Top 5 worst practices for Vendor Risk Management
We all understand what the ideal is for performance from your vendor risk management provider: you want a partner that efficiently and affordably ensures your service providers and IT suppliers do not create an unacceptably high potential for business disruption or negative impact on your business performance. What that looks like in practice can vary according to your service level agreement, industry, technologies, and processes, etc.
Regardless of other factors, here are five of the worst practices for vendor risk management to look out for: if any one of these sounds like your services partner, you should start looking for an alternative immediately.
1. Poorly organized process. Your partner’s approach should itself minimize risk, by demonstrating discipline, consistency, and repeatability. The questionnaire process, documentation and assessment, and final report preparation should all be part of a well-defined, step-by-step methodology your partner can explain to you in your initial consultation, or at any point thereafter.
2. Lack of awareness of all risk types. Your vendor risk management partner should have an understanding of all the critical risk types that can affect your enterprise:
• Compliance/regulatory risk: It’s important to manage not just of the impact of existing regulations, but also be aware of proposed changes and interactions with evolving standards that affect your vendor relationships.
• Information security/cybersecurity risk: External threats typically make the most headlines, however, you must also have the resiliency to vulnerabilities based on insider threats and simple negligence from third-parties.
• Reputational risk: Often overlooked in the more immediate peril of financial damages from a vendor-related incident is the potential cost to your brand or standing.
• Environmental-, social- and governance-related risk: Fundamental issues require a comprehensive assessment of how your third-parties are structured to avoid risk.
• Transaction risk: Enterprises are increasingly connected with partners across regions and markets, which makes managing transaction risk essential for international compliance and assurance.
• Operational risk: Avoiding failures resulting from procedures, policies, or systems are at the core of vendor risk management and require a comprehensive review of internal elements.
• Geographical risk: Your vendor’s location may have an inherent risk that’s not obvious with a cursory examination. This is an area of risk that is commonly underestimated but could have serious consequences for your enterprise.
• Financial risk: Are your vendors operating within sound financial systems and expectations? If they aren’t, the blow-back could put your organization at risk.
• Strategic risk: It’s not just your own business strategy that you need to assess, you also need to have visibility into vendor strategies that could affect your organization.
• Contract/legal risk: Standardized contract controls and processes reduce risk and make organizations more efficient. Is your vendor risk management provider assessing all your service contracts?
If there are gaps in your vendor risk management partner’s understanding of risk, you can be certain there will be holes in their capability to protect you.
3. Failure to risk rate every vendor. Underestimating the importance or likely impact of any vendor leaves you open to risk. Not all vendors require the same depth of approach, but each of your vendors does need to have a risk rating performed, as a basis for understanding the best management approach.
4. No single-pane view for all assessments. If you have to navigate a complex web of platforms, applications, and solutions just to gain visibility into different vendor assessments, then you don’t have actionable data. A Cloud-based vendor risk-management solution provides the ideal perspective to make better decisions: a single-pane dashboard that provides visibility, assessment tools, and scoring to help you understand risks and take quick action.
5. No tracking or adjustment per changing regulations. Vendor risk management is not something that’s performed once and then checked off forever, it’s an ongoing process. The regulatory environment is constantly evolving, and new requirements can interact in complex ways. If your provider isn’t tracking changes and making adjustments as necessary, you’re not receiving an appropriate level of risk management.
Look for an All-in-One Vendor Risk Management Solution
Vendor and third-party support are essential in today’s market, which means that effective vendor risk management is an equally critical function. Essential capabilities and features include:
• Vendor governance framework
• Cloud-based assessment tools
• Information security automation
• Governance, risk management, and compliance (GRC) functions
Don’t let any of the above worst practices hamper your ability to understand your vendor risk and make appropriate decisions. Find a provider that engages with you as a strategic partner, to affordably manage vendor risk end-to-end.