Vendor risk assessment
Learn how to do a vendor risk assessment to help mitigate risks within the supply chain
What is a vendor risk assessment?
A vendor risk assessment is the process of identifying and evaluating potential risks that involve your vendors, that could have an overall impact on your organisation. A vendor risk assessment determines the effects of uncertain events, which then enables you to prioritise them. Potential risks could include security breaches, compliance, financial information, or the overall effectiveness of the operations. Once the assessment is complete, you’ll be able to mitigate and monitor the risks.
How do you do a vendor risk assessment?
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Assess your vendors:
Start by cataloguing vendors by what they do for your organisation, how critical they are, their location and what data they handle.
Profile vendors:
Group vendors together that sit in the industry, this will help you to assess the risks easily as they’ll all have common risk factors. For example, group together all IT (Information Technology) vendors, insurance vendors or medical equipment.
Vendor questionnaire:
Send a questionnaire out to all your vendors to help determine their policies, procedures, and processes. Make sure that all questions are simple, objective and tailored to the real areas of concern.
On-site audits:
You may need to do an on-site audit, particularly if the vendor is high risk. This will provide an in-depth evaluation, which will enable you to identify potential risks. You’ll be able to get to grips with their culture and security measures.
Communicate:
Gather all your findings and compare the questionnaire to the on-site audit. You can get a third party or legal team to help you with your report. This will help you develop a dialogue with your vendors and to talk through concerns and opportunities.
Why is vendor risk management important?
As supply chains get bigger and often heavily reliant on outsourcing, vendor risk management becomes a key part within your organisation. Many third parties have access to sensitive data such as financial and personal data, which makes them more susceptible to security breaches. Vendor risk management helps to manage cyber-risk and ensures your third parties are adhering to regulations and compliance.
Examples of high-risk vendors
A high-risk vendor is a vendor that has access to your organisations sensitive information or handles financial transactions. These could include:
- Heavily regulated industries: These could include the likes of healthcare, aerospace, or banking.
- Vendors that have access to your data: Third parties that have access to your data are deemed as high risk, so you’ll need to put a plan in place to document useable data and ownership guidelines.
- Third parties that access your finances: If you deal with a third party to process your financial transactions, it’s important to ensure that data isn’t compromised. These can include credit card companies, third party payroll, banks, and credit unions. Also understanding your vendors financial exposure and risk will support mitigation against their failure and impact on your own supply chain activity.
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