Organizations are connected to more vendors now than ever before. In fact, the number of third-party relationships an organization can have can be over 5,000. Organizations can find themselves on the hook for huge fines and other negative consequences, if they fail to meet compliance regulations and or suffer an attack. This is true even when these negative outcomes are the fault of a third-party vendor. A vendor management policy is one of the main components of an organization’s broader compliance risk management strategy. It is a best practice for any organization to create a policy to conduct a third-party risk assessment of all vendors I.e., each third-party, contractor, or associate with whom an organization conducts business — and to establish requirements for the level of information security that vendors should maintain.
Why Your Business Needs a Vendor Management Policy
Potential Legal Trouble
Legal requirements related to the use of third, fourth, and even fifth party vendors are growing each year. Regulators have recognized that data breaches through third and fourth parties can present a significant and sometimes catastrophic consequence to an organization — and have created various legal requirements to ensure organizations manage their supply chain and partner cyber risks more carefully.
You are a Target
Organizations should show concern for those third- and fourth-party vendors who have access to their sensitive information and or direct access to their network.
For those whose vendor management policies involve working relationships with many different vendors, sub-contractors, and partners, you should recognize that you are creating more targets that hackers and cyber-criminals can exploit. These extended business ecosystems are, as we already know, becoming more frequent and that is a trend that is here to stay.
Though the concept of (the more vendors you have, the more risk you create), may seem simple in addition to being widely known, organizations do not give enough
Understanding the risks associated with your own organization can sometimes be complex. Thus, attempting to comprehend the risks associated with your third-party vendors is even more difficult. Now the difficulty should warrant a higher level of focus from modern organizations. However, there are far too many organizations today that have entered business relationships with third parties without fully understanding the risk to their data. And what is more, the first party may not have set requirements in their vendor management policies for how their vendors should secure their data.
The consequences of not managing vendor policy come with huge fines. Furthermore, 51% of data breaches in 2021 were caused by third-party vendors. The truth is, if you do not have a vendor management policy in place today, your company is being negligent. Not having a policy in place means that there is a good chance your organization’s sensitive data may be handled by someone who should not have access to it. This puts the health of your entire company on the line.
Setting Up a Vendor Management Policy
When setting up a vendor risk management policy, it helps to follow a systematic, step-by-step procedure.
Step 1: List All Third-Party Vendors
First, create an exhaustive list of all third-party vendors associated with your enterprise. These vendors could be suppliers, contractors, consultants, business process outsourcers, everyone your organization does business with. Also identify their third-party vendors, so your list accounts for both third- and fourth-party entities that are potential sources of risk.
Step 2: Conduct a Third-Party Risk Assessment
What are the risks your business might incur from using those third parties? Complete a risk assessment to find out. Start by determining which vendors in your list (compiled in Step 1) have access to your internal network and sensitive data.
Step 3: Calculate a Risk Score for Each Vendor
After you have assessed a vendor, you should determine its overall level of risk. Separating potential vendors into risk levels can help you quickly determine whether to work with them and speed up the risk management planning process if so.
First, score the vendor as high-, medium- or low-risk based on your risk criteria. Then, give the vendor a business impact score. In other words, how important is the vendor and their product or service to your organization?
Finally, decide what amount of due diligence you will do for vendors at each risk level. This streamlines the process, improving efficiency and consistency and eliminating bias.
Step 4: Establish Vendor Risk Management Procedures
Draft your vendor risk management policy based on the vendor list and risk scores for each vendor. Your policy should address all these critical factors and accordingly specify the relevant controls:
Step 5: Monitor and Update the Vendor Risk Management Policy
Your vendor risk management policy should be reviewed and updated regularly to ensure that it (and your enterprise) can adapt to changing circumstances and situations. Policies should not be set and forgotten about. They are a living, growing document that changes as your organization and the world change. The pandemic showed us that organizations need to adapt and change with the times, and your policies need to reflect the new normal.
How OpenPages can Help with Vendor Management Policies
IBM OpenPages connects with enterprise and external systems to import information on vendors & engagements; consolidates and maps vendor data in a common repository; scales to accommodate thousands of vendors. Using a core, shared services, and open architecture, IBM OpenPages Policy Management automates the ongoing management of the policy lifecycle process.