Conduct Vendor Risk Assessment With 8 Easy Steps

Updated: Jul 29

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Conducting Vendor Risk Assessment in Easy Steps

Vendor risk assessment is a crucial step in any organization’s growth cycle. While it can be an extensive security measure, it has its own benefits, like enabling you to manage and monitor vendor relationships efficiently. Time and again, this assessment has proven to be a key in partnering with secure and reliable vendors. Before we delve into the process of vendor risk assessment, let's first understand what it incorporates.

Vendor Risk Assessment

Also known as vendor risk review, vendor risk assessment is a determining procedure that enables companies and organizations to pick and monitor their vendors securely. As the term suggests, it involves identifying and assessing the possible hazards of collaborating with a vendor during this process. It forces your organization to consider whether the benefits of forming a partnership exceed the hazards. This choice is based on your organization’s policies, processes, mission, goals, and needs.

Even though vendor risk assessment is a tedious procedure, it is undoubtedly rewarding. Failure to complete VRA's can result in a loss of reputation, lost revenue, legal bills, and penalties. Let's consider a situation where one of your vendors doesn't follow data privacy or security rules. You can see how your firm will suffer as well in that case.

Here are the risks to look out for to ensure you don't go through those pains.

Two Types Of Vendor Management Risks

Before you jump into the management of risks, it is important to understand the kinds of risks your vendor relationships can be prone to.

  • Inherent Risk: This risk is identified only after the entity's major objectives have been stated and measures are taken to discover what may go wrong to prevent the organization from reaching those objectives. We can explain this in better terms with the help of an example. For instance, when you are driving a car, you accept the inherent risk of an accident.

  • Residual Risk: Contrary to inherent risks, residual risks are the risks that remain after you've developed and implemented a mitigation strategy. For example, wearing a seatbelt or a helmet will reduce the damage caused by the accident if it happens.

Every industry has inherent and residual risks, and InfoSec is no different. To function, businesses must take some amount of risk. The risk tolerance of your management team and your customers' expectations will affect your acceptable risk levels.

Vendor Risk Assessment In 8 Easy Steps

If you're planning to proceed with a vendor risk assessment process and need to know the tidbits, then here's a list that will come in handy for you. Assessing your vendors is no joke, especially when they are critically involved in Infosec compliance, so make sure you have everything you need beforehand. To do that, follow these steps:

1. Build A Template For Vendor Risk Assessment

It's critical to design a detailed vendor risk assessment template for rigorous pre-contract diligence procedures before onboarding new suppliers. The template needs to uncover potential risks that the vendor carries, and the steps that it takes to manage these risks. It will save you both time and money, giving you all the critical information in one go.

2. Centralize Vendor documentation

Instead of having bits and pieces of information about each vendor scattered in places, aim on centralizing all the documents in one place. Having everything from the onboarding process documentation, compliance reports, site visit reports, and assessment templates in one place will ensure that you save time, energy, and resources in case you need to evaluate a vendor at the last minute.

3. Question Your Vendors And Assess Their Responses

Small organizations overlook a few vendors simply because they believe they don't play a critical role in the overall impact. But that's a key mistake. Before you get into a partnership with any vendor, you should analyze them no matter how little or what product or service they supply. Assess their responses based on the vendor risk assessment, and determine if the risk associated with the vendor is palatable for your organization.

4. Assess And Reassess Each Product And Service

Third-party risk assessments should be divided into two parts: one for the vendor as a whole and another for each product or service you want to buy from them. A risk assessment at the firm level reveals the dangers of dealing with the vendor. What is their track record, and how may partnering with them impact your own? Another risk assessment on the product level is equally important as that will yield you the risk associated with a particular product the vendor has to offer.

You can get a complete picture of possible risks by evaluating both the vendor and the product. This might assist you in determining whether you want to start or continue doing business with them.

5. Get Expert Opinions

No matter how many times you do a self-check, getting an expert opinion will provide you with a better assessment and evidence. There's a good chance you don't know everything there is to know about vendor risk. Therefore, you'll need a rather high degree of understanding to gain a clear picture of the variety of events you could confront and their risk levels.

You can even form a risk assessment team with diligent members from each contributing department. This guarantees that assessments are uniform and completed on time.

6. Mitigate Vendors According To Their Risk Level

After you've evaluated a vendor, you need to figure out how risky the overall vendor portfolio is. Categorize vendors into different risk categories depending on the part of the business they support, access to the information they have, and availability of alternate vendors. Separating potential suppliers into risk tiers can assist you in determining the degree of focus required to manage risk, and develop a corresponding risk management planning process. This is particularly important if your organization is short on resources, and needs to prioritize vendor management based on risk levels.

7. Develop a Risk Mitigation Plan

Make a strategy for how your organization will handle or reduce each possible threat a third party poses. If a crisis hits, you'll be able to react fast and minimize the damage. You should definitely include risk scenarios and corresponding response strategy in the plan, as well as the name or function of the person who is accountable for each.

8. Perform Annual Reassessments

Lastly, make sure you are updated with new regulations being introduced for compliance. This will enable you to study which risk assessment is in need of an update. Perform annual or semi-annual reassessments to keep track of your business relationships.

Closing thoughts

We cannot argue with the fact that it is, in fact, challenging to stay on top of vendor risk management, especially if you have many vendor relationships to manage. However, you can evaluate vendors quarterly, semi-annually, or annually, depending on their risk level. Continuous monitoring and due diligence guarantee that your business partnerships are secure and mutually profitable.

Scrut Automation is a one-stop shop for compliance. Our software provides the fastest solution for achieving and maintaining SOC 2 compliance, making it an ideal choice for busy startups. Schedule your demo today to see how it works.

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