Vendor Risk Management-A Deep dive: Vendor Risk Management or VRM is the process of vetting new and existing vendors by performing risk assessments, in order to ensure that they do not create unacceptable potential for risk or business disruption.
How different is VRM from TPRM?
Third Party Risk Management or TPRM is the continuous process of identifying, analyzing, and controlling risks presented by third parties to an organization, its data, operations and finances. A TPRM program allows organizations to control the risk that arises from outsourcing services and products, by shedding light into areas of potential business risk. TPRM is a broader discipline that covers VRM and other kinds of Risk Management.
Goal and Scope of Vendor Risk Management:
The ultimate goal of VRM is to ensure that the use of service providers and IT suppliers does not create an unacceptable potential for business disruption or a negative impact on business performance. VRM gives companies visibility into the vendors they work with, how they work with them, and which vendors have implemented sufficient security controls. This is accomplished with dedicated tools that assist in assessing, monitoring, and managing risk exposure from third party vendors that have access to enterprise information.
How to Get Started with Vendor Risk Management:
At a fundamental level for one’s business, one should always take inventory of third party your vendors and the risks they could present to the organization. The goal of a VRM program is to make sure the business partners are keeping their (and company) data secure and are following best practices in line with the company security standards.
There are two main parts of a vendor risk management program:
1. Assessing entity vendors before engaging with them to make sure they comply with your expected security, confidentiality, and privacy requirements.
2. Conducting continuous reassessments of entity vendors to make sure they are keeping their promises regarding security compliance.
Dividing the third-party vendors into “new” and “existing” can be your company starting point when building a scalable vendor management program. You can put in place a due diligence and third-party risk assessment workflow for new vendors, and then go on to address existing third parties through the new process.
When a contract comes up for renewal, you can address some of the contractual aspects that may not have initially been addressed prior to having a data security appendix for the contract in place.
VRM is a continuous process below are the steps of action: The steps in the vendor management process may differ from company to company. They are based on your internal processes and the approach you choose. The Companies can customize the VRM process as per the organization’s requirements.
Groundwork assessment: Before selecting vendors, assess the company’s needs, budget constraints, and organizational culture. Identify gaps and areas of improvement to establish a foundation for vendor selection.
Vendor prospecting: Develop a diverse list of potential vendors by conducting market research, consulting industry-specific networks, and leveraging referrals from trusted sources. This process opens up several options for your organization.
Vendor qualification: Evaluate prospective vendors based on industry experience, quality of products or services, scalability, and their compliance standards. You can implement a standardized scoring system to perform objective comparisons.
RFI and RFP: Create customized Request for Information (RFI) and Request for Proposal (RFP) documents to collect essential information and proposals from shortlisted vendors. These documents should be comprehensive, clear, and structured for efficient comparison.
Proposal evaluation and contract negotiation: Review proposals using a predefined set of criteria, and negotiate to arrive at mutually beneficial terms. Consider incorporating performance-based incentives and establishing key performance indicators (KPIs) during this stage.
Vendor onboarding: Once a vendor is selected, develop an onboarding plan to ensure a smooth transition. It includes signing contracts, setting up payment methods, providing necessary documentation, and establishing communication channels.
Vendor integration: Seamlessly integrate the vendor into your organization’s processes and systems. You should train staff, share data, implement software, and decide on project timelines and deliverables.
Performance monitoring: Continuously evaluate vendor performance using KPIs, customer feedback, and other relevant metrics. Schedule regular check-ins and meetings to discuss progress, address issues, and identify improvement areas.
Vendor development: Support the growth and development of vendors by offering constructive feedback, sharing industry insights, and recommending resources or training opportunities. This will contribute to a stronger, more sustainable vendor relationship.
Relationship Nurturing: Maintain open lines of communication with vendors and foster a culture of collaboration. Engage in regular networking opportunities, celebrate shared successes, and address challenges as a unified team.
Vendor payments: Ensure your vendors are paid on time without delays and clear their invoices based on pre-decided timelines. If vendors have to wait for several days or consistently follow up, it may impact your relationship with them.
Vendor review and rotation: Periodically reassess vendor relationships to ensure that they continue to
meet your organization’s evolving needs. Consider rotating vendors, if necessary, to stimulate competition and drive innovation.