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  • What is Vendor Risk Management: An Overview

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    Vendor risk management (VRM) is an essential part of the risk management policy. Vendors play a critical role in the success of the day to day activities of a business. The third parties offer crucial services to a company in a cost-effective manner, using the best strategies and by experts. However, vendors have access to sensitive customer information. Identifying, analyzing and monitoring the risks that arise due to giving access to vendors. Access to confidential information is why companies need to implement VRM strategies in the company actively.


    Types of Vendors



    Platform-as-a-Service (PaaS)

    PaaS offer cloud space to set up or test various products like social applications, websites, and other software. The platforms facilitate high speeds and a location to streamline workloads.


    Infrastructure-as-a-service (IaaS)

    IaaS gives a business the necessary tools to control a software environment without buying their servers. Usually, firms get large data storage space from IaaS.


    Software-as-a-service (SaaS)

    SaaS providers do the back-end work of the software services. SaaS aims to streamline the end-user experience.


    What risks do vendors pose?

    Vendors pose some risks that can be detrimental to the business and reputation of the company. Various service providers pose different risks depending on the level of access they have to confidential information. SaaS providers present the risk breach through SQL attacks and cross-site scripting. The risk is under the web applications security risk. IaaS providers pose the threat of attacks that leave the services unavailable to customers. The risks fit under the business disruption and disaster recovery risk category.


    PaaS providers have the same risks as SaaS and IaaS providers.


    Factors to consider during the vendor risk assessment

    To make an efficient VRM policy, you need to understand the areas that vendors pose threats. The magnitude of the danger also needs to be analyzed before you choose the appropriate countermeasure. Following the risks will put you in a better position to make an informed decision.


    1. Know Your Vendors

    There should be a list of existing and previous vendors in the company. Different vendors expose a business to various risks. All vendors whether the big or small need an evaluation of the risks involved. Knowing all your vendors is a good starting point for deciding the importance they have to the business.


    2. Assess the Importance of Vendors

    The list of vendors will assist you in evaluating the significance of each vendor. Understanding the role of each vendor to the performance of the business is critical. Some vendors may play insignificant roles in business operations. You can terminate vendors that are no longer valuable to the company.


    3. Assess Vendor Levels of Access

    The levels of access that vendors have to company information should correspond to their function. Sometimes some vendors may have more access than necessary. It is essential to identify what a vendor needs to perform its tasks efficiently. Any protected information that isn't useful to the vendor service should be restricted.


    4. Identify Vulnerabilities from Vendors

    Each vendor carries its level of risks. Identify the threats that each vendor poses to the company. The assessment should have equal intensity for both big and small vendors. The goal is to protect the business and confidential information from vendor-related risks.


    5. Analyze and Rate Vulnerabilities

    When you identify the risks, you should analyze them concerning the impact they would have on the company. Rate each risk according to the adverse effects it can have on the company. Allocating a rating to each risk will help you see which risks need more monitoring and controls.


    6. Decide on a Risk Response Criteria

    Each risk requires a response. You can choose to accept, refuse, mitigate or transfer the risk. The risks that you decide to recognize needs to be low impact with fewer chances of happening. Risks that you should minimize are the risks that a business has to take to thrive. Mitigating risks lower the effects of the threat to acceptable levels.  Some ways of transferring risks include insurance and hiring third parties to deal with the risk. Avoid risks that have catastrophic consequences on the business at all costs.


    7. Establish Information Protecting Strategies

    The most popular strategies for information controls include establishing multifactor authorizations, unique logins, encryption, and firewalls. Vendors should only be able to access what is relevant to their work. All the other information should be inaccessible to users without the necessary authorization.


    8. Monitoring

    Monitoring your vendors for any cybersecurity issues is essential. Ensuring that the vendor stays compliant is vital in staying protected. The monitoring process should be continuous for every company.


    9. Service Level Agreement

    A service level agreement (SLA) defines your cybersecurity controls and risk tolerance to your vendors. Vendors always must agree to comply with your cybersecurity policies. The agreement should be signed before the vendors integrate their services to your business.


    VRM regulatory compliance requirements

    Several compliance bodies have come up with some guidelines on implementing VRM. The New York Department of Financial Services (NYDFS), European Union General Data Protection Regulation (GDPR) and Payment Card Industry Data Security Standard (PCI DSS) they are focusing more due diligence, technical controls and SLA for third party service providers.


    You can apply the compliance bodies guidelines to meet the requirements and implement effective vendor controls to your business. The instructions in the compliance requirements ensure that confidential information is adequately under protection from, malicious parties. Protecting confidential information is vital for business reputation, daily operations, and VRM. 


    Author Bio

    Ken Lynch is an enterprise software startup veteran, who has always been fascinated about what drives workers to work and how to make work more engaging. Ken founded Reciprocity to pursue just that. He has propelled Reciprocity's success with this mission-based goal of engaging employees with the governance, risk, and compliance goals of their company in order to create more socially minded corporate citizens. Ken earned his BS in Computer Science and Electrical Engineering from MIT.  Learn more at

    What is Vendor Risk Management: An Overview

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