According to the Oxford dictionary, a vendor is a person or company offering something for sale. It’s easy to see just how important vendors are to an organization. Many companies today wouldn’t even exist if it wasn’t for vendors. These third-parties aren’t going away anytime soon.
You may be outsourcing your goods and services to vendors. But that doesn’t mean you’ll be outsourcing the risk management involved with those goods and services. You’re still going to be held responsible for your activities. The legal system, the public, and the regulators will not be placing the main focus on the vendors. Their main focus will be on you.
It’s important to take a whole-hearted approach to vendor risk management. Otherwise, your risk management system may start to spiral out of control. And that’s just not ideal for any business of any kind. Maintaining control of your system is important.
The Ineffectiveness Of Many Vendor Risk Programs
Programs for managing vendor risk come in all shapes and sizes. Unfortunately, the majority of these programs are ineffective. One big reason behind the failure of these programs is the fact that there is no effective starting point or process at all. Also, many programs seem to leave out the importance of understanding risk appetite.
So, what does all of this lead to? In turn, you receive poor risk scoring. Your risk measurements tend to be misleading. There’s a limited amount of compliance, and cost containment is of poor quality. Now that we’ve discussed ineffective programs, let’s look at what it takes to effectively manage risk through an exemplary program.
Implementing An Effective Vendor Risk Program
An assessment will be needed for determining your business needs and requirements, including compliance. You’ll need to identify inherent risks and perform a value analysis.
Due Diligence & Selection
You’ll need to map your capabilities to your needs. Make an assessment that identifies your control capabilities, and assess your costs and value as well.
You’ll need to have proper documentation for your required controls. Identify an audit process. Delve into insurance policies. Keep in mind that compliant pricing will directly relate to value.
This is going to involve attestation, mapping processes, business resiliency, and onboarding. You’ll need to plan and test continuity as well.
Continuous Monitoring & Analysis
You’ll need flexible scheduling. A risk-based approach will be needed. Monitor your controls, continuously perform assessments, and maintain all reports and documentation. Gather as much third-party intelligence as you can.
The Future Of Vendor Risk Management
Third-party risk management is always changing. Your program will need to adapt with the ever-changing requirements needed to effectively run your business. An effective program will need to pivot and scale on risks. You’ll need to comprehend the complexity and effort needed in order to move into IRM (information rights management) solutions from point solutions.
One big thing to keep in mind is that your vendor risk management program will need to integrate into your overall risk management program. This is the future of third-party risk management in 2020 and beyond.