Vendor Risk Management: Benefits, Process, Software, and Tools

What Is Vendor Risk Management

Vendor risk management (VRM) is a process that helps businesses manage the risks associated with their vendors. This includes assessing how well their vendors are performing, identifying potential problems early, and taking appropriate action to mitigate any damage.

Why Is Vendor Risk Management Important?

The need for VRM has significantly increased in recent years as organizations look to outsource their non-core functions. For example, for an organization focused on software development, it may make business sense to outsource functions like human resources (HR), customer relationship management (CRM), etc. so that they can focus on their core business. However, sharing information with vendors increases the attack surface where cyberattackers can target to steal sensitive data. Considering that organizations do not have as much visibility into vendor processes as much as their own, vendor risk management becomes critical to manage their own risks.

What Are the Benefits of Vendor Risk Management?

There are a number of benefits that come from implementing vendor risk management practices, including improved transparency between organizations and their vendors, improved security posture, reduced fraud rates, and more streamlined communication processes. When looking for the best tools and software options available for carrying out vendor risk management efforts; the most important thing is to choose those that best suit the customer organization’s needs.

The benefits of VRM include:

• Reduced risk of fraud or abuse by the organization’s vendors, increased security and stability in business relationships
• Improved communication between the organization and their vendor
• Better understanding of the organization’s customer base by the vendor
• Easier identification of issues early on in a relationship so they don’t become bigger problems down the road
• Reduced financial losses caused by supplier malfunctions or fraud

Vendor Risk Management Lifecycle: 4 Tips

Knowing when and how to build a strong VRM program can be complicated. Below are 4 tips to consider when implementing the entire vendor risk management lifecycle.
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1: Determine which risks you care about: The first step in risk management is to determine which risks you care about. There are three main types of risks that businesses should focus on: financial, legal, and operational. Financial risks include potential losses due to fraud or theft. Legal risks involve potential lawsuits or other legal proceedings. Operational risks concern problems with your operations such as faulty products or lost revenue due to traffic congestion. Once you’ve identified the types of risks that are important to your business, you need to assess how likely each risk is to occur (risk likelihood) and calculate the potential cost of each risk (risk impact). 

2: Automate your vendor assessment process: By automating as much of the process as possible, businesses can reduce the time and effort required to manage their vendor risk. If you automate vendor risk management, you may identify potential problems early on and make necessary adjustments before they become serious issues.

3: Make responding to assessments easy for your vendors: The vendor assessment process includes developing assessment questionnaires that vendors are required to respond to. Considering that vendors often receive many such questionnaires from their customers, it is important to make the process easy for their convenience. You can do so by leveraging standard frameworks, level-setting expectations, and mandating realistic timelines.

4: Monitor vendors for reassessment: The vendor risk management lifecycle begins with identification – when businesses realize that they may need to reassess their relationship with a particular vendor. After identification, the next step is assessment – in which businesses attempt to quantify the risks associated with their current relationship. Finally, decision-making follows, in which businesses make a decision about how to proceed based on the risks assessed at each stage. This process should be repeated as needed to reassess vendors to help ensure organizations can make informed decisions about their relationships with vendors. Monitoring your vendors throughout the lifecycle can help identify potential issues early and take action to mitigate them before they become larger problems.

What Software and Tools Are Available for Vendor Risk Management

VRM software and tools allow you to track vendor performance, identify potential problems early, and take action if necessary.

There are many different vendor risk management tools available on the market today. They vary in terms of cost, features, and functionality. Some popular options include CRMs (customer relationship management), ERP (enterprise resource planning), SaaS (software as a service), and LMSs (learning management systems). Vendor risk management software can help you keep track of your vendor relationships by tracking performance data, identifying potential problems early on, and taking appropriate action if needed. This can help reduce the risk of ending up with bad contracts or lost revenue due to failed vendor deliveries. VRM software also allows you to collaborate easily with other departments within your business so that everyone is aware of any issues related to your vendors. This helps avoid costly disputes or misunderstandings down the line. Depending on what type of VRM software you choose, it may also offer training modules designed to help employees understand how to use it properly. This will ensure that all parties involved are working together effectively and avoiding potential conflicts.

Vendor risk management software is an essential tool for businesses of all sizes, and it can help you reduce the risk associated with your vendors.

How Riscosity Helps Companies Manage Vendor Risk

Third-party components can be easily installed to access a vast array of services – reliance on third parties for software development will continue to accelerate dramatically. With Riscosity, teams gain true third-party data observability, visibility, and governance required to quickly develop, confidently deploy, and securely manage the data being sent to vendors. By implementing Riscosity’s platform, you can be confident that not only do you have an accurate view of all third-party data transfers, but you also have complete control over them. Riscosity gives users the ability to block, redirect, or redact data transfers if they violate internal policies. Ready to implement a VRM program? We’d love to talk to you - find a time that works for you here.