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A Comprehensive Guide to Manage Vendor Risk

Apr 30, 2019

SpendEdge recognizes that organizations lack the capacity, investment support, and skills to effectively manage the diverse number of vendors and suppliers found in today’s large corporations.

This results in:

  • The potential for a large (or public) cyber security breach, accredited the cyber practice failings of a vendor.
  • The lost value within commercial relationships.
  • Increased likelihood of supplier service failure or non-compliance.
  • Failure to abide by contractual obligations.

Compounding the vendor risk problem is the fact that not all governance activities are continuous and are, therefore, difficult to allocate budget for resources. They require a vendor risk management process within the organization, which can provide cost-effective, flexible services to manage vendor risk by focusing on a wider set of suppliers based on their risk profile.

At SpendEdge, we understand the impact that a vendor risk management program can have on your organization. Therefore, in this blog, we have provided some instructions regarding the basic components of a complete vendor risk program. Presuming that you have a basic understanding of what vendor risk management looks to achieve, we have given below a vendor risk management guide.

Analyzing different types of vendor risk requires a comprehensive overview of suppliers and vendors. Request a free demo and know how our experts can assist you in managing vendor risk.

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Steps to Mitigate Vendor Risk

Step 1: Vendor Classification

When conducting due diligence, ensuring that your company follows a vendor risk-based approach requires a comprehensive classification methodology. The vendor class or Tier will give you vital insights to decide how much scrutiny is needed during the pre-contract due-diligence assessment.

There are numerous methods to choose from, such as vendor risk tier, vendor criticality, and numerical tiering to determine if any vendor’s inherent risk is high, medium, or low.  The determination is done by analyzing vendors on the number of attributes. Attributes might include:

  • Business criticality: ability to provide the best possible services to my customers and partners.
  • Data sensitivity: ability to secure the company’s or customer’s sensitive data.
  • Regulatory impact: ability to address regulatory statues that the company is beholden to.

If the vendor is likely to fail to meet any of these requirements, it can be classified under the “High” risk tier. Such vendors need to be critically assessed via a questionnaire and a corresponding on-sight evaluation.

Want to classify vendors based on the risk they can pose to your organization and customers? Request a free proposal and access our complete portfolio on vendor risk management solutions.

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Step 2: Vendor Risk Assessment

Once the vendors have been classified, the scope of assessment becomes clear. The Scoping Matrix will tell you whether vendors should complete a self-assessment, without considering tiers or classification. In case the organization has identified its vendor population, there can be a tier called “Do Not Assess” in which the self-assessment may not be obligatory.

The assessments are distinctive depending upon the requirements and vendors. The self-assessment questionnaire designed should be indicative of both the level of risk they expose you to and the subject matter that’s relevant to the service they are providing. The questions that might yield ambiguous responses should be avoided and the vendor services typically given your company’s structure by commodity code should be included.

In the pre-contract phase of due diligence, the primary inbound and outbound point of contact is best for the business relationship owner to avoid any delay. Ensure that the questionnaire is accompanied by well documented expectations and reasonable deadlines.

To gain more detailed insights, request for more information.

Step 3: Issue Management

Answers are always more critical than questions. A well-designed questionnaire comprises a corresponding analysis that can analyze the indicated rational response. Scoring a questionnaire can be a difficult task if the services are constantly evolving.

An issue-based scoring is quite helpful in the scenario where the question set, and the services are constantly evolving. It provides insight that is easy to comprehend even for the management. You can track issues through an enterprise issue management solution or anything in between but knowing the status of each issue at all time is paramount.

There are different ways to address findings. Pre-contract due diligence protects your organization from entering into a risky agreement. In fact, you can transfer this risk back to the vendor when they are most motivated to accommodate your requests. Also, if plan strategies that can help you deal with issues by severity, you can handle the issue more efficiently.

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