How to Conduct a Vendor Risk Assessment
1 min read
What Is Vendor Risk Assessment?
A vendor risk assessment is a systematic evaluation of the potential risks and vulnerabilities introduced into an organization’s operations, systems, and processes through its interactions with external parties. These external parties expand beyond key vendors and can include suppliers, contractors, service providers, and other external parties.
The types of vendor risks and vulnerabilities include those related to compliance, reputation, finances, operations, and strategy, as well as an organization’s cybersecurity. Performing a vendor risk assessment is a part of the due diligence process and ensures that your business doesn’t begin to work with a vendor that could potentially harm or have a negative impact on business operations.
When to Perform a Vendor Risk Assessment
Anytime a company engages with a new third-party vendor a vendor risk assessment should be completed. Once an assessment has been conducted and the vendor is approved, then the third-party can be deemed safe to work with. A business should then perform regular risk assessments on an ongoing basis. Regular assessments help to maintain business standards and provide visibility into vendor security. In general, this could be done annual or if there is a major change.
How to Conduct a Vendor Risk Assessment and Audit
Here are the steps your business should follow when conducting a vendor risk assessment and auditing vendor risks. See checklist provided below for free to assist.
Step 1: Assess vendor risks
The first step in the assessment process involves identifying all third parties that have access to the organization’s systems, data, or processes. This includes suppliers, vendors, contractors, cloud service providers, and any other external entities.
Identify Types of Vendor Risk
- Cybersecurity Risks
- Operational Risks
- Compliance Risks
- Reputational Risks
- Environmental, Social, and Governance (ESG) Risks
- Financial Risks
- Strategic Risks
Step 2: Create vendor risk assessment framework
Before reviewing third-party vendors or establishing an operating model, companies need to create a vendor risk assessment framework and methodology for categorizing their business partners. In the end, your organization should have clear criteria for vendor tiering.
Step 3: Manage the vendor lifecycle
Traditionally, vendor lifecycle management incorporates five primary categories: qualifying, engagement, managing delivery, managing finances, and relationship termination. However, as data breach risk increases, companies need to include reviewing information security as a sixth category in the life cycle. Due diligence during the qualification step incorporates information security management. However, threats evolve continuously meaning that organizations need to review information security over the entire lifecycle, not just at a single point.
