What Are the Primary Components of Vendor Risk Management?

There is no one-size-fits-all approach to managing vendor risk. Still, there are common components that exist in every VRM program.

1. Identifying the risk exposures that your vendors pose
2. Create and maintain a vendor inventory including the product or service offered by the vendor
3. Classify your vendors and prioritize their risks
4. Conducting vendor risk assessments and risk mitigation strategies
5. Ensure your contracts include onboarding, offboarding, and full vendor lifecycle oversight 
6. Continuous monitoring of vendor risks and testing program performance

How To Implement a Vendor Risk Management Program

1. Develop governance documents: Begin the process by developing one or more documents that outline the high-level guidance of what your vendor risk management program must cover. Reference relevant frameworks and regulations applicable to your industry. 
2. Craft a thorough vendor selection process: Have a documented vetting process for selecting vendors, including issuing a request for proposal (RFP), vendor comparisons, and completing a vendor assessment questionnaire.
3. Have clear contractual risk management standards: Both parties should communicate expectations regarding cyber security and other risk-mitigating measures. These expectations should be included in the final contract.
4. Perform routine due diligence and ongoing risk assessments: A vendor’s tech stack may change, its risk management policies may be updated, and they may onboard new vendors of their own (fourth-party vendors). Therefore, you should routinely conduct risk assessments to ensure the accuracy of their risk score.
5. Create a defined internal audit process: Your risk and compliance teams should have a documented process for auditing, assessing, and scoring all third parties, both before onboarding, and throughout the relationship, including a defined offboarding process. 

Define a thorough reporting process: Senior leadership, the board of directors, and other stakeholders will benefit from consistent and accurate reporting. These reports should allow them to make informed decisions and understand the vendor risk environment.