What is Vendor Risk Assessment? The Definitive Guide for 2024

What are Vendor Risk Assessments?

Vendor assessment is the process of assessing and identifying risks posed by your suppliers and service providers. Vendor assessments mitigate third-party vendor risk by providing your organization with all of the information necessary to evaluate its security posture and the risks that your vendors pose. 

A vendor risk assessment identifies and calculates whether the benefits of partnering with a given vendor outweigh the inherent risk that the partnership bears. 

The bulk of the assessment is usually in questionnaire form and is conducted during vendor onboarding. Subsequent assessments are conducted throughout the lifecycle of each vendor.

What is a Vendor?

An entity or company that provides services for another company is referred to as a vendor. In the digital world, examples of vendors would be:

• storage providers
• cloud-based/SaaS software solutions
• business partners
• suppliers
• agencies

It is important to remember that third-party vendors have their own vendors, who are fourth-party vendors! All of these vendors create the vast supply chain most organizations associate with.

Third-Party Risk vs. Vendor Risk: What’s the Difference?

Third-party, vendor, and supply chain risk management are often used interchangeably. Following are explanations that define the nuanced differences between some commonly used terms:

Third-party risk management (TPRM) is a broad umbrella term for vetting all parties that supply services or goods to your company. Partners and consultants, as well as vendors and suppliers, are included in this category.

Vendor risk management (VRM) is more specific than third-party risk management and includes any third party you regularly purchase from. VRM is the process of assessing and mitigating risks from vendors-  ranging from companies that provide office supplies and digital equipment to cloud storage providers such as AWS or Google Cloud Platform.

Supply chain risk management (SCRM) refers to managing risk in any vendor that directly helps your business produce a product or service. For example, supply chain management would not include a construction contractor that does office renovations. Supply chains extend backward and forwards, creating a complex linked chain that stretches from computer equipment to SaaS solutions; from outsourced service providers to physical components used in production processes; from IT technology embedded in a manufactured product to shipping and logistics companies.

The Good and the Bad About Vendors

Vendors provide an excellent way for companies to focus on their core goals. Managing workloads, professional services, digital storage solutions, and IT infrastructure is delegated to companies that can efficiently accomplish the necessary tasks. This allows for tremendous prospects for business growth. But as with all opportunities for growth, third-party vendors carry substantial risks.

Organizations increasingly rely on third-party suppliers to support critical business functions. This upward trend has accelerated in the last decade and is expected to continue growing. The global shift to outsourcing has resulted in a world where organizations no longer entirely control—and often do not have full visibility into—their vendor’s infrastructure. Without sufficient control, managing risks stemming from third-party vendors becomes impossible. 

How to Perform a Vendor Risk Assessment

1. Do your Dues

Start your due diligence by collecting information about your vendor’s risk posture on questionnaires and from external sources. Develop assessment criteria unique to your business goals. High-risk vendors should be subject to greater scrutiny than vendors that don’t have access to sensitive company information.

2. Move on to vendor onboarding

If a vendor didn’t meet your risk standards, you can request additional assurances until you are satisfied with the information and practices provided. After a vendor is approved, start the contracting process. This is a written agreement that guarantees a certain level of security is upheld by your vendors and sets access and security controls across your system.

3. Continuously monitor and assess

After the initial onboarding, the job isn’t over. At quarterly and annual intervals (in addition to after cyber incidents), you need to perform continuous monitoring and upkeep of the controls you have set through regular assessments.

Best Practices for Vendor Risk Assessment

Quantify Risks by Assessing the Potential Impacts of Vendors

Vendor risk management cyber security should include quantifying and scoring the risks introduced by a vendor. Your vendor risk assessment process should mirror your own internal risk assessment program. The main difference is the vendor’s systems and assets that interact with your assets are now the focus. 

You should understand specific risks facing these assets and what the vendor is doing to mitigate those risks. You can then quantify the potential impact of a risk occurring, either by establishing a scoring system or focusing on the financial implications of the given risk.

Send Effective Vendor Security Questionnaires

A critical component of evaluating a new vendor is sending vendor security questionnaires. Ideally, their responses will give you all of the information required to evaluate their overall security posture, assign scores, and understand the financial impact of identified risks. 

Best practices for vendor security questionnaires include:

• Align questionnaires to a standard based on the vendor’s industry.
• Make questions in simple, plain, straightforward English.
• Add content and guidance when necessary so vendors know what information to provide.
• Utilize a scalable program for managing questionnaires and responses; otherwise, your program can grow out of control.
• Finally, consider your compliance needs and regulatory requirements related to the vendor’s role with your company.

Require Vendor Self-Attestation

For the questionnaire and onboarding process, you’ll need documentation and evidence from third parties. In addition, important information should have defined requirements to guarantee its authenticity. 

Cybersecurity vendor management requires accurate information. Otherwise, all other attempts will be ineffective since they’re based on inaccurate information. Self-attestation from an executive or third-party validation will help ensure the information you receive is accurate. Third-party validation includes results from a recent audit, compliance certification, or evidence satisfying regulatory requirements. 

Leverage Scanning Tools for Darknet and Public Exposure

Data breaches often end up on darknet sites or are exposed to the public. Has your potential vendor had a previous breach that resulted in sensitive data becoming publicly available? 

External tools exist specifically to scan darknet sites to determine if sensitive data is already publicly available. Most of these tools will also scan Clearnet sites that post sensitive data. 

Leverage these tools as part of your due diligence process on a given vendor, both at the beginning of the relationship and on a continuous basis. 

Include Vendors in Your Incident Response Program

How will your security and compliance team react if a vendor has a security incident? Your incident response plan typically focuses on how you react to internal incidents, but it should also cover incidents that stem from your vendors. 

Create vendor incident response processes that guide security teams should a vendor incident occur. If you’ve sent an effective questionnaire and conducted accurate risk assessments, you should be aware of likely risks facing your vendors. Craft specific processes that cover likely scenarios so security teams know how to respond, communicate, and minimize the impact of the incident.

Use a Powerful Platform for Vendor Security Risk Management

Vendor security risk management is just as important as managing your own internal risks. The above best practices will help you ensure that your vendor risk management program is well-documented, based on accurate data, and plans for vendor incidents.

Thankfully, you don’t have to start from scratch, handle calculations manually, and pour through compliance documentation with every vendor. Centraleyes is an integrated and centralized risk management platform that simplifies vendor risk management without sacrificing accuracy or effectiveness. 

Ready to see how Centraleyes can make your life easier and company safer? Contact our risk management experts today to see Centraleyes in action.