Five Gaps To Close in Your Vendor Risk Assessments
By Thomas Hamata & Job Angula
In a previous article titled “Third Party Risk: Your Hidden Security Blindspot,” we unpacked third-party business relationships and the unseen perils they can introduce to a business. In recent months, we have observed a noticeable shift occurring among local organisations towards enhancing their third-party risk management programs. This move reflects a growing awareness of the crucial need to secure operational ecosystems against external vulnerabilities. Despite these efforts, one essential component—vendor risk assessments—appears to remain poorly understood by many. As a critical component of third-party risk management, mastering effective vendor risk assessments is key for safeguarding operations and ensuring business continuity.
A vendor risk assessment is simply a set of questions that helps a company screen and evaluate a third-party vendor or supplier to see if they are a good business partner for the organisation. The assessment is used to identify risks present in the vendor’s processes or products and determine if they meet the standards set by the company. It helps in evaluating if the vendor is a good fit and if their risk can be mitigated, reduced, or avoided. Ultimately, this process helps organisations in making informed decisions about engaging with specific vendors, avoiding potential risks, or instituting suitable contractual safeguards to manage these risks effectively.
In this article, we aim to clarify and detail five common oversights that impede thorough and effective evaluations of vendor risks. We will pinpoint common pitfalls and offer strategic insights to refine your organisation’s approach to vendor risk management.
Get your house in order first
One critical oversight in vendor risk management is the absence of established internal standards or baselines for evaluating vendor performance and compliance. Without these benchmarks, organisations lack a clear framework to measure and compare vendor risks effectively. This gap can lead to inconsistencies in how risks are assessed and managed across different vendors, potentially overlooking key vulnerabilities or failing to enforce necessary security measures. By defining your own internal standards, your organisation sets the minimum acceptable thresholds for vendor operations related to security, quality, compliance, and other crucial areas. These standards should be aligned with industry best practices and any applicable regulatory requirements but tailored to reflect your specific risk appetite and business objectives. With a solid set of internal benchmarks, you can systematically evaluate each vendor’s ability to meet your criteria, ensure consistent application of your risk management policies, and drive improvements in vendor performance.
Avoid a one-size-fits-all approach
Another common misstep in vendor risk assessments is the adoption of a one-size-fits-all approach, which can lead to either overestimating or underestimating real risks. Different vendors pose different levels and types of risks based on their service offerings, their operational roles within your supply chain, and their geographic environments and regulatory obligations. Treating a small software provider with the same risk assessment criteria as a major hardware supplier, for instance, not only misallocates resources but also skews risk perceptions. Tailoring risk assessments to the specific context of each vendor allows your organisation to apply a more precise, effective approach that aligns with actual risk profiles. This tailored assessment considers the vendor’s unique attributes and the specific interdependencies they share with your business, ensuring that risk management efforts are both proportional and pertinent.
Go beyond the basics
Most organisations focus on direct risks such as financial viability or cybersecurity postures when assessing vendors. Yet, such a narrow view might miss critical elements like operational consistency, regulatory compliance, and reputational risks, which are equally devastating. Imagine a scenario where a vendor’s poor labour practices leads to widespread criticism, affecting your brand by association. Broadening your vendor risk assessments to include these comprehensive risk dimensions ensures that you not only protect your operational integrity but also maintain your market reputation. This expanded scope helps in identifying potential red flags before they manifest into crises, thus enabling more strategic, informed decision-making processes across your enterprise.
Trust but verify
True due diligence goes far beyond initial screenings and requires a deep dive into a vendor’s practices, culture, and history. This means not taking their word at face value but actively verifying their compliance with your baseline standards, checking references, and analysing their financial health and operational resilience. It also involves assessing the maturity of their risk management practices and their ability to sustain operations under adverse conditions. By investing in a comprehensive evaluation process, your organisation not only mitigates risks but also aligns itself with partners who enhance your capabilities and share your baseline operational standards. This thorough vetting process fortifies your supply chain, ensuring that every link is strong, reliable, and up to the task.
Ensuring continuous monitoring
A final significant shortfall in current vendor risk management practices is the absence of continuous monitoring. Many organisations conduct their assessments during the vendor onboarding process and only revisit them periodically, often annually. This intermittent check-in is inadequate in today's fast-paced business environment where threats evolve rapidly and the stability of vendors can change overnight. Continuous monitoring ensures that you remain informed about your vendors' performance and compliance in real-time, allowing for immediate action when potential risks surface. Without this ongoing vigilance, your business may not detect issues until they have already caused significant damage, leading to operational disruptions or breaches that could have been preempted. Ensure therefore that you implement robust monitoring protocols, such as regular stakeholder reviews and periodic on-site audits beyond the onboarding phase.
The journey from recognizing the need for comprehensive third-party risk management to effectively executing vendor risk assessments involves a deep understanding of what makes these processes work and the pitfalls to avoid. As we build on the insights from our previous discussions on third-party risks, we trust these insights serve as a guideline for refining your approach to vendor risk assessments, elevating them from tick-the-box exercises into tactical instruments that foster real business success.
