Managing Vendor Risk: A Guide for 2024

Introduction

Vendor risk management has become increasingly important as organizations rely more on third-party vendors and suppliers. Some key trends driving the need for robust vendor risk management include:

• Increased outsourcing: Organizations are outsourcing more activities to vendors, from IT to business processes. This expands the risk exposure.

• Complex supply chains: Supply chains are global and complex, with many touch points that are hard to monitor.

• Regulations: Regulations like GDPR place the onus on organizations to ensure vendors manage data properly. Fines can be steep for non-compliance.

As we move into 2024, managing vendor risk will only grow more critical. This guide provides an overview of best practices and key considerations for organizations looking to improve their vendor risk management programs.

Steps to Manage Vendor Risk

Managing vendor risk should involve a systematic process to identify, assess, and mitigate risks. Here are some key steps:

Vendor Selection

• Conduct thorough due diligence on potential vendors, examining their cybersecurity posture, financial health, reputation, and more.
• Specify your vendor risk management expectations and requirements upfront in your requests for proposal (RFPs) and contracts.
• Ensure you have visibility into the vendor’s subcontractors that may support work for your organization.

Risk Assessment

• Categorize vendors based on criticality to determine the depth of risk assessments required.
• Conduct in-depth risk assessments of vendors periodically, examining factors like data security, availability of services, and more.
• Require vendors deemed high-risk to fill out security and compliance questionnaires.

Contracting

• Include specific provisions in contracts that hold vendors accountable for meeting security, compliance, and performance expectations.
• Include the right to audit vendors in contracts and conduct audits on a risk basis.

Monitoring

• Monitor vendor performance continuously via operational metrics and service levels.
• Perform onsite visits for vendors handling sensitive data or processes.
• Monitor for vendor security incidents and request remediation plans from vendors if incidents occur.

Contingency Planning

• Develop contingency plans for high-impact vendor failures, like alternative vendors or insourcing.
• Include service termination assistance requirements in contracts to ensure smooth transitions.

Critical Vendor Risk Management Capabilities for 2024

Vendor risk management will grow more data-driven, proactive, and collaborative in the coming years. Here are some key capabilities organizations should build:

Automated Assessments

Conducting manual vendor assessments is time-consuming and leaves gaps. Automated assessments powered by artificial intelligence provide a faster, more systematic approach. Platforms can automatically pull in and analyze vendor documentation.

Real-Time Monitoring

Real-time monitoring tools track vendor security and performance continuously, versus periodic assessments. For example, monitoring vendor access can catch suspicious activity between reviews.

Supply Chain Visualization

Supply chain mapping tools provide visibility into multi-tier vendor networks, including sub-suppliers. This allows identifying high-risk touch points.

Information Sharing

Joining forces across industries allows sharing vendor risk insights without redundant assessments. Formalized information sharing helps continuously improve due diligence.

Cyber Insurance

Cyber insurance can financially protect against failures of vendors that handle sensitive data or provide critical IT services. It mitigates some legal and financial risks.

Contract Analytics

AI-powered contract analytics can accelerate reviews of vendor contracts and highlight areas of risk or non-compliance for remediation.

Key Takeaways

• Vendor risk management will only grow more critical as third-party reliance increases. Organizations should follow structured processes to select, assess, contract with, monitor, and plan for contingencies with vendors.

• Look to emerging technologies like automated assessments and supply chain visualization to enhance vendor risk management programs. Participate in collaborative initiatives to share vendor risk data where possible.

• Include the right contract provisions and purchasing insurance to financially protect the business against risks associated with third-party vendors.

• Make vendor risk management a priority now to gain resiliency and adapt to the evolving risk landscape heading into 2024.