A Vendor Risk Management (VRM) program helps companies identify, assess, and mitigate the risks associated with their third-party vendors. The process of implementing a VRM program can be complex, and it largely depends on the size and scope of your organization’s vendor management needs. However, by following a structured methodology, businesses can effectively manage vendor risks and ensure operational resilience. This guide outlines the key steps involved in setting up a VRM program, providing examples and insights to assist organizations in navigating this crucial process.
Step 1: Select the Right Software
The foundation of an effective VRM program lies in selecting software that aligns with your organizational needs and use cases. It’s essential to conduct thorough research to understand the capabilities of different VRM solutions and how they can cater to your specific requirements. For instance, a company operating in a highly regulated industry might prioritize software with robust compliance tracking features.
Step 2: Train Your Team
Once you’ve selected a suitable VRM software, the next step involves training your team on its key functionalities. This step is crucial for ensuring that your team can leverage the software to its full potential, aligning with your organizational goals. Training sessions can cover how to navigate the software, input data, and interpret results, ensuring your team is well-equipped to manage vendor risks effectively.
Step 3: Build Your Vendor Inventory
Creating a comprehensive inventory of your vendors is the next critical step. If you already have a list, import it into your VRM software and configure the specific attributes you wish to track for each vendor. For organizations starting from scratch, vendor discovery assessments and self-service portals can be invaluable tools for identifying and onboarding new vendors.
Step 4: Classify Your Vendors
With potentially hundreds or thousands of vendors, it’s vital to classify them based on risk and criticality. Most VRM programs classify vendors into three tiers:
- Tier 3: Low risk, low criticality
- Tier 2: Medium risk, medium criticality
- Tier 1: High risk, high criticality
This classification helps focus your risk management efforts where they are most needed, ensuring efficient use of resources.
Step 5: Choose Your Assessment Framework
Selecting an assessment framework is a key decision in the VRM process. There’s a variety of standards and frameworks available, such as ISO 27001, NIST SP 800-53, and HITRUST for healthcare. The choice of framework should align with your industry’s requirements and your company’s specific needs.
Step 6: Develop Your Assessment Methodology
Developing a robust assessment methodology involves deciding when vendor assessments are needed, who launches and reviews these assessments, and how to validate the responses. For low-risk vendors, self-attestations might suffice, while higher-risk vendors might require more rigorous onsite or remote audits. This step ensures that vendor assessments are both thorough and efficient.
Step 7: Define Your Risk Methodology and Control Framework
Every VRM program needs a clear methodology for calculating risks. Many organizations use a risk matrix based on impact and probability, although alternative methodologies can be as simple as categorizing risks as high, medium, or low. This methodology should be defined internally, in alignment with your chosen control framework.
Step 8: Create Automation Workflows & Triggers
Automation plays a crucial role in streamlining VRM workflows. By identifying repeatable processes, such as onboarding new vendors or triggering reassessments, and automating these tasks, organizations can significantly enhance efficiency and reduce manual workloads.
Step 9: Build Your Reports & Dashboards
Reporting is a critical component of VRM, providing insights into vendor risks, the status of assessments, and contract expirations. Determining what metrics and information are most valuable to your organization and how they can be best displayed in dashboards is key to maintaining oversight of your VRM program.
Step 10: Refine Your Program Over Time
VRM is not a set-it-and-forget-it discipline. As new threats emerge and business needs evolve, it’s important to regularly review and refine your VRM program. This ongoing process ensures that your VRM efforts remain aligned with your organizational objectives and the changing risk landscape.
Implementing a VRM program is a significant undertaking that can greatly enhance an organization’s risk posture. By following these steps and adapting them to your specific context, you can establish a robust VRM program that protects your organization from the risks associated with third-party vendors.
