Vendor Risk Management Checklist

Vendor Risk Management Checklist

In today's digital landscape, keeping data secure isn't just about the measures that your company takes to keep hackers out. With an increasing number of vendors that your organization incorporates into its IT ecosystem, it's important to perform regular vendor risk assessments to ensure vendors are properly managed and monitored over time.

And you should remember that comprehensive vendor risk assessment is one of the primary requirements common to most cybersecurity regulations and industry standards. A vendor risk management checklist is a tool that can help you make sure your vendors adhere to cybersecurity best practices and are compliant with relevant standards and regulations.

Why Use Third-Party Vendor Management Checklist

Third-party vendor risk management is a broad category that encompasses all measures that 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. The goal of this process is to identify and evaluate any potential risks that stem from a vendor's operations.

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

The problem with many vendor risk management programs is that many activities are handled with manual spreadsheets and emails. This is a slow and costly approach, but you can perform this work efficiently if you choose an automated solution like START to manage all your vendors in one place.

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Vendor Management Audit Checklist: What Are the Steps in the Audit Process?

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 take a closer look at the steps that your business should follow when doing a vendor risk assessment and auditing vendor risks.

There are no silver bullets with vendor risk management programs. You will need to tailor it to your industry and the types of vendors you manage. Our vendor risk management checklist covers all the core pillars of risk management.

Vendor Risk Management Checklists pdf book

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 in place to guide your vendor management processes. The operating model should include vendor categorization based on a risk assessment that uses an approved methodology. You need to classify vendors based on the threat they pose to your business. To ensure that everything is covered, companies also need to supply vendor report reviews that prove ongoing risk monitoring throughout the vendor lifecycle. It's essential to assess potential gaps and vulnerabilities based on the appropriate compliance frameworks and evaluate the different 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 or 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 there is a shutdown of vendor processes, 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. So you need to map out the types of risks associated with each partner that could negatively affect your company.

Doing due diligence can be labor-intensive and time-consuming. To reduce administrative time and effort spent on vendor risk management, consider START, our tool that automates parts of the process. You can use our templates to create your own questionnaires and adjust them to each vendor to ensure you collect the most relevant information necessary for risk assessments.

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Create Vendor Risk Assessment Framework

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

There are two main types of risk assessment methodologies: quantitative and qualitative. 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 actually happen if one of the risks on your list were to occur. Although they aren't as precise as quantitative assessments are, they also provide important 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.

Risk assessment qualitative 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

Documentation for quantitative risk assessments includes:

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

Manage the Vendor Lifecycle

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

Third-party risk management cycle can vary by industry, but it typically includes such steps as identification and onboarding, ongoing third-party monitoring, communications, and attestations and assessment.

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

Conclusion

Vendors are essential for any business, but their risks become your risks when you work 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.

Most cybersecurity regulations and industry standards require companies do vendor due diligence on a regular basis. Businesses are responsible for monitoring and managing their vendors' cybersecurity posture, so you need to know everything you can about your business partners before you contract with them.