, financial, legal, etc.—which builds onto yours once you partner with them. So, the more vendors you have, the more complex your risk landscape could be.
The process of creating vendor risk profiles can be especially tedious as you have numerous risk rubrics to consider, such as business criticality, types of data processed, and integration and communication access.
A well-developed VRM program offers you a structured process to not only profile vendors but also manage numerous risk scenarios, such as:
- Operational disruptions due to issues on the vendor’s end.
- Compromised data due to exploited vulnerabilities in the vendor’s system.
- Compliance issues stemming from a vendor’s inability to meet regulatory requirements.
{{cta_withimage5="/cta-modules"}}
Benefits to expect from a VRM program
The primary purpose of VRM is not just security—it also adds a layer of resilience and predictability to your business operations that rely on vendors. Other noteworthy benefits are:
- Firm grasp of vendor threats: Formalized VRM processes are necessary for ensuring complete visibility of your supply chain and effective mitigation of vendor threats.
- Risk prioritization and optimal resource utilization: VRM helps you focus on the most pressing vendor risks and allocate your resources toward their remediation. That way, your capital or employees aren’t tied up with low-impact threats.
- Effective incident response plans: Once you fully understand your vendor risk scope, you can come up with precise strategies for addressing identified threats.
- Easier implementation of third-party risk management (TPRM): Setting up an elaborate VRM program makes it easier to mature into comprehensive TPRM frameworks and extend your security measures and controls to third parties beyond vendors (e.g., agencies and consultants).
- Streamlined compliance and reputation management: Effective VRM is a crucial component of many compliance standards, especially in regulated industries with stringent frameworks like HIPAA. VRM programs make it easier to meet compliance requirements and maintain good standing in your market.
To fully reap these benefits, though, you need a well-defined vendor management policy (VMP) that incorporates the best tips and strategies for VRM.
7 tips for effective vendor risk management
Below, we have compiled a set of VRM tips that can work for organizations in most industries:
- Conduct thorough vendor due diligence (VDD).
- Formalize vendor risk assessments.
- Maintain a robust vendor inventory.
- Develop SaaS stack awareness.
- Expand your due diligence to fourth-party vendors.
- Reassess vendors as needed.
- Develop and fine-tune backup plans.
1. Conduct thorough vendor due diligence (VDD)
VDD is the process of collecting and evaluating vendor data to proactively spot areas of caution and determine whether a vendor fits your risk appetite. An elaborate VDD process can instantly filter out unfit vendors or inform the kind of controls you’ll implement before working with a specific vendor.
The process requires you to collect numerous data points and documents, such as:
- Financial reports
- Compliance audit reports
- Relevant certifications
- Security reviews
However, VDD can quickly become overwhelming without a formalized process because it involves repetitive data gathering and analysis for numerous vendors. An easy way to avoid oversight is to use a due diligence checklist, which helps standardize the process regardless of who’s in charge.
You should also have a well-established communication channel to make reporting easier. Share notable findings from your VDD report with relevant stakeholders in your organization, especially if you uncover risks that require an expert’s eye.
{{cta_simple17="/cta-modules"}}| Webinar: Vendor risk management
2. Formalize vendor risk assessments
Your vendor risk assessment (VRA) process can make or break the effectiveness of other VRM processes. The first step toward effective VRAs is to define your risk criteria. Doing so gives you a clear baseline for comparing different vendors and understanding the long-term implications of your partnerships.
There’s no one-size-fits-all answer to your risk criteria—you need to account for specific factors, such as:
- Your industry and operations
- Business criticality
- Types of data processed
- System access
- Your overall risk appetite
- Regulatory requirements
Then, you need to choose your risk assessment methodologies, preferably those that let you quantify risks and assign clear scores.
Similar to VDD, risk assessments can be quite resource-intensive because they require an abundance of data. To streamline the process, you can use pre-built VRA questionnaires designed to give you insight into risk types relevant to modern business ecosystems.
3. Maintain a robust vendor inventory
Once you’ve assessed vendor risks, you should add the vendors you partner with to a centralized inventory. This process brings the following advantages:
- Holistic overview of your vendor footprint
- Streamlined vendor management without disparate systems
- Easier risk prioritization
When adding vendors to your inventory, categorize them according to their risk tier. The process is more straightforward if you assign risk scores to vendors and define specific ranges for different risk tiers.
For example, if your total range is 1–20, your risk levels may look like this:
- Low: 1–7
- Medium: 8–13
- High: 14–17
- Extremely high (or Critical): 18–20
Your inventory can also include data like vendor status (e.g., active/on hold), business function impacted, and the date and outcome of the last security review.
4. Develop SaaS stack awareness
SaaS vendors warrant far greater scrutiny in your VRM program because they store sensitive data and/or have access to your systems. Due to the inherent cloud-based nature of their solutions, each vendor you onboard expands your organization’s potential cyber attack surface.
The solution is to carefully evaluate each SaaS vendor and their security posture. Look for stringent security measures and policies, compliance with relevant frameworks, and incident history before integrating your systems with their solutions.
Shadow IT is another important consideration here. Some of your team members might use specific software without the IT team's approval or knowledge, which compromises your organization’s awareness of all SaaS vulnerabilities.
The good news is that VRM platforms have been a game changer here. They come with detection features that help uncover all SaaS tools in your network automatically.
{{cta_withimage5="/cta-modules"}}
5. Expand your due diligence to fourth-party vendors
Your vendors may also partner with third parties, which are referred to as fourth parties from your perspective. While you have no direct contractual connection with fourth parties, they still present a considerable risk for two reasons:
- It’s hard to identify all the fourth parties that can impact your organization.
- You don’t have control over fourth parties’ operations.
Your VRM program can help you understand and mitigate fourth-party risks to some extent. The first way to do this is through security questionnaires—you can include questions about your vendor’s approach to managing third-party risks and see if their vulnerabilities can be built into your systems.
You can also ask your vendor to list any third parties relevant to the scope of services provided to your organization and add those fourth parties to your inventory. This allows you to monitor them regularly and keep an eye out for potential risk events.
6. Reassess vendors as needed
Each vendor’s risk profile changes over time as their operations and third-party network evolve. As such, it’s imperative to stay on top of these changes through regular reassessments, commonly including annual reviews for high- and critical-risk vendors.
Such reassessments can be performed according to a predetermined schedule or triggered by incidents. Vendor reassessments typically shouldn’t take up much time because you already have data from the initial assessment in your system. Your primary focus should be defining what areas to review extensively, as well as gathering updated documents and compliance reports.
An efficiency tip here is to opt for a VRM platform with the following features:
- Integrated dashboard with relevant vendor data
- Real-time (or near real-time) data analysis for documentation provided
- Integrations with your existing systems
These functionalities will help you streamline reassessments and automate tedious tasks, saving your team considerable time and effort.
{{cta_testimonial5="/cta-modules"}}
7. Develop and fine-tune backup plans
The importance of a carefully planned incident response plan cannot be overstated. Still, you may want to go a step further when facing critical risks that might make you end your partnership with a vendor. In such cases, you should have a clear contingency plan to protect your organization’s operations and security posture.
Ideally, you’ll diversify your vendor portfolio to avoid relying too heavily on specific service providers. Consider planning ahead by maintaining a list of backup vendors you can partner with if you stop working with a current vendor.
Finally, it’s necessary to tweak your risk management strategy according to the changes in your risk profile. Doing so helps you avoid the reactive approach to adverse scenarios and gain more control over vendor risks.
Plan and implement a comprehensive VRM program with Vanta
If you need an end-to-end software solution to support your VRM program, Vanta can help. Its Vendor Risk Management offering automates risk management workflows and promotes faster due diligence and tracking, giving you time back for strategic security initiatives.
Vanta integrates with 300+ tools, ensuring you can complete your VRM workflows with minimum context switching. Some of Vanta’s core VRM features include:
- Centralized vendor inventory
- Streamlined VRAs with auto-scoring of vendor risk
- Discovery of shadow IT based on integrations
- Security and access review tracking
Watch our webinar to see Vanta in action. Or schedule a custom demo with our team today.
{{cta_simple5="/cta-modules"}}
Introduction to TPRM
What is vendor risk management (VRM)?
Introduction to TPRM
According to Mordor Intelligence, the vendor risk management (VRM) market is expected to grow from $11.98 billion in 2024 to $21.59 billion by 2029. This clearly indicates the growing importance of a comprehensive approach to mitigating vendor risks.
In this guide, you’ll learn about the many arguments in favor of maintaining a proactive approach to third-party risks through a systemized VRM program. We’ll then discuss some actionable tips for implementing VRM on an organizational level to minimize inefficiencies and wasted resources.
What is vendor risk management and why does it matter?
Vendor risk management is a set of practices that help organizations identify, assess, and remediate threats arising from their relationships with third-party vendors. It’s an essential part of today’s interconnected business environment, where an average organization partners with dozens of vendors, such as suppliers, software providers, and distributors.
Each vendor exposes your organization to various risk categories—operational, technological, financial, legal, etc.—which builds onto yours once you partner with them. So, the more vendors you have, the more complex your risk landscape could be.
The process of creating vendor risk profiles can be especially tedious as you have numerous risk rubrics to consider, such as business criticality, types of data processed, and integration and communication access.
A well-developed VRM program offers you a structured process to not only profile vendors but also manage numerous risk scenarios, such as:
- Operational disruptions due to issues on the vendor’s end.
- Compromised data due to exploited vulnerabilities in the vendor’s system.
- Compliance issues stemming from a vendor’s inability to meet regulatory requirements.
{{cta_withimage5="/cta-modules"}}
Benefits to expect from a VRM program
The primary purpose of VRM is not just security—it also adds a layer of resilience and predictability to your business operations that rely on vendors. Other noteworthy benefits are:
- Firm grasp of vendor threats: Formalized VRM processes are necessary for ensuring complete visibility of your supply chain and effective mitigation of vendor threats.
- Risk prioritization and optimal resource utilization: VRM helps you focus on the most pressing vendor risks and allocate your resources toward their remediation. That way, your capital or employees aren’t tied up with low-impact threats.
- Effective incident response plans: Once you fully understand your vendor risk scope, you can come up with precise strategies for addressing identified threats.
- Easier implementation of third-party risk management (TPRM): Setting up an elaborate VRM program makes it easier to mature into comprehensive TPRM frameworks and extend your security measures and controls to third parties beyond vendors (e.g., agencies and consultants).
- Streamlined compliance and reputation management: Effective VRM is a crucial component of many compliance standards, especially in regulated industries with stringent frameworks like HIPAA. VRM programs make it easier to meet compliance requirements and maintain good standing in your market.
To fully reap these benefits, though, you need a well-defined vendor management policy (VMP) that incorporates the best tips and strategies for VRM.
7 tips for effective vendor risk management
Below, we have compiled a set of VRM tips that can work for organizations in most industries:
- Conduct thorough vendor due diligence (VDD).
- Formalize vendor risk assessments.
- Maintain a robust vendor inventory.
- Develop SaaS stack awareness.
- Expand your due diligence to fourth-party vendors.
- Reassess vendors as needed.
- Develop and fine-tune backup plans.
1. Conduct thorough vendor due diligence (VDD)
VDD is the process of collecting and evaluating vendor data to proactively spot areas of caution and determine whether a vendor fits your risk appetite. An elaborate VDD process can instantly filter out unfit vendors or inform the kind of controls you’ll implement before working with a specific vendor.
The process requires you to collect numerous data points and documents, such as:
- Financial reports
- Compliance audit reports
- Relevant certifications
- Security reviews
However, VDD can quickly become overwhelming without a formalized process because it involves repetitive data gathering and analysis for numerous vendors. An easy way to avoid oversight is to use a due diligence checklist, which helps standardize the process regardless of who’s in charge.
You should also have a well-established communication channel to make reporting easier. Share notable findings from your VDD report with relevant stakeholders in your organization, especially if you uncover risks that require an expert’s eye.
{{cta_simple17="/cta-modules"}}| Webinar: Vendor risk management
2. Formalize vendor risk assessments
Your vendor risk assessment (VRA) process can make or break the effectiveness of other VRM processes. The first step toward effective VRAs is to define your risk criteria. Doing so gives you a clear baseline for comparing different vendors and understanding the long-term implications of your partnerships.
There’s no one-size-fits-all answer to your risk criteria—you need to account for specific factors, such as:
- Your industry and operations
- Business criticality
- Types of data processed
- System access
- Your overall risk appetite
- Regulatory requirements
Then, you need to choose your risk assessment methodologies, preferably those that let you quantify risks and assign clear scores.
Similar to VDD, risk assessments can be quite resource-intensive because they require an abundance of data. To streamline the process, you can use pre-built VRA questionnaires designed to give you insight into risk types relevant to modern business ecosystems.
3. Maintain a robust vendor inventory
Once you’ve assessed vendor risks, you should add the vendors you partner with to a centralized inventory. This process brings the following advantages:
- Holistic overview of your vendor footprint
- Streamlined vendor management without disparate systems
- Easier risk prioritization
When adding vendors to your inventory, categorize them according to their risk tier. The process is more straightforward if you assign risk scores to vendors and define specific ranges for different risk tiers.
For example, if your total range is 1–20, your risk levels may look like this:
- Low: 1–7
- Medium: 8–13
- High: 14–17
- Extremely high (or Critical): 18–20
Your inventory can also include data like vendor status (e.g., active/on hold), business function impacted, and the date and outcome of the last security review.
4. Develop SaaS stack awareness
SaaS vendors warrant far greater scrutiny in your VRM program because they store sensitive data and/or have access to your systems. Due to the inherent cloud-based nature of their solutions, each vendor you onboard expands your organization’s potential cyber attack surface.
The solution is to carefully evaluate each SaaS vendor and their security posture. Look for stringent security measures and policies, compliance with relevant frameworks, and incident history before integrating your systems with their solutions.
Shadow IT is another important consideration here. Some of your team members might use specific software without the IT team's approval or knowledge, which compromises your organization’s awareness of all SaaS vulnerabilities.
The good news is that VRM platforms have been a game changer here. They come with detection features that help uncover all SaaS tools in your network automatically.
{{cta_withimage5="/cta-modules"}}
5. Expand your due diligence to fourth-party vendors
Your vendors may also partner with third parties, which are referred to as fourth parties from your perspective. While you have no direct contractual connection with fourth parties, they still present a considerable risk for two reasons:
- It’s hard to identify all the fourth parties that can impact your organization.
- You don’t have control over fourth parties’ operations.
Your VRM program can help you understand and mitigate fourth-party risks to some extent. The first way to do this is through security questionnaires—you can include questions about your vendor’s approach to managing third-party risks and see if their vulnerabilities can be built into your systems.
You can also ask your vendor to list any third parties relevant to the scope of services provided to your organization and add those fourth parties to your inventory. This allows you to monitor them regularly and keep an eye out for potential risk events.
6. Reassess vendors as needed
Each vendor’s risk profile changes over time as their operations and third-party network evolve. As such, it’s imperative to stay on top of these changes through regular reassessments, commonly including annual reviews for high- and critical-risk vendors.
Such reassessments can be performed according to a predetermined schedule or triggered by incidents. Vendor reassessments typically shouldn’t take up much time because you already have data from the initial assessment in your system. Your primary focus should be defining what areas to review extensively, as well as gathering updated documents and compliance reports.
An efficiency tip here is to opt for a VRM platform with the following features:
- Integrated dashboard with relevant vendor data
- Real-time (or near real-time) data analysis for documentation provided
- Integrations with your existing systems
These functionalities will help you streamline reassessments and automate tedious tasks, saving your team considerable time and effort.
{{cta_testimonial5="/cta-modules"}}
7. Develop and fine-tune backup plans
The importance of a carefully planned incident response plan cannot be overstated. Still, you may want to go a step further when facing critical risks that might make you end your partnership with a vendor. In such cases, you should have a clear contingency plan to protect your organization’s operations and security posture.
Ideally, you’ll diversify your vendor portfolio to avoid relying too heavily on specific service providers. Consider planning ahead by maintaining a list of backup vendors you can partner with if you stop working with a current vendor.
Finally, it’s necessary to tweak your risk management strategy according to the changes in your risk profile. Doing so helps you avoid the reactive approach to adverse scenarios and gain more control over vendor risks.
Plan and implement a comprehensive VRM program with Vanta
If you need an end-to-end software solution to support your VRM program, Vanta can help. Its Vendor Risk Management offering automates risk management workflows and promotes faster due diligence and tracking, giving you time back for strategic security initiatives.
Vanta integrates with 300+ tools, ensuring you can complete your VRM workflows with minimum context switching. Some of Vanta’s core VRM features include:
- Centralized vendor inventory
- Streamlined VRAs with auto-scoring of vendor risk
- Discovery of shadow IT based on integrations
- Security and access review tracking
Watch our webinar to see Vanta in action. Or schedule a custom demo with our team today.
{{cta_simple5="/cta-modules"}}
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