Risk scoring is a crucial component of an effective vendor risk assessment (VRA) process. It systematically demonstrates vendor-related threats and their impact on your risk landscape. Risk scores are also used to plan thorough mitigation strategies and monitor vendor performance closely to ensure secure and productive working relationships.
This guide will explain why every organization should leverage risk scoring to strengthen their VRA workflows. We’ll then look into what constitutes vendor risk scores and how to score each vendor’s risk profile in three simple steps, as well as go over some best practices you can follow to increase the effectiveness and accuracy of your scoring process.
The importance of calculating vendor risk scores
Regardless of your industry, the vendor risk landscape is complex and diverse, making it difficult to understand the magnitude of associated threats with enough accuracy. Vague overviews and weak estimates of vendors’ risk profiles aren’t enough to support informed decision-making, and that’s where the need to quantify ambiguous risks emerges.
Vendor risk scoring involves using different tools and techniques to add comparable risk values for vendors, making it easier to justify procurement and security decisions. It supports data-driven vendor selection and termination, as well as optimized resource usage (e.g., you can invest more resources toward monitoring high-risk vendors).
Because of these benefits, most successful organizations embed risk-scoring practices in their vendor risk management (VRM) program.
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What constitutes a vendor risk score?
You can choose from a variety of risk-scoring models depending on your industry’s best practices and type of vendor profiles. What matters is having a comparable base for evaluating vendors within a common risk environment.
In general, a vendor risk score is a composite figure derived after assigning scores to all different risk scoring factors in a vendor’s profile, the most notable of which are shown in the following table:
How to score vendor risks: A standard three-step process
There are different ways to score vendor risks, depending on how much ground you want to cover—here are some examples of variations:
- Scoring vendors based on only cybersecurity risks
- Giving separate weights to different risk factors
- Using different scoring models for different vendors
For clarity’s sake, we’ll use the standard two-dimensional likelihood/impact model to demonstrate the scoring process, which involves the following three steps:
- Create a list of all vendor risk exposure points.
- Determine the likelihood and impact of each risk.
- Calculate the final risk score.
Step 1: Create a list of all vendor risk exposure points
Before you start calculating risks, analyze a vendor’s risk profile to pinpoint the different risks you want to score. You should ideally create a complete list of risks a vendor might expose you to, which typically fall under the following categories:
- Cybersecurity risks
- Compliance risks
- Reputational risks
- Financial risks
- Operational risks
- Strategic risks
You can adopt a systematic approach to gathering data for each risk type. For example, you can use:
- Security questionnaires for cybersecurity risks
- Vendor interviews for operational and strategic risks
- Due diligence for financial, compliance, and reputational risks
Ideally, you’ll also want to create a risk rubric to guide how your team should assess vendors on areas like business criticality, integration and communication access, as well as types of data processed.
{{cta_webinar4="/cta-modules"}} |Webinar: Vendor risk management
Step 2: Determine the likelihood and impact of each risk
In this step, we’ll use the data gathered on each risk to assign a score (determined by you or your risk team) for the following two dimensions:
- Likelihood of occurrence
- Impact on your organization
To give you early context, the score of both components will be multiplied in the next step to achieve the composite risk score.
Calculating values for these components can be challenging as not all risks can be quantified. For a unified approach that still ensures accuracy, you can use different descriptive scales to outline the likelihood and impact of each risk. You should then assign numerical values to each component for easier calculation.
The following table includes an example of scales with corresponding numerical values:
The above is an example of a basic three-level scale, but you can go as granular as you need. The more levels you have, the more precisely you can determine a risk’s likelihood and impact. For instance, if we were to turn the likelihood scale to a five-level one, we’d have the following levels and numerical values:
- Highly unlikely (1)
- Unlikely (2)
- Possible (3)
- Likely (4)
- Highly likely (5)
Step 3: Calculate the final risk score
The first two steps of the scoring process can be challenging due to all the data you need to gather and analyze to draw risk-driven conclusions, as well as the evaluations you should perform. Once they’re done—all you need to do is apply a simple formula:
Risk score = Likelihood x Impact
Let’s say Risk A, with a likelihood score of 2, would have a catastrophic impact on your operations, suitable for a score of 3. So, the final risk score would be 2 x 3, i.e., 6. Now, you need to define the range you’ll use to categorize risks and, by extension, vendors.
The range primarily depends on your risk appetite, but for simplicity’s sake, let’s assume it as:
- Low: 1–3
- Medium: 4–5
- High: 6–9
In the above example, a risk with a final score of 6 would be classified as high, which you’ll use when deciding whether to proceed with a vendor or implement stronger controls. Much like the individual scales for likelihood and impact, the final range can have as many layers as you want, depending on how much time and resources you can invest toward scoring processes.
{{cta_withimage5="/cta-modules"}}
Vendor risk scoring best practices
You can follow these best practices to calculate risk scores more effectively:
- Define your risk criteria precisely: Your risk criteria need to be clear as they determine the acceptable risk level and impact the final scoring range.
- Use weights if needed: You can add weights to the likelihood and impact of a risk that you value more for decision-making. For example, you can give a risk’s financial impact a weight of 2, which will double its value in the scoring formula.
- Consider the applicable regulatory and compliance requirements: Established risk management frameworks might have a specific approach to risk calculation, so use their guidelines if they’re applicable to your organization.
- Monitor and reassess risks: The initial risk score is likely to change over time, so conduct regular reassessments to update a vendor’s risk profile.
- Use risk management platforms to streamline the process: Vendor risk scoring is best supported by VRM software that eliminates manual assessments and calculations.
Automate vendor risk scoring and assessments with Vanta
Vanta offers a Vendor Risk Management solution that can support your VRM initiatives at any scale. It offers built-in AI and automation, which reduces the need for labor-intensive manual evaluations and risk scoring.
For instance, Vanta auto-scores inherent vendor risks based on standard industry practices. It does so using predefined risk attributes, which you can customize to your preferences. The controls are intuitive and easy to learn—watch this webinar to see how the solution works.
The VRM platform comes with additional useful features, including:
- Centralized vendor inventory management capabilities
- A comprehensive dashboard displaying:
- Status of security reviews
- Vendors managed
- Discovered vendors
- Security review tracking
- Vanta AI to review security documents efficiently
If you want to learn more about Vanta, schedule a custom demo today.
{{cta_simple5="/cta-modules"}}
Vendor risk assessment
How to determine vendor risk scores: A practical guide
Vendor risk assessment
Risk scoring is a crucial component of an effective vendor risk assessment (VRA) process. It systematically demonstrates vendor-related threats and their impact on your risk landscape. Risk scores are also used to plan thorough mitigation strategies and monitor vendor performance closely to ensure secure and productive working relationships.
This guide will explain why every organization should leverage risk scoring to strengthen their VRA workflows. We’ll then look into what constitutes vendor risk scores and how to score each vendor’s risk profile in three simple steps, as well as go over some best practices you can follow to increase the effectiveness and accuracy of your scoring process.
The importance of calculating vendor risk scores
Regardless of your industry, the vendor risk landscape is complex and diverse, making it difficult to understand the magnitude of associated threats with enough accuracy. Vague overviews and weak estimates of vendors’ risk profiles aren’t enough to support informed decision-making, and that’s where the need to quantify ambiguous risks emerges.
Vendor risk scoring involves using different tools and techniques to add comparable risk values for vendors, making it easier to justify procurement and security decisions. It supports data-driven vendor selection and termination, as well as optimized resource usage (e.g., you can invest more resources toward monitoring high-risk vendors).
Because of these benefits, most successful organizations embed risk-scoring practices in their vendor risk management (VRM) program.
{{cta_withimage20="/cta-modules"}}
What constitutes a vendor risk score?
You can choose from a variety of risk-scoring models depending on your industry’s best practices and type of vendor profiles. What matters is having a comparable base for evaluating vendors within a common risk environment.
In general, a vendor risk score is a composite figure derived after assigning scores to all different risk scoring factors in a vendor’s profile, the most notable of which are shown in the following table:
How to score vendor risks: A standard three-step process
There are different ways to score vendor risks, depending on how much ground you want to cover—here are some examples of variations:
- Scoring vendors based on only cybersecurity risks
- Giving separate weights to different risk factors
- Using different scoring models for different vendors
For clarity’s sake, we’ll use the standard two-dimensional likelihood/impact model to demonstrate the scoring process, which involves the following three steps:
- Create a list of all vendor risk exposure points.
- Determine the likelihood and impact of each risk.
- Calculate the final risk score.
Step 1: Create a list of all vendor risk exposure points
Before you start calculating risks, analyze a vendor’s risk profile to pinpoint the different risks you want to score. You should ideally create a complete list of risks a vendor might expose you to, which typically fall under the following categories:
- Cybersecurity risks
- Compliance risks
- Reputational risks
- Financial risks
- Operational risks
- Strategic risks
You can adopt a systematic approach to gathering data for each risk type. For example, you can use:
- Security questionnaires for cybersecurity risks
- Vendor interviews for operational and strategic risks
- Due diligence for financial, compliance, and reputational risks
Ideally, you’ll also want to create a risk rubric to guide how your team should assess vendors on areas like business criticality, integration and communication access, as well as types of data processed.
{{cta_webinar4="/cta-modules"}} |Webinar: Vendor risk management
Step 2: Determine the likelihood and impact of each risk
In this step, we’ll use the data gathered on each risk to assign a score (determined by you or your risk team) for the following two dimensions:
- Likelihood of occurrence
- Impact on your organization
To give you early context, the score of both components will be multiplied in the next step to achieve the composite risk score.
Calculating values for these components can be challenging as not all risks can be quantified. For a unified approach that still ensures accuracy, you can use different descriptive scales to outline the likelihood and impact of each risk. You should then assign numerical values to each component for easier calculation.
The following table includes an example of scales with corresponding numerical values:
The above is an example of a basic three-level scale, but you can go as granular as you need. The more levels you have, the more precisely you can determine a risk’s likelihood and impact. For instance, if we were to turn the likelihood scale to a five-level one, we’d have the following levels and numerical values:
- Highly unlikely (1)
- Unlikely (2)
- Possible (3)
- Likely (4)
- Highly likely (5)
Step 3: Calculate the final risk score
The first two steps of the scoring process can be challenging due to all the data you need to gather and analyze to draw risk-driven conclusions, as well as the evaluations you should perform. Once they’re done—all you need to do is apply a simple formula:
Risk score = Likelihood x Impact
Let’s say Risk A, with a likelihood score of 2, would have a catastrophic impact on your operations, suitable for a score of 3. So, the final risk score would be 2 x 3, i.e., 6. Now, you need to define the range you’ll use to categorize risks and, by extension, vendors.
The range primarily depends on your risk appetite, but for simplicity’s sake, let’s assume it as:
- Low: 1–3
- Medium: 4–5
- High: 6–9
In the above example, a risk with a final score of 6 would be classified as high, which you’ll use when deciding whether to proceed with a vendor or implement stronger controls. Much like the individual scales for likelihood and impact, the final range can have as many layers as you want, depending on how much time and resources you can invest toward scoring processes.
{{cta_withimage5="/cta-modules"}}
Vendor risk scoring best practices
You can follow these best practices to calculate risk scores more effectively:
- Define your risk criteria precisely: Your risk criteria need to be clear as they determine the acceptable risk level and impact the final scoring range.
- Use weights if needed: You can add weights to the likelihood and impact of a risk that you value more for decision-making. For example, you can give a risk’s financial impact a weight of 2, which will double its value in the scoring formula.
- Consider the applicable regulatory and compliance requirements: Established risk management frameworks might have a specific approach to risk calculation, so use their guidelines if they’re applicable to your organization.
- Monitor and reassess risks: The initial risk score is likely to change over time, so conduct regular reassessments to update a vendor’s risk profile.
- Use risk management platforms to streamline the process: Vendor risk scoring is best supported by VRM software that eliminates manual assessments and calculations.
Automate vendor risk scoring and assessments with Vanta
Vanta offers a Vendor Risk Management solution that can support your VRM initiatives at any scale. It offers built-in AI and automation, which reduces the need for labor-intensive manual evaluations and risk scoring.
For instance, Vanta auto-scores inherent vendor risks based on standard industry practices. It does so using predefined risk attributes, which you can customize to your preferences. The controls are intuitive and easy to learn—watch this webinar to see how the solution works.
The VRM platform comes with additional useful features, including:
- Centralized vendor inventory management capabilities
- A comprehensive dashboard displaying:
- Status of security reviews
- Vendors managed
- Discovered vendors
- Security review tracking
- Vanta AI to review security documents efficiently
If you want to learn more about Vanta, schedule a custom demo today.
{{cta_simple5="/cta-modules"}}
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