As an organization grows and expands, its vendor portfolio becomes more extensive. Many organizations have to juggle thousands of vendors at a time, which only complicates their procurement workflows.
With each vendor you onboard, you must also take steps to identify and mitigate the risks they come with. This growing impact of vendors on an organization's risk profile calls for a systemized approach to vendor risk management (VRM).
In this guide, we’ll closely look into why vendor risk management is important for organizations today. You’ll also learn about the main challenges you might face while implementing VRM, as well as the key components of a successful VRM program.
The rising need for vendor risk management: Key trends
The business landscape has changed rapidly with technological advancements in the past decade. This has contributed to the increased need for comprehensive VRM. Let’s explore some key trends in this context:
- Rise in business process outsourcing: The business process outsourcing market is valued at $390 billion as of 2024 and is expected to reach $490 billion by 2029. This upward trend indicates that organizations will keep increasing the number of vendors they work with, which will further complicate their risk landscape.
- Increase in data breaches and related expenses: The average cost of breaches caused by vulnerabilities in third-party software was $4.55 million in 2022, up from $3.86 million in 2020. Organizations today must actively define measures to reduce vendor-related risks and decrease the likelihood of such losses.
- Regulatory demands: Regulations like GDPR and CCPA demand a firm grasp of third-party risks, as do voluntary standards you might want to comply with to increase stakeholder trust.
As business environments continue to evolve, effective VRM will stay relevant for years to come. The sooner you implement an end-to-end VRM program, the easier it will be to ensure uninterrupted operations in volatile business surroundings.
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Benefits of effective vendor risk management
Proactive organizations that maintain a systemized VRM program enjoy numerous benefits, such as:
- Enhanced data security: Data protection is among the key aspects of VRM, and it can be achieved through numerous practices, such as risk assessments and effective incident response plans.
- Improved brand image: Business stability is among the most desirable qualities stakeholders (including customers) expect from an organization. A VRM program lets you demonstrate stable supply chain logistics and internal operations, which significantly boosts your reputation.
- Proactive risk identification: VRM is all about increased visibility into vendor risks and preemptive action. It helps you uncover and combat vulnerabilities you might otherwise be unaware of.
- Viable business continuity planning: Operational disruptions are among the key consequences of unaddressed vendor risks. VRM helps you prevent them either by mitigating risks or by defining a contingency plan to tackle undesirable outcomes.
- Reduced cost centers due to improved efficiency: A VRM program clearly outlines your risk management workflows, which helps optimize your processes and tighten your budget.
- Streamlined due diligence and compliance workflows: VRM and regulatory compliance often overlap, so meeting the requirements of various standards should be easier with a well-defined program.
Unlocking these benefits may not always be easy—many risk teams end up facing several challenges during their VRM program implementation.
Common vendor risk management challenges
Outdated VRM programs are often weighed down by manual, repetitive, and redundant processes that make it difficult to keep up with a complex risk landscape, which is why organizations implementing it face recurring challenges, most notably:
- Poor visibility of the vendor network: Risk teams who rely on manual data collection and analysis processes often find it hard to visualize the complete risk landscape of vendor risks and vulnerabilities.
- Manual vendor evaluations: Manually conducted vendor evaluations also hinder your productivity. Keeping track of hundreds of vendor evaluations can burden risk teams and make scaling up challenging.
- Surface-level due diligence: VRM programs without in-depth due diligence processes may prevent you from understanding a vendor’s complete risk profile and alignment with your organization’s goals.
- Point-in-time vendor risk assessments: Vendor risk evolves with time, so infrequent assessments without real-time data can lead to outdated risk profiles, leaving room for risks to creep in.
- Resource misalignment and communication issues: Traditional VRM is often unstructured and poorly documented, which leads to resource wastage and communication silos in cross-functional teams.
The good news is that you can overcome the above issues with a more methodical, streamlined approach to VRM.
{{cta_webinar4="/cta-modules"}} | Webinar: Vendor risk management
Key elements of a successful vendor risk management program
An effective VRM program consists of the following four elements:
- Standardized vendor risk criteria
- Automated risk review process
- Centralized vendor inventory
- Ongoing monitoring system
1. Standardized vendor risk criteria
Your risk criteria should serve as a baseline for comparing every potential vendor. Defining a standard risk criteria makes it easy to identify the non-negotiables and disqualify unfit vendors. Here are some examples of specific criteria:
- Compliance with relevant standards and regulations
- Well-defined data security and privacy policies
- Financial and operational stability
- A due diligence mechanism to reduce fourth-party risk exposure
2. Automated risk review process
Manual risk assessments and reviews are resource and time-consuming, which is why you should adopt a capable VRM software solution to streamline them. You can configure your VRM system to account for known risks and score them based on various attributes like data types, business criticality, and integration access.
You can also use automated questionnaires and templates to streamline and standardize data collection as well as risk assessments.
{{cta_testimonial5="/cta-modules"}}
3. Centralized vendor inventory
A unified vendor inventory is necessary for streamlined monitoring of critical vendor data and risks. Your inventory should include the following data on each vendor:
- Basic information (name, industry, etc.)
- Business function impacted
- Risk score and profile
- Vendor risk tier
A vendor inventory is an essential element of your VRM program because it helps decision-makers visualize risks, prioritize, and take proactive action.
4. Ongoing monitoring system
You should implement comprehensive dashboards to replace point-in-time assessments with ongoing monitoring. Your dashboard should give you a high-level overview of your vendor risk portfolio and any reviews in progress for new and existing vendors.
Once you set up a dashboard, you can (and should) conduct regular re-assessments to account for new and unidentified risks.
Develop a highly automated VRM program with Vanta
Vanta is a trust management platform that helps teams of all sizes automate compliance, manage risk, and prove trust. Vanta's Vendor Risk Management solution is equipped with many features that simplify your risk workflows and support decision-making, such as:
- Automated security reviews with AI support
- Vendor inventory centralization
- Automated vendor discovery and onboarding
- Ongoing security review tracking
With Vanta, you get a live dashboard with trackable data on vendor status, risk profile, category, etc. The platform integrates with over 300 tools, including procurement-focused ones. It also lets you showcase your security posture to your stakeholders through a Trust Center.
Watch our webinar or schedule a custom demo to see VRM in action.
{{cta_simple5="/cta-modules"}}
Introduction to TPRM
Why is vendor risk management (VRM) important?
Introduction to TPRM
As an organization grows and expands, its vendor portfolio becomes more extensive. Many organizations have to juggle thousands of vendors at a time, which only complicates their procurement workflows.
With each vendor you onboard, you must also take steps to identify and mitigate the risks they come with. This growing impact of vendors on an organization's risk profile calls for a systemized approach to vendor risk management (VRM).
In this guide, we’ll closely look into why vendor risk management is important for organizations today. You’ll also learn about the main challenges you might face while implementing VRM, as well as the key components of a successful VRM program.
The rising need for vendor risk management: Key trends
The business landscape has changed rapidly with technological advancements in the past decade. This has contributed to the increased need for comprehensive VRM. Let’s explore some key trends in this context:
- Rise in business process outsourcing: The business process outsourcing market is valued at $390 billion as of 2024 and is expected to reach $490 billion by 2029. This upward trend indicates that organizations will keep increasing the number of vendors they work with, which will further complicate their risk landscape.
- Increase in data breaches and related expenses: The average cost of breaches caused by vulnerabilities in third-party software was $4.55 million in 2022, up from $3.86 million in 2020. Organizations today must actively define measures to reduce vendor-related risks and decrease the likelihood of such losses.
- Regulatory demands: Regulations like GDPR and CCPA demand a firm grasp of third-party risks, as do voluntary standards you might want to comply with to increase stakeholder trust.
As business environments continue to evolve, effective VRM will stay relevant for years to come. The sooner you implement an end-to-end VRM program, the easier it will be to ensure uninterrupted operations in volatile business surroundings.
{{cta_withimage20="/cta-modules"}}
Benefits of effective vendor risk management
Proactive organizations that maintain a systemized VRM program enjoy numerous benefits, such as:
- Enhanced data security: Data protection is among the key aspects of VRM, and it can be achieved through numerous practices, such as risk assessments and effective incident response plans.
- Improved brand image: Business stability is among the most desirable qualities stakeholders (including customers) expect from an organization. A VRM program lets you demonstrate stable supply chain logistics and internal operations, which significantly boosts your reputation.
- Proactive risk identification: VRM is all about increased visibility into vendor risks and preemptive action. It helps you uncover and combat vulnerabilities you might otherwise be unaware of.
- Viable business continuity planning: Operational disruptions are among the key consequences of unaddressed vendor risks. VRM helps you prevent them either by mitigating risks or by defining a contingency plan to tackle undesirable outcomes.
- Reduced cost centers due to improved efficiency: A VRM program clearly outlines your risk management workflows, which helps optimize your processes and tighten your budget.
- Streamlined due diligence and compliance workflows: VRM and regulatory compliance often overlap, so meeting the requirements of various standards should be easier with a well-defined program.
Unlocking these benefits may not always be easy—many risk teams end up facing several challenges during their VRM program implementation.
Common vendor risk management challenges
Outdated VRM programs are often weighed down by manual, repetitive, and redundant processes that make it difficult to keep up with a complex risk landscape, which is why organizations implementing it face recurring challenges, most notably:
- Poor visibility of the vendor network: Risk teams who rely on manual data collection and analysis processes often find it hard to visualize the complete risk landscape of vendor risks and vulnerabilities.
- Manual vendor evaluations: Manually conducted vendor evaluations also hinder your productivity. Keeping track of hundreds of vendor evaluations can burden risk teams and make scaling up challenging.
- Surface-level due diligence: VRM programs without in-depth due diligence processes may prevent you from understanding a vendor’s complete risk profile and alignment with your organization’s goals.
- Point-in-time vendor risk assessments: Vendor risk evolves with time, so infrequent assessments without real-time data can lead to outdated risk profiles, leaving room for risks to creep in.
- Resource misalignment and communication issues: Traditional VRM is often unstructured and poorly documented, which leads to resource wastage and communication silos in cross-functional teams.
The good news is that you can overcome the above issues with a more methodical, streamlined approach to VRM.
{{cta_webinar4="/cta-modules"}} | Webinar: Vendor risk management
Key elements of a successful vendor risk management program
An effective VRM program consists of the following four elements:
- Standardized vendor risk criteria
- Automated risk review process
- Centralized vendor inventory
- Ongoing monitoring system
1. Standardized vendor risk criteria
Your risk criteria should serve as a baseline for comparing every potential vendor. Defining a standard risk criteria makes it easy to identify the non-negotiables and disqualify unfit vendors. Here are some examples of specific criteria:
- Compliance with relevant standards and regulations
- Well-defined data security and privacy policies
- Financial and operational stability
- A due diligence mechanism to reduce fourth-party risk exposure
2. Automated risk review process
Manual risk assessments and reviews are resource and time-consuming, which is why you should adopt a capable VRM software solution to streamline them. You can configure your VRM system to account for known risks and score them based on various attributes like data types, business criticality, and integration access.
You can also use automated questionnaires and templates to streamline and standardize data collection as well as risk assessments.
{{cta_testimonial5="/cta-modules"}}
3. Centralized vendor inventory
A unified vendor inventory is necessary for streamlined monitoring of critical vendor data and risks. Your inventory should include the following data on each vendor:
- Basic information (name, industry, etc.)
- Business function impacted
- Risk score and profile
- Vendor risk tier
A vendor inventory is an essential element of your VRM program because it helps decision-makers visualize risks, prioritize, and take proactive action.
4. Ongoing monitoring system
You should implement comprehensive dashboards to replace point-in-time assessments with ongoing monitoring. Your dashboard should give you a high-level overview of your vendor risk portfolio and any reviews in progress for new and existing vendors.
Once you set up a dashboard, you can (and should) conduct regular re-assessments to account for new and unidentified risks.
Develop a highly automated VRM program with Vanta
Vanta is a trust management platform that helps teams of all sizes automate compliance, manage risk, and prove trust. Vanta's Vendor Risk Management solution is equipped with many features that simplify your risk workflows and support decision-making, such as:
- Automated security reviews with AI support
- Vendor inventory centralization
- Automated vendor discovery and onboarding
- Ongoing security review tracking
With Vanta, you get a live dashboard with trackable data on vendor status, risk profile, category, etc. The platform integrates with over 300 tools, including procurement-focused ones. It also lets you showcase your security posture to your stakeholders through a Trust Center.
Watch our webinar or schedule a custom demo to see VRM in action.
{{cta_simple5="/cta-modules"}}
Explore more TPRM articles
Introduction to TPRM
Vendor lifecycle management
Vendor risk assessment
Running a VRM program
Regulatory compliance and industry standards
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