Businesses already have a compliance risk management program in place to prevent internal infractions of domestic and international regulations, avoid the associated costly legal fines and sanctions, and protect their own reputations from such incidents.
However, the compliance posture of the external partners you work with also matters and can have an impact on your own business. That’s where a vendor management policy comes in. Since outsourcing professional services and procuring supplies from third-parties is common nowadays, modern companies are searching for ways to minimize vendor risk.
How Does a Vendor Risk Management Policy Work And Why Does It Matter?
A third-party vendor risk management policy is a subset of an overall risk management process. It checks up and verifies the compliance level of the third-parties you work with, whether they are contractors, associates, or any other entities.
For example, if you handle sensitive customer information, it makes sense that any other businesses you work with must have strong data protection policies too since they’ll be handling this data as well. Your policy should then mandate measures such as:
- Data and network security
- Disaster recovery protocols
- Access controls
Instead of blindly trusting third-party vendors to handle their own compliance, a vendor management policy allows you to identify which suppliers are risky to your business and implement controls to help you minimize that risk. Such a policy might make you rewrite a vendor contract or host regular inspections.
The more partnerships you have, the greater the risk and the more importance there is on having a vendor management policy, which dictates how compliance is assessed regarding both current and onboarding partners.
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How Do You Set Up a Vendor Management Security Policy?
The exact details of your vendor management policy comes down to your own preferences and the nature of your business. Here are some steps to get you started on your unique journey.
List Out Your Vendors
The first step is to define your list of vendors, which can include any third-party your organization works with, whether it’s an associate or contractor.
Then you must analyze the risk level of each entity and prioritize them by how critical they are to your company’s security. High-risk vendors would include those with access to sensitive data and networks, as well as those that are important to your internal operations.
Craft Your Policy
It’s time now to define what your vendor management policy will entail. Some examples include:
- Vendor compliance controls and standards
- Service-level agreements (SLAs)
- SOC 2 reporting procedures and auditing requirements
- Liabilities in the event of an incident
- Protocols for terminating the contract in case policy is not followed
You can apply your policy to both current vendors and prospective ones. A policy can help with vendor onboarding by making sure your options are all secure and compliant.
Have a Backup Plan
No matter how low-risk a third-party becomes, it never fully disappears. There’s always the chance of a data breach, service disruption, or other incident occurring and ultimately impacting your company. Planning for incident response beforehand is always a smart move.
- Find out the “impact zone”: What is impacted by a potential service disruption? Look at the services or products provided by the vendor and determine how your company will operate without them. Look carefully at interdependencies the vendor shares.
- Have a backup ready: Let’s say that a communication vendor goes down. Do you have alternative ways of handling communication? Or does the vendor even come with an automatic failover mechanism in the event of a disruption?
- Communicate with your customers: Let your buyers know that you are working on restoring your operations should there be a problem. This level of transparency makes your firm seem trustworthy and is sometimes required by law in the event of a cybersecurity breach.
Prepare for potential incidents by hosting a response plan meeting internally. Talk about the “what ifs” should there be a failure in your vendors and what should be done to rectify the situation. Have a dedicated team draw up official policies and response plans.
Why Is Automatic Risk Assessment a Necessity?
There are platforms and tools out there for businesses to invest in. These services automatically monitor the compliance postures and risk levels of third parties. But why is an automatic platform an ideal solution for enforcing vendor management policy?
- Regular monitoring: A third-party risk policy cannot remain a one-time consideration because risks are always evolving. In IT security, for example, new malware is released every day and organizations must be ready to protect themselves from new threats.
- Holistic evaluations: Risk assessments need to cover not only the third-party vendor but also any vendors that the vendor itself uses. Automated platforms make it easy and efficient to take a holistic look at vendor risk.
- Consistent enforcement: How do you ensure that all your assessments are complete and comprehensive? Handling all your suppliers through a central dashboard makes it easier to enforce your vendor management policy statement consistently.
- Readable results: These tools can generate a security rating for each vendor according to your requirements. It’s then much more convenient to compare performances with the overall industry.
If you’re interested in protecting yourself from costly legal, financial, and reputational incidents, look into automating cyber risk and compliance in your third-party partnerships.
How can Procurement use a Vendor Management Policy to drive success?
Procurement teams play a pivotal role in organizations, steering the process of sourcing, purchasing, and acquiring goods and services essential for business operations. This encompasses negotiating contracts, selecting suppliers, and ensuring that the procurement process is efficient, cost-effective, and aligned with the organization’s strategic objectives.
Let’s delve into how a Vendor Management Policy aids procurement teams in achieving successful goals:
Risk Mitigation:
The third-party vendor risk management policy facilitates a systematic approach to identifying and assessing potential risks associated with vendors. This includes evaluating factors such as financial stability, compliance with regulations, and the vendor’s track record.
Informed Decision-Making:
By providing a standardized due diligence process, the vendor risk management policy enables procurement teams to make informed decisions when selecting vendors. This goes beyond considering cost and quality, incorporating risk factors into the decision-making process.
Contractual Clarity:
The vendor management policy guides the inclusion of clear and comprehensive contractual terms. This ensures that both parties understand their obligations and responsibilities, reducing the likelihood of disputes and misalignments during the course of the business relationship.
Compliance Assurance:
The vendor risk management policy outlines measures to ensure that vendors comply with relevant regulations and industry standards. This is crucial for avoiding legal issues, financial penalties, and reputational damage associated with non-compliance.
Start Getting Value With
Centraleyes for Free
See for yourself how the Centraleyes platform exceeds anything an old GRC
system does and eliminates the need for manual processes and spreadsheets
to give you immediate value and run a full risk assessment in less than 30 days
