When you decide to work with external vendors, you agree to take on any potential threats and risks posed by those third parties, as well as their digital operations. All vendors pose some level of risk to your organization, especially financial, operational, reputational, and cyber risks because they have access to your sensitive data and your network.
That’s why vendor due diligence checks may be the most important task you can do when you want to partner with or enter into a business relationship with another company. It’s an integral part of vendor risk management. It helps protect your company from risks and possible data breaches, exposed vulnerabilities of third parties, and is often required by regulatory agencies.
Through third-party due diligence checks, companies can vet their vendors to spot potential red flags before entering into any form of contract or agreement with that vendor and throughout the course of that relationship. Comprehensive security screening of a potential vendor is only one part of an effective third-party risk management program.
Due diligence is a critical step in the third-party risk lifecycle that allows you to establish healthy vendor relationships. It helps you with selecting a vendor, ongoing vendor monitoring, structuring better contracts, and preventing unwarranted risk to your company and customers.
Of course, collecting documents from so many vendors involves a lot of work, but it’s a worthy investment.
Luckily, it is possible to automate this process with VRM tools like START that can help you manage vendor risk without emails and spreadsheets and reduce workload. With START, you’ll be able to establish a consistent vetting process for new vendors and gain a comprehensible vendor lifecycle.
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So what does it mean to perform vendor due diligence? Here we outline essential steps in a vendor due diligence process to help you get insights needed to confidently make informed decisions about potential risks and avoid harm due to third-party relationships.
Your vendors provide different kinds of products and services to you, and each vendor relationship carries its level of risk. You should know which categories of risk your vendor may expose you to, for example, operational, reputational, financial, etc. This information will dictate what type of due diligence you need to perform.
Before you send a 400-question due diligence questionnaire to your vendor, you should figure out if all of those questions apply to the vendor relationship you are assessing. Ask each vendor to provide only the relevant documentation and answer applicable questions. With START, you will assign the types of questionnaires to specific groups of vendors once and won’t need to spend time crafting relevant questionnaires for each vendor.
It’s vital to assess all potential risks adequately. That means that the right people with the appropriate expertise need to be involved in the review process. Use subject matter experts to make educated decisions about risk. Our hands-on reporting will make this process a breeze.
You should have a standard approach for responding to risks that you identify during the due diligence process. Some risks can be removed through proper remediation, and others can be managed through the appropriate controls. You may also accept the risks but ensure that appropriate ongoing monitoring is performed. If the risk outweighs the benefit of working with a particular vendor, you may choose to find an alternate one. With START, all your team members involved in the process will have access to convenient reports on a single assessment level.
Risks are constantly evolving, and your relationship with vendors can change over time. It’s critical to perform ongoing monitoring periodically. Ongoing monitoring is a core component of the vendor management framework. Depending on a vendor’s criticality and inherent risk, your company should establish a schedule for performing ongoing due diligence. This way, you’ll stay in front of risks before they impact you.
The most efficient method for performing vendor due diligence checks is through questionnaires. A vendor due diligence questionnaire is a list of questions designed to evaluate aspects of an organization related to managing the risk inherent in partnerships with suppliers, services providers, contractors, and other third parties. Sometimes, this due diligence questionnaire is called the third-party due diligence checklist or third-party risk assessment. Questionnaires act as a holistic audit of a vendor’s ecosystem.
Vendor due diligence questionnaires typically request information about vendors’ data security, compliance, financials, human resources policies, procedures, reputation, and references. When conducting third-party due diligence, creating such a checklist would go a long way in understanding the third party before officially onboarding them.
Vendor due diligence is not a “one-size-fits-all” process. Still, it should be thorough to address any problem areas before beginning a business relationship with a vendor. Consider these aspects when assessing a vendor:
Download our free vendor risk management checklist to ensure you don’t miss any critical steps in assessing your partners.
Vendor due diligence refers to an assessment of third parties at the onboarding stage and ongoing monitoring. It helps companies make more informed decisions about who they do business with. Conducting due diligence allows you to identify potential risks and challenges associated with a third-party relationship so that they can be understood and managed.
It’s important to monitor your third parties continuously to keep up with ever-changing risk factors. And although managing third-party risks can be difficult, with START, companies can make this process simpler and more efficient. Our tool will help you streamline and automate the steps involved in due diligence to ensure consistency, reduce risk, and stay in control.