Are you increasingly concerned with vendor risk and don’t have a vendor risk management checklist? In today’s digital landscape, keeping data secure is more than just the measures your company takes to keep hackers out. With an increasing number of vendors that your organization incorporates into its IT ecosystem, it’s essential to perform regular vendor risk assessments to ensure vendors are correctly managed and monitored over time.

A vendor risk management checklist is a tool that can help you ensure your vendors adhere to cybersecurity best practices and comply with relevant standards and regulations. This article will share our best methods, philosophies, and steps for creating a checklist for your organization.

Why You Need a Vendor Risk Management Checklist

Vendor risk management is a broad category encompassing all measures your company can take to prevent data breaches and ensure business continuity. It starts with a third-party risk assessment that is a part of vendor due diligence. This process identifies and evaluates potential risks from a vendor’s operations.

A vendor risk management checklist ensures that your company doesn’t work with a third-party vendor or supplier that could potentially harm your business operations. If you work with a vendor, performing regular risk assessments and checking when you notice red flags is critical. This way, you can maintain business standards, meet regulatory requirements, and provide visibility into vendor security.

Steps To Create a Vendor Risk Management Checklist

Any successful vendor risk assessment begins with a vendor management audit checklist. It includes the operating model, third-party risk assessment framework, and important documents that guide the process. Let’s examine the steps your business should follow when assessing and auditing vendor risks.

Step One: Assess Third-Party Risks

First of all, you need to establish an audit trail. A vendor risk assessment begins with establishing an operating model. It refers to the processes, policies, procedures, and people that guide your vendor management processes. The operating model should include vendor categorization based on a risk assessment that uses an approved methodology. It would help if you classified vendors based on their threat to your business. To ensure everything is covered, companies must supply vendor report reviews that prove ongoing risk monitoring throughout the lifecycle. It’s essential to assess potential gaps and vulnerabilities based on the appropriate compliance frameworks and evaluate the risks associated with third-party vendors. That requires a complete understanding of the different types of vendor risk:

• Cybersecurity risk is the probability of exposure, loss of critical assets and sensitive information, or reputational harm resulting from a cyber-attack or data breach within a company’s network.
•  Compliance risk arises from violations of laws or regulations or noncompliance with internal policies, procedures, or business standards that your company must follow.
•  Strategic risk arises from adverse business decisions or the failure to implement appropriate business decisions in a manner that is consistent with your strategic goals.
•  Reputational risk is related to negative public opinion. Third-party vendors can harm your reputation if they violate laws and regulations, disclose customer information due to data breaches, etc.
•  Operational risks occur when vendor processes get shut down, and they cannot provide their services as promised.
•  Financial risk arises when vendors and suppliers cannot meet the fiscal performance requirements set in place by your company. It can occur in the form of high costs and lost revenue.

Keep in mind each vendor is unique and may contain a mix of each of these risks. It would help if you mapped out the types of vendor risks associated with each partner that could negatively affect your company.

Step Two: Create a Vendor Risk Assessment Framework

When creating a vendor risk assessment framework, you must align your business objectives with vendor services. You must also create a methodology for categorizing your company’s business partners. Then, you must explain the underlying logic to senior management and the Board of Directors.

Quantitative and Qualitative Risk Assessment Methods

Quantitative risk assessments focus on the numbers. They allow you to compare the costs of security controls to the data those controls protect. Qualitative risk assessments are about what would happen if one of the risks on your list occurred. Although they aren’t as precise as quantitative assessments are, they also provide essential information. They help you understand how risk might impact each team’s productivity.

When auditors review risk assessments, they need documentation that proves the evaluative process and Board oversight. The auditor will also review the vendor categorization and concentration.

Quantitative risk assessment documentation includes:

• Contract size
• Financial solvency baselines
• IT Security Ratings
• Beneficial owners of third-party business

Qualitative risk assessment documentation includes:

• Vendors classified by service type
• The access they need to internal data
• Nature of data categorized by risk, for example, passwords, confidential client data, etc.
• Expectations about data and information security

Step Three: Manage the Vendor Lifecycle

Vendor lifecycle management consists of five major categories: qualifying, engagement, managing delivery, managing finances, and relationship termination. However, due to the increased risk of data breaches, businesses must also include reviewing information security as a sixth category in the life cycle. As threats evolve continuously, it’s critical to consistently monitor risks from partnering with a third-party vendor.

The vendor risk management cycle can vary by industry, but it typically includes steps like identification and onboarding, ongoing third-party monitoring, communications, and attestations and assessments.

You need to plan your third-party relationship management process from start to finish before you document activities. It’s also essential to ensure that your vendor relationship management policies, procedures, and processes address all steps in the lifecycle.

Stop Taking Risks, Create a Vendor Risk Management Checklist

Vendors are essential for any business, but they become your risks when working with third parties. Vendor risk management checklists are the foundation of any third-party vendor risk management program that protects an organization’s clients, employees, intellectual property, and business operations.

This article was a high-level overview of the methods and philosophies used when creating a vendor risk management checklist. For more detail and practical implications for your business case, we recommend booking a follow-up call with our VRM specialists.