Vendor risk management (VRM) is the process of identifying, assessing, and monitoring risks from the vendors an organization relies on. Businesses need VRM because vendors may access sensitive data, critical systems, or business operations, introducing security, compliance, operational, financial, and reputational risks.
What is vendor risk management?
VRM covers the entire vendor lifecycle, from initial due diligence and onboarding through ongoing monitoring and offboarding. It is closely related to third-party risk management, although third-party risk management can cover a broader range of external relationships beyond vendors.
A typical VRM program includes maintaining a vendor inventory, assigning risk levels, conducting vendor risk assessments, collecting security documentation, monitoring vendors for changes, and addressing identified risks. A vendor management policy helps ensure these activities are handled consistently across the organization.
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Why do businesses need vendor risk management?
Vendors can introduce third-party risk when they access sensitive data, systems, or critical operations. VRM helps businesses identify, assess, and manage these risks throughout the vendor relationship. Here are the main reasons businesses need vendor risk management:
Focus resources on higher-risk vendors
Not every vendor creates the same level of risk. VRM helps teams focus their time and resources on vendors that handle sensitive data, access critical systems, or support important business operations.
Reduce security and compliance risk
Assessing vendor security practices helps identify weaknesses that could expose sensitive data or systems. A structured VRM process also helps organizations meet vendor oversight requirements across security and privacy frameworks.
Keep up with changing vendor risk
Vendor risk can change after onboarding as services, access, security posture, and vulnerabilities evolve. Ongoing VRM helps organizations identify these changes before the next scheduled assessment.
Demonstrate third-party oversight
Maintaining clear records of vendor assessments, risk decisions, and remediation helps organizations demonstrate third-party oversight during audits, compliance reviews, and customer assessments.
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What does the vendor risk management process include?
A strong vendor risk management process provides a structured way to assess and manage vendors from onboarding through ongoing monitoring. While the exact process depends on the organization and vendor, it typically includes the following steps:
1. Identify and classify vendors
Build an inventory of vendors and determine which require closer oversight based on factors such as the services they provide, the data they handle, their system access, and their importance to business operations.
2. Conduct vendor risk assessments
Perform a third-party risk assessment or vendor assessment to evaluate each relevant vendor’s security, compliance, operational, and other risks. The depth of the assessment should reflect the level of risk the vendor presents.
3. Review and address identified risks
Review assessment findings, identify gaps, and determine whether remediation is required before or during the vendor relationship. Higher-risk issues should be prioritized and tracked through resolution.
4. Continuously monitor vendors
Monitor higher-risk vendors and reassess them when their services, access, or security posture change. Regular reviews help ensure risk levels remain accurate throughout the relationship.
5. Maintain policies and evidence
Keep records of assessments, risk decisions, remediation, and ongoing reviews. A formal third-party risk management policy can define responsibilities, assessment requirements, risk thresholds, and monitoring procedures across the vendor lifecycle.
Can businesses automate vendor risk management?
Yes. Organizations can automate vendor risk management by using software to discover vendors, collect and analyze vendor information, assign risk levels, send questionnaires, monitor security posture, and flag changes that require review.
Scytale’s AI GRC platform brings these activities into one place, reducing manual work and giving security and GRC teams a more current view of risk across their vendor ecosystem.
