In today’s business environment, organizations are increasingly reliant on third-party vendors and suppliers for delivering critical services, products, and support. This dependence, while beneficial in streamlining operations and reducing costs, introduces significant risks that must be carefully managed. As businesses outsource more Information Technology (IT) functions, they expose themselves to potential vulnerabilities, particularly with data protection, cybersecurity, compliance, and regulatory concerns.

As technology advances and functions improve, ensuring that vendors meet stringent risk management criteria is no longer optional; it is imperative. The purpose of this blog is to provide a comprehensive guide of best practices for managing IT vendor risks effectively and efficiently. By implementing these strategies, organizations can safeguard their operations, maintain vendor compliance, and protect their data.

What is IT Vendor Risk Management?

IT Vendor Risk Management is the process of identifying, assessing, and mitigating risks associated with third-party vendors who provide information technology services or products. IT Vendor Risk Management ensures that vendors do not compromise an organization’s system, data security, or business operations. A well-defined vendor risk management strategy, including thorough vendor risk assessments, is crucial for effective onboarding.

A robust IT Vendor Risk Management framework can shield an organization from a range of potential threats, including data breaches, financial losses, and reputational harm. By proactively managing these potential risks, businesses can avoid costly disruptions and maintain the trust of their customers and stakeholders.

Common IT Vendor Risks to Consider

IT vendor relationships are essential but may introduce risks that affect different aspects of an organization. To safeguard against these threats, it’s important to recognize and address them proactively. In the following section, we examine the major risks linked to IT vendors and discuss their potential impacts on your organization. 

Data Security Risks: These occur when IT vendors fail to adequately protect the organization’s sensitive data, leading to unauthorized access, breaches, or data leaks. Data security incidents can result in the exposure of confidential information, including customer data, intellectual property, or financial records, which could lead to legal consequences and loss of customer trust. (Potential Impact: The Equifax Breach of 2017 exposed the personal information of over 147 million Americans, including names, Social Security numbers, birth dates, addresses, and credit card numbers.)

Compliance Risks: These arise when vendors do not adhere to relevant laws, regulations, or industry standards, such as GDPR, HIPAA, or PCI DSS. Non-compliance can result in fines, legal penalties, restrictions on business operations, and reputational damage. (Potential Impact: In 2018, British Airways suffered a data breach that compromised the personal information of approximately 500,000 customers. The breach violated data privacy regulations, including the GDPR. British Airways faced a significant fine of around $20 million from the UK’s Information Commissioner’s Office (ICO) and reputational damage.)

Operational Risks: These involve potential disruptions to an organization’s day-to-day operations due to vendor failures, resulting in productivity losses, missed deadlines, and dissatisfied customers. (Potential Impact: Fast-food giant KFC had to halt operations in the UK due to a shortage of chicken in 2018. Over 700 of KFC’s UK stores were forced to close due to issues with its foodservice supplier at the time, DHL.)

Reputational Risks: These risks account for potential damage to an organization’s reputation resulting from vendor actions or failures, such as security breaches, unethical behavior, or poor service delivery. Reputational Risks can create customer dissatisfaction, trust issues, loss of business, and brand damage. (Potential Impact: Remember Nike in the 90s?)

Financial Risks: These risks stem from potential financial losses related to vendor relationships, such as unexpected cost increases, contract disputes, or the vendor instability – impacting profitability and budget/expenses. (Potential Impact: Last October, shares of Tesla fell about 5% after key supplier Panasonic said it cut automotive battery production in the September quarter, cementing wider concerns of a global slowdown in electric-vehicle (EV) sales.)

Vendor Risk Management Best Practices

To effectively manage IT vendor risks, organizations should adopt a set of best practices that encompass the entire vendor lifecycle—from initial engagement to ongoing monitoring. Here are some actionable best practices that organizations can implement to strengthen their Vendor Risk Management programs: 

1. Conduct Thorough Vendor Due Diligence: Before engaging with a vendor, it is essential to conduct thorough due diligence. This involves evaluating the vendor’s financial stability, security practices, compliance with relevant regulations, and overall reputation. A comprehensive due diligence process helps to identify potential risks early on, enabling organizations to make informed decisions about whether to proceed with the engagement.
2. Establish Clear Contracts and Service Level Agreements (SLAs): Clear and well-defined contracts, along with SLAs, are critical for effective vendor risk management. Contracts should outline the expectations, responsibilities, and obligations of both parties, including specific security and compliance requirements. SLAs should establish performance metrics, including response times, uptime guarantees, and penalties for non-compliance. By setting clear expectations, organizations can mitigate risks and hold vendors accountable for their performance.
3. Implement a Vendor Risk Assessment Framework: A vendor assessment process should include criteria for assessing the impact and likelihood of various risks, as well as procedures for risk monitoring. The Shared Assessments Standardized Information Gathering (SIG) Questionnaire serves as a comprehensive and customizable vendor risk assessment framework, enabling organizations to evaluate, monitor, and manage third-party risks across critical areas like cybersecurity, compliance, and operational resilience.
4. Continuous Monitoring and Auditing of Security Controls: Vendor risk management is not a one-time activity; it requires continuous monitoring and auditing of security controls. Organizations should regularly review vendor performance, security practices, and compliance with contractual obligations. In addition to the SIG, the Shared Assessments Standardized Control Assessment (SCA) supports continuous monitoring by offering a comprehensive set of tools, such as templates, checklists, and guidelines, that help organizations consistently assess and verify the risk posture of their third-party vendors over time.
5. Collaborate Between Departments: Effective vendor risk management requires collaboration between various departments, including IT, legal, procurement, and finance. Each department brings a unique perspective and set of expertise to the table, ensuring that all aspects of vendor risk are considered.

Tools and Technologies for Effective Vendor Risk Management

To enhance vendor risk management efforts, organizations can leverage a variety of tools and technologies designed to streamline and automate vendor assessments and other processes.

• Vendor Risk Management Software: Shared Assessments’ Partners and Content Licensees are specialized vendor risk management software that can help organizations manage the entire vendor lifecycle, from onboarding to ongoing monitoring. These tools typically include features such as risk assessment templates, vendor performance tracking, and automated alerts for potential issues – enabling organizations to manage vendor risks more efficiently and effectively.
• Automated Risk Assessment Tools: Automation plays a crucial role in modern vendor risk management. Automated risk assessment tools, often using Artificial Intelligence (AI) include our partners Mirato and Whistic, and can quickly analyze vendor data, identify potential risks, and generate risk scores based on predefined criteria.
• Third-Party Risk Management Platforms/Tools: The Shared Assessments Product Suite integrates risk management processes by offering standardized tools like the SIG and SCA, which provide consistent assessments across various risk domains. Additionally, it supports continuous monitoring, customization, and regulatory compliance, ensuring a comprehensive and adaptable approach to managing third-party risks.

How Shared Assessments’ VRMMM Enhances Vendor Risk Management

The Shared Assessments Vendor Risk Management Maturity Model (VRMMM) is a powerful tool designed to help organizations strengthen their vendor risk management processes. The VRMMM provides a comprehensive framework for assessing the maturity of an organization’s vendor risk management program, identifying areas for improvement, and implementing best practices.

Key features of the VRMMM include its ability to evaluate the effectiveness of an organization’s risk assessment processes, vendor due diligence procedures, and continuous monitoring activities. It also incorporates industry-standard practices, ensuring that organizations are aligned with the latest trends and regulatory requirements in vendor risk management.

By using the VRMMM, organizations can gain valuable insights into their vendor risk management practices and take actionable steps to enhance their overall risk management strategy. To learn more about the VRMMM and how it can benefit your organization and program, visit our Vendor Risk Management Maturity Model product page.

Strengthen Your Vendor Risk Management with Shared Assessments

Effective IT Vendor Risk Management is essential for protecting your organization from a wide range of potential threats. By implementing the best practices outlined in this guide—such as conducting thorough vendor due diligence, establishing clear contracts and SLAs, and leveraging specialized tools and technologies—you can mitigate risks, maintain compliance, and safeguard your operations.

Utilize the Shared Assessments Vendor Risk Management Maturity Model (VRMMM) and other solutions for the vendor lifecycle to further strengthen your IT Vendor Risk Management efforts.

Our comprehensive framework will help you assess and improve your risk management processes, ensuring that your organization is well-equipped to manage the challenges of today’s landscape.

Learn how Shared Assessments can streamline your risk management processes, improve team efficiency, and mitigate risks in a 30-minute meeting. Together, we can help you navigate the complexities of vendor risk management and protect your organization from potential threats.