Vendor Risk Management
Vendor Risk Management - Archer IRM
Archer helps organizations with vendor risk management by enabling organizations to automate and streamline oversight of vendor relationships. See how Archer can help build your vendor risk program.
At one point in time or another, your organization will need products and services from third-party vendors, exposing the organization to more external threats and increasing the frequency and impact of risk events and poor performance.
Outsourcing business functions to third-party vendors is a sound business strategy that saves money and boosts operational efficiency. The vendors hired will have access to some critical information and essential data, which is why any organization outsourcing must constantly monitor its cybersecurity risk to limit threats. What’s more is that most organizations do not have adequate staff and available resources to manage third-party vendors. Without an accurate picture of your third-party ecosystem, third-party risks cannot be identified, assessed, evaluated, treated, and monitored consistently across your organization.
Vendor risk management is the process of monitoring, accessing, and managing risks from third-party vendors that provide products and services or have access to a company’s information.
Vendor risk management ensures that service providers and IT suppliers do not negatively impact business operations and performances.
Vendor risk management programs streamline oversight of vendor relationships and establish a common language, measurements, controls and processes to quickly understand, prioritize, and manage your risks.
Types of Vendor Risks
Below are the six different types of vendor risks you should be aware of when evaluating vendors:
Cybersecurity Risk: Cyber threats are becoming higher and more sophisticated every year, and it is imperative to monitor your vendor's cybersecurity posture. To know your vendor’s cybersecurity risk, you need to identify the maximum risk level your organization can rise to; then, you start accessing your vendor’s security performance. While on this, you can make adjustments where they are necessary.
Reputational Risk: This risk deals with how customers and potential customers view your organization. If your third-party experiences a data breach or has any negative opinion like inappropriate interactions, legal violations, etc., this could harm the organization’s standing and reputation.
Operational Risk: This risk occurs when third-party processes shut down. If the third-party faces any threat that causes it to shut down its services, it will interrupt your organization’s business functions.
Compliance Risk: This risk is also known as regulatory risk. It arises when third-parties violate the laws, rules, and regulations that your organization depends on conduct business. Non-compliance with these rules usually leads to a negative outcome. Every third-party vendor must follow the organization’s regulatory compliance.
Financial Risk: This risk arises when third-parties are unable to meet the fiscal performance requirements set by your organization. Vendors face two types of financial risks: excessive cost and lost revenue. Excessive costs can lead an organization into debts then bankruptcy if they are not attended to. Professional audit management is needed to ensure the vendor is spending in line with the amounts agreed in the contract. Lost revenue arises when the third-party vendors that directly impact your organization’s revenue-producing operations do not perform their duties right.
Strategic Risk: This risk comes up when your third-party vendors make decisions that are not in line with your organization’s strategic objectives and findings. Monitoring your third-party vendors is the best way to curb this risk because this risk, if left to grow, can lead to compliance and financial risks.
Types of Third-Party Vendors
A third-party vendor is anyone who provides services to your organizations even though they do not work therein your organization. The types of vendors include:
Service providers like janitors, consultants, cleaners, etc.
Suppliers and manufacturers.
Contractors.
Every external staff.
Steps to Follow When Picking a Vendor
Every organization has specific steps it follows before choosing a vendor, but here are the basic steps.
Identify and define your organization’s needs.
Create a vendor assessment for every aspiring vendor.
Search for vendors.
Send out bids to possible vendors.
Choose the vendors of your choice.
Draft up a contract and priority scale for all services.
Monitor vendor work ethics, relationships, and performances.
Terminate or renew the contract.
Benefits of Vendor Risk Management
Here are the benefits of an efficient vendor risk management program:
External and internal risks are mitigated.
It helps save costs.
It boosts operational resiliency and efficiency.
The quality of the organization’s services is not altered.
You can focus on core business operations.
Future risks are addressed with fewer resources in no time.
It helps improve the availability of your organization’s services.
Some vendors are professional in their fields, and outsourcing helps the organization save many funds because there is no need to hire a full-time staff.
Vendor risk management is paramount to businesses, and we at Archer can help you build your vendor risk management program.
To have an efficient VRM plan, you must know about GRC. Archer has experts that have all the knowledge on VRM, including a modern platform for managing risk like the saas grc tool, saas irm tool, etc., that can help in formulating the best integrated risk management process.
We are the people to call if you want your organization to operate at the most minimum risk achievable.
FAQs
What is VRM?
VRM stands for Vendor Risk Management. Vendor risk management is the process of monitoring, accessing, and managing the risks resulting from third-party vendors and the people that supply information technology services and products.
What are four categories of vendor risks?
Strategic risk
Financial risk
Operational risk
Compliance risk