How to introduce vendor risk management in your company in 8 steps
Companies need partners and solutions to improve their processes, be more competitive and efficient, and allow them to focus on core activities.
Suppliers, subcontractors and third parties are a regular part of business, but these relationships must be managed effectively, in particular to manage any associated risks.
The best way to do this is with a vendor risk management framework. The simplest vendor risk management tool is a supplier list that is up to date and reliable, and which is used in key decisions.
Here are 8 steps to Implement vendor risk management for your organization:
- Step 1: Create a list of vendors
- Step 2: Compile a list of relevant services
- Step 3: Connect vendors to services
- Step 4: Identify which vendors need Vendor Risk Profiles
- Step 5: Create a list of Vendor Risk Profiles
- Step 6: Assess risks, and understand which vendors comply to your standards
- Step 7: Manage findings and establish corrective actions
- Step 8: Embed the process at your organization
Step 1: Create a list of vendors
This is a simple procedure, but it’s important to list all your suppliers. Arrange them in a table with company names, addresses, names and email addresses of key contacts. It’s important to adopt a standard format.
Step 2: Compile a list of relevant services
What external services does your company use? The list should include every service your organization receives from third parties. Then rank the importance of the services for your organization. We recommend you use a numerical scale or a set of quality descriptors for this rating.
Step 3: Connect vendors to services
Link suppliers to the services they provide. These links will allow you to identify suppliers that need particular attention – for example, the ones that access important data.
Consider that one supplier may provide multiple services. Perhaps you’ll find a supplier with no assigned services, or some services with no assigned suppliers.
If so, questions arise:
- Is your list of vendors complete?
- Is your list of services complete?
- Does your organization need suppliers with no assigned services?
Step 4: Identify which vendors need Vendor Risk Profiles
Vendors that pose a minimal risk may not need a vendor risk profile.
The risk profiles created for all other suppliers will allow you to clearly see how important their services and products are to your company. This will give you a valuable perspective of relationships and determine what type of access (physical, IT, data) to grant to each supplier.
Step 5: Create a list of Vendor Risk Profiles
For each Vendor that needs a risk profile, use two criteria to assesses them:
- What risks does the vendor present? Look at their organizational maturity, their day-to-day business operations, their reputational and financial health.
- What risks does their service present? Look at the quality of the service they deliver and how central the service is to your own organization’s success.
The following risk criteria can be helpful to build Risk Profiles. You can use the knowledge available in your organization, and enrich the data with additional sources of information such as D&B.
- Compliance and regulatory risks related to the service
- Customer and financial impact
- Criticality level of the service delivered by the vendor for your organization
- Financial transactions processed
- Personal and sensitive data involved
- Maturity of the service delivered
- Maturity of service
- Location of the vendor
- Known security incidents
- Size of the company
- Financial standings
- Performance history
It is important to understand that the risk profile created for corporate vendors can change over time. This is not a one-time activity. It is an ongoing process that should be repeated at least annually.
Step 6: Assess risks, and understand which vendors comply to your standards
You should ask all your vendors to conduct a self-assessment. You can create a simple risk assessment questionnaire template using a spreadsheet or a dedicated online survey system. Be aware that you are handling sensitive data so ensure the questionnaires are secure.
Step 7: Manage findings and establish corrective actions
Once the necessary information has been gathered, it’s time to run the evaluation process, and determine any required corrective actions. Assign the corrective actions to the appropriate responsible people. Note that corrective actions can apply to your organization as well as to individual vendors.
Step 8: Embed the process at your organization
Establish a probability and impact matrix that combines each risk probability with the level of impact to your organization. Make sure you create a schedule to regularly review and update the matrix. This is an important step in order to track, manage and respond to risks as appropriate, on an ongoing basis.
Enterprise risk management requires a systemic and well-organized approach of working with vendors. With the increasing complexity of business environment and dynamic economy, managing vendor risks can be a demanding challenge. Using a dedicated risk management tool provided by the best GRC software for your organization can be crucial to the effectiveness of the process. This is especially important for any organization implementing an integrated risk management approach.