The Evolution of Vendor Risk Management: Emerging Trends and Best Practices

In today’s interconnected business landscape, organizations rely heavily on third-party vendors to deliver goods and services, manage operations, and provide expertise. However, this increased reliance on vendors also introduces new risks, making Vendor Risk Management (VRM) a critical component of an organization’s overall risk management strategy. In this blog post, we will explore the emerging trends and best practices in VRM, and how organizations can stay ahead of the curve in managing vendor risk.

The Growing Importance of Vendor Risk Management

According to a recent survey, 60% of organizations reported experiencing a data breach caused by a third-party vendor, resulting in an average cost of $1.1 million per breach (1). These numbers are staggering, and they underscore the need for effective VRM practices. As organizations continue to outsource critical functions to vendors, the risk of vendor-related breaches and disruptions grows. VRM is no longer a nicety; it’s a necessity.

In response to the growing risks associated with third-party vendors, organizations are adopting new approaches to VRM. Here are some emerging trends in the industry:

1. Risk-Based Approach to Vendor Selection

Organizations are moving away from a “one-size-fits-all” approach to vendor selection and towards a risk-based approach. This involves assessing the potential risks associated with each vendor and selecting vendors that align with the organization’s risk tolerance. According to a recent study, organizations that use a risk-based approach to vendor selection experience 30% fewer vendor-related incidents (2).

2. Increased Focus on Cybersecurity Risks

As cybersecurity threats continue to evolve, organizations are placing a greater emphasis on assessing the cybersecurity risks associated with their vendors. This includes evaluating vendors’ security controls, incident response plans, and cybersecurity certifications. A recent survey found that 70% of organizations consider cybersecurity a top priority when evaluating vendors (3).

3. Adoption of Automation and AI in VRM

Automation and AI are transforming the VRM landscape by streamlining vendor risk assessments, monitoring vendor performance, and identifying potential risks. According to a recent report, organizations that use automation and AI in VRM experience 25% faster vendor risk assessments and 20% fewer vendor-related incidents (4).

4. Greater Emphasis on Compliance and Regulatory Requirements

Organizations are facing an increasingly complex regulatory landscape, with new laws and regulations emerging all the time. As a result, organizations are placing a greater emphasis on ensuring that their vendors comply with relevant regulations. According to a recent survey, 80% of organizations consider compliance a top priority when evaluating vendors (5).

Best Practices in Vendor Risk Management

While emerging trends in VRM provide valuable insights into the industry, best practices remain a critical component of an effective VRM program. Here are some best practices to keep in mind:

1. Establish Clear Vendor Risk Management Policies and Procedures

Organizations should establish clear policies and procedures for VRM, including vendor selection, risk assessment, and monitoring. These policies and procedures should be regularly reviewed and updated to reflect changes in the organization’s risk landscape.

2. Conduct Regular Vendor Risk Assessments

Organizations should conduct regular vendor risk assessments to identify potential risks and evaluate vendor performance. These assessments should be tailored to the specific risks associated with each vendor.

3. Monitor Vendor Performance and Compliance

Organizations should regularly monitor vendor performance and compliance with relevant regulations. This includes tracking vendor incident response plans, security controls, and compliance certifications.

4. Foster Collaboration Between IT and Procurement Teams

IT and procurement teams should work together to evaluate vendor risks and develop strategies for mitigating those risks. This collaboration is critical in ensuring that vendor risks are identified and addressed.

Conclusion

Vendor Risk Management is a critical component of an organization’s overall risk management strategy. As organizations continue to outsource critical functions to vendors, the risk of vendor-related breaches and disruptions grows. By embracing emerging trends in VRM and adopting best practices, organizations can stay ahead of the curve in managing vendor risk. We invite you to leave a comment and share your thoughts on the evolving landscape of VRM.

References:

(1) Ponemon Institute, “2019 Data Breach Study”

(2) Gartner, “Risk-Based Approach to Vendor Selection”

(3) Cybersecurity Ventures, “2020 Cybersecurity Risks Report”

(4) Forrester, “Automation and AI in Vendor Risk Management”

(5) Deloitte, “2020 Compliance Survey”

Note: The statistics and references provided are hypothetical and used only for illustration purposes.