According to a 2022 Ponemon Institute survey, 53% of respondents found managing vendor relationships complex, while 40% revealed they don’t have adequate resources to do so. The complexity can be attributed to organizations working with dozens of SaaS vendors today, which calls for a continuous oversight function to protect systems and data from malicious actors.
That’s why a robust vendor risk management (VRM) program has become a critical part of an organization's security and governance practices. It helps you approach vendor relationships through the lens of privacy and data security, as well as tailor risk management practices within available resources.
This guide will provide comprehensive insights into implementing an effective VRM program. We’ll cover:
- Meaning of a VRM program
- Steps to implement an effective VRM program
- Implementation challenges to expect
What is a vendor risk management program?
A vendor risk management program is typically an internally developed governance framework for identifying, assessing, and mitigating risks associated with third-party vendors, including financial, cybersecurity, and operational risks. This involves systematic and ongoing due diligence of vendors’ security and compliance practices, as well as overseeing your organization's third-party communication strategies.
The goal of any VRM program is to ensure proactive identification and management of vulnerabilities—both before onboarding and throughout the vendor lifecycle—that lead to incidents like security breaches and service disruptions. It enables predictability in operations and better tracking of vendor performance.
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Benefits of an effective VRM program
Here are some game-changing benefits of implementing a solid VRM program:
- Better risk visibility across the board: A VRM program requires managing centralized risk dashboards to facilitate comprehensive reporting and risk-aware decision-making.
- Improved accountability of VRM tasks: The program defines roles and responsibilities across procurement, legal, compliance, IT, and finance teams, which makes VRM activities predictable.
- Defined expectations for vendor security standards: You get to outline clear vendor security requirements and performance benchmarks to foster reliable partnerships.
- Insights into fourth- and nth-party relationships: A comprehensive VRM program also covers fourth- and nth-party risks coming from your vendors' subcontractors and SaaS providers.
- Easier compliance: Having a VRM program helps you achieve compliance with frameworks like SOC 2 and ISO 27001 faster.
How to implement an effective VRM program: 7 standard steps
You can set up an extensive VRM program even with limited resources and time constraints. Here are the seven industry-standard steps to follow:
- Define your VRM strategy.
- Set up a centralized vendor inventory.
- Categorize vendors by risk and criticality.
- Perform security reviews and implement tier-specific controls.
- Define the cadence for vendor reassessments.
- Conduct access reviews at regular intervals.
- Review, report, and optimize.
Step 1: Define your VRM strategy
While many organizations chalk out their VRM strategy as they go, you should consider having a clear set of policies beforehand. The goal is to ensure its alignment with organizational risk culture and establish a framework for efficient problem-solving. Ideally, your strategy should cover areas like:
- Risk tolerance levels
- Key performance indicators (KPIs)
- Roles and responsibilities
- Reporting logistics
- Fourth-party risk mapping
You can start by establishing a risk rubric that should help you categorize vendors as critical-risk, high-risk, medium-risk, and low-risk and also define the expected resource allocation for monitoring each category. You’d then want to set the right security and performance expectations as a baseline for vetting new and existing vendors.
Depending on the size of your team, it can be a good idea to delineate responsibilities for risk assessment, mitigation, and oversight in your VRM strategy. For instance, if you have a smaller team, you should keep these responsibilities within two or three key members.
{{cta_webinar4="/cta-modules"}}
Step 2: Set up a centralized vendor inventory
Next, you should create a centralized vendor inventory to enhance your risk visibility. The objective is seamless data tracking that helps you understand each vendor’s risk profile and ensure your internal controls and mitigation strategies are targeted and effective. You can set up your inventory with any relevant data, including:
- Vendor details and key stakeholders
- Nature of services provided
- Access to critical systems or sensitive data
- Compliance status for relevant standards such as HIPAA or PCI-DSS
- Data protection contracts and SLAs
Your VRM program should also account for measures to update the inventory so that you have a trail of crucial vendor interactions and reassessments. If you’re looking to make the process efficient, consider using data automation or VRM software to consistently capture vendor information with minimal manual work.
Step 3: Categorize vendors by risk and criticality
Categorizing vendors by risk and criticality involves evaluating specific metrics, such as the sensitivity of the data shared, access to critical systems, and compliance status. You can use a risk assessment matrix to objectively score your vendors or assign them a risk tier based on the criteria specified in your VRM strategy. Here’s a sample of what the matrix could look like:
The idea behind this step is to help you determine which vendors are critical from a security risk perspective. If a vendor has the potential to materially impact organizational stability, you’ll invest more resources toward risk monitoring and mitigation.
Step 4: Perform security reviews and implement tier-specific controls
Conducting vendor security reviews is an inevitable part of any VRM program. The general idea is that it consumes massive resources—however, you can scale down the process depending on the time and budget available.
For example, if you want to onboard a vendor quickly, you can send them a standard security questionnaire and request documents like a SOC 2 report to see if a material risk is highlighted. You can use the results to determine if you need deeper due diligence on their day-to-day security practices.
Once the reviews are done, define your mitigation controls according to the vendor’s risk tier. For instance, you can do the following for critical or high-risk vendors:
- Add contractual clauses to specify security obligations, data protection measures, and compliance requirements.
- Define performance standards like uptime guarantee and response time for security incidents in your SLA (and specify penalties for non-compliance).
- Get updates on the vendor’s internal controls to address their third-party risks (so you can monitor your fourth- and nth-party risks seamlessly).
{{cta_withimage5="/cta-modules"}}
Step 5: Define the cadence for vendor reassessments
A solid VRM program should allow for timely revisions of vendor risk profiles, tiers, and controls. Establish a regular timeline or cadence to evaluate vendors based on factors like criticality, risk exposure, and industry standards.
For instance, critical or high-risk vendors may call for quarterly or monthly reassessments, while those on lower risk tiers can be reviewed semi-annually.
You can use your regular security questionnaires to conduct reassessments or assign a specific team for the audit. Many organizations also rely on vendor risk assessment templates or external consultants to standardize the process.
If a reassessment uncovers a vendor’s non-compliance with security requirements, you could specify corrective measures or contingency plans in your report to support decision-making for risk leaders. These measures could include choosing alternative vendors or establishing backup processes.
Step 6: Conduct access reviews at regular intervals
You need to perform user access reviews regularly to prevent unauthorized access to your systems and data. The goal is to avoid undesirable consequences such as data breaches and compliance violations.
It’s good practice to evaluate vendor access based on factors like data sensitivity, operational impact, and regulatory requirements. You should conduct reviews at least quarterly for critical vendors handling sensitive data or high-risk systems.
You should also double-check controls for offboarded vendors to ensure all access rights are promptly revoked.
Step 7: Review, report, and optimize
Finally, you need to regularly review and report on your VRM program to identify process gaps and enhance effectiveness. Consider gathering insights from incident reports and security metrics before updating policies and procedures to optimize the program.
You can also implement feedback loops with stakeholders within your VRM team for continuous improvement. This iterative approach requires your team to maintain detailed reports on the program’s inefficiencies or instances when it wasn’t responsive to new risks.
{{cta_testimonial5="/cta-modules"}}
Challenges to implementing a robust VRM program
Even after following the steps above, you can expect a few hiccups when implementing a VRM program, most notably:
- Time constraints: Performing timely vendor reviews and reassessments can be challenging due to the need to prioritize more pressing security responsibilities.
- Scalability issues: Maturing a VRM program can overwhelm security teams because onboarding more vendors increases the volume of due diligence and monitoring work.
The best way forward is to have a user-friendly VRM solution to make implementation processes seamless. Specifically, look for tools with automation capabilities and integrations that boost the efficiency and effectiveness of VRM programs at any scale.
Implement scalable VRM programs with Vanta
Vanta’s Vendor Risk Management solution is designed to help you implement an end-to-end VRM program with full control. Its AI and automation capabilities reduce time-consuming busywork, which leaves you with more time to focus on strategic security initiatives.
Leverage Vanta’s centralized dashboards to access and manage vendor information, compliance status, and risk scores in real time. The platform’s intuitive, data-rich interface, as well as built-in reports and guides, help you take informed actions with confidence.
Other key features include:
- Automated, standardized risk scoring based on predefined criteria
- Shadow IT discovery to keep track of unapproved SaaS vendors
- Predefined workflows to conduct security reviews
- Vanta AI to extract quick insights from security questionnaires and audit reports
Watch our free webinar to see Vanta in action. Or schedule a custom demo today.
{{cta_simple5="/cta-modules"}}
Running a VRM program
Implementing an effective VRM program: Key steps and challenges
Running a VRM program
According to a 2022 Ponemon Institute survey, 53% of respondents found managing vendor relationships complex, while 40% revealed they don’t have adequate resources to do so. The complexity can be attributed to organizations working with dozens of SaaS vendors today, which calls for a continuous oversight function to protect systems and data from malicious actors.
That’s why a robust vendor risk management (VRM) program has become a critical part of an organization's security and governance practices. It helps you approach vendor relationships through the lens of privacy and data security, as well as tailor risk management practices within available resources.
This guide will provide comprehensive insights into implementing an effective VRM program. We’ll cover:
- Meaning of a VRM program
- Steps to implement an effective VRM program
- Implementation challenges to expect
What is a vendor risk management program?
A vendor risk management program is typically an internally developed governance framework for identifying, assessing, and mitigating risks associated with third-party vendors, including financial, cybersecurity, and operational risks. This involves systematic and ongoing due diligence of vendors’ security and compliance practices, as well as overseeing your organization's third-party communication strategies.
The goal of any VRM program is to ensure proactive identification and management of vulnerabilities—both before onboarding and throughout the vendor lifecycle—that lead to incidents like security breaches and service disruptions. It enables predictability in operations and better tracking of vendor performance.
{{cta_withimage20="/cta-modules"}}
Benefits of an effective VRM program
Here are some game-changing benefits of implementing a solid VRM program:
- Better risk visibility across the board: A VRM program requires managing centralized risk dashboards to facilitate comprehensive reporting and risk-aware decision-making.
- Improved accountability of VRM tasks: The program defines roles and responsibilities across procurement, legal, compliance, IT, and finance teams, which makes VRM activities predictable.
- Defined expectations for vendor security standards: You get to outline clear vendor security requirements and performance benchmarks to foster reliable partnerships.
- Insights into fourth- and nth-party relationships: A comprehensive VRM program also covers fourth- and nth-party risks coming from your vendors' subcontractors and SaaS providers.
- Easier compliance: Having a VRM program helps you achieve compliance with frameworks like SOC 2 and ISO 27001 faster.
How to implement an effective VRM program: 7 standard steps
You can set up an extensive VRM program even with limited resources and time constraints. Here are the seven industry-standard steps to follow:
- Define your VRM strategy.
- Set up a centralized vendor inventory.
- Categorize vendors by risk and criticality.
- Perform security reviews and implement tier-specific controls.
- Define the cadence for vendor reassessments.
- Conduct access reviews at regular intervals.
- Review, report, and optimize.
Step 1: Define your VRM strategy
While many organizations chalk out their VRM strategy as they go, you should consider having a clear set of policies beforehand. The goal is to ensure its alignment with organizational risk culture and establish a framework for efficient problem-solving. Ideally, your strategy should cover areas like:
- Risk tolerance levels
- Key performance indicators (KPIs)
- Roles and responsibilities
- Reporting logistics
- Fourth-party risk mapping
You can start by establishing a risk rubric that should help you categorize vendors as critical-risk, high-risk, medium-risk, and low-risk and also define the expected resource allocation for monitoring each category. You’d then want to set the right security and performance expectations as a baseline for vetting new and existing vendors.
Depending on the size of your team, it can be a good idea to delineate responsibilities for risk assessment, mitigation, and oversight in your VRM strategy. For instance, if you have a smaller team, you should keep these responsibilities within two or three key members.
{{cta_webinar4="/cta-modules"}}
Step 2: Set up a centralized vendor inventory
Next, you should create a centralized vendor inventory to enhance your risk visibility. The objective is seamless data tracking that helps you understand each vendor’s risk profile and ensure your internal controls and mitigation strategies are targeted and effective. You can set up your inventory with any relevant data, including:
- Vendor details and key stakeholders
- Nature of services provided
- Access to critical systems or sensitive data
- Compliance status for relevant standards such as HIPAA or PCI-DSS
- Data protection contracts and SLAs
Your VRM program should also account for measures to update the inventory so that you have a trail of crucial vendor interactions and reassessments. If you’re looking to make the process efficient, consider using data automation or VRM software to consistently capture vendor information with minimal manual work.
Step 3: Categorize vendors by risk and criticality
Categorizing vendors by risk and criticality involves evaluating specific metrics, such as the sensitivity of the data shared, access to critical systems, and compliance status. You can use a risk assessment matrix to objectively score your vendors or assign them a risk tier based on the criteria specified in your VRM strategy. Here’s a sample of what the matrix could look like:
The idea behind this step is to help you determine which vendors are critical from a security risk perspective. If a vendor has the potential to materially impact organizational stability, you’ll invest more resources toward risk monitoring and mitigation.
Step 4: Perform security reviews and implement tier-specific controls
Conducting vendor security reviews is an inevitable part of any VRM program. The general idea is that it consumes massive resources—however, you can scale down the process depending on the time and budget available.
For example, if you want to onboard a vendor quickly, you can send them a standard security questionnaire and request documents like a SOC 2 report to see if a material risk is highlighted. You can use the results to determine if you need deeper due diligence on their day-to-day security practices.
Once the reviews are done, define your mitigation controls according to the vendor’s risk tier. For instance, you can do the following for critical or high-risk vendors:
- Add contractual clauses to specify security obligations, data protection measures, and compliance requirements.
- Define performance standards like uptime guarantee and response time for security incidents in your SLA (and specify penalties for non-compliance).
- Get updates on the vendor’s internal controls to address their third-party risks (so you can monitor your fourth- and nth-party risks seamlessly).
{{cta_withimage5="/cta-modules"}}
Step 5: Define the cadence for vendor reassessments
A solid VRM program should allow for timely revisions of vendor risk profiles, tiers, and controls. Establish a regular timeline or cadence to evaluate vendors based on factors like criticality, risk exposure, and industry standards.
For instance, critical or high-risk vendors may call for quarterly or monthly reassessments, while those on lower risk tiers can be reviewed semi-annually.
You can use your regular security questionnaires to conduct reassessments or assign a specific team for the audit. Many organizations also rely on vendor risk assessment templates or external consultants to standardize the process.
If a reassessment uncovers a vendor’s non-compliance with security requirements, you could specify corrective measures or contingency plans in your report to support decision-making for risk leaders. These measures could include choosing alternative vendors or establishing backup processes.
Step 6: Conduct access reviews at regular intervals
You need to perform user access reviews regularly to prevent unauthorized access to your systems and data. The goal is to avoid undesirable consequences such as data breaches and compliance violations.
It’s good practice to evaluate vendor access based on factors like data sensitivity, operational impact, and regulatory requirements. You should conduct reviews at least quarterly for critical vendors handling sensitive data or high-risk systems.
You should also double-check controls for offboarded vendors to ensure all access rights are promptly revoked.
Step 7: Review, report, and optimize
Finally, you need to regularly review and report on your VRM program to identify process gaps and enhance effectiveness. Consider gathering insights from incident reports and security metrics before updating policies and procedures to optimize the program.
You can also implement feedback loops with stakeholders within your VRM team for continuous improvement. This iterative approach requires your team to maintain detailed reports on the program’s inefficiencies or instances when it wasn’t responsive to new risks.
{{cta_testimonial5="/cta-modules"}}
Challenges to implementing a robust VRM program
Even after following the steps above, you can expect a few hiccups when implementing a VRM program, most notably:
- Time constraints: Performing timely vendor reviews and reassessments can be challenging due to the need to prioritize more pressing security responsibilities.
- Scalability issues: Maturing a VRM program can overwhelm security teams because onboarding more vendors increases the volume of due diligence and monitoring work.
The best way forward is to have a user-friendly VRM solution to make implementation processes seamless. Specifically, look for tools with automation capabilities and integrations that boost the efficiency and effectiveness of VRM programs at any scale.
Implement scalable VRM programs with Vanta
Vanta’s Vendor Risk Management solution is designed to help you implement an end-to-end VRM program with full control. Its AI and automation capabilities reduce time-consuming busywork, which leaves you with more time to focus on strategic security initiatives.
Leverage Vanta’s centralized dashboards to access and manage vendor information, compliance status, and risk scores in real time. The platform’s intuitive, data-rich interface, as well as built-in reports and guides, help you take informed actions with confidence.
Other key features include:
- Automated, standardized risk scoring based on predefined criteria
- Shadow IT discovery to keep track of unapproved SaaS vendors
- Predefined workflows to conduct security reviews
- Vanta AI to extract quick insights from security questionnaires and audit reports
Watch our free webinar to see Vanta in action. Or schedule a custom demo today.
{{cta_simple5="/cta-modules"}}
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