Every business needs to cultivate third-party relationships in order to survive and thrive. These vendor relationships could be with manufacturers to obtain inventory or distributors to get inventory to market. Or, you might work with third-party vendors for any number of business purposes, like marketing and graphic design.
All of these vendor relationships pose a certain level of risk to your organization. There’s no getting around the fact that sometimes, a vendor will drop the ball. Maybe it won’t even be their fault — no one can predict the next natural disaster — but that doesn’t mean you don’t need to be prepared for it. By managing third-party risk appropriately, you can forestall many of the predictable risks that plague vendor relationships, like data and security breaches.
Continuous Monitoring of Vendor Risk
The Need for Ongoing Vigilance
These days, it’s just not enough to do your due diligence once and trust a vendor to be on the up and up throughout the rest of your relationship. In today’s landscape, security risks can evolve quickly, and you need to maintain continuous monitoring of vendor risk to identify data breaches and other risks as they appear.
The Enormous Risk of Vendor-Related Data Breaches
The risk of a vendor-related data breach alone is enormous. Forty-four percent of significant data breaches are caused by a vendor, whether as a result of human error, malware, or stolen passwords. And a mere 15 percent of firms report having been notified by a vendor that a breach has occurred.
Self-Reliance in Monitoring Vendor Risks
So you may not be able to trust a vendor to keep you up to date on vendor risks. You need to rely on yourself to monitor for all kinds of risks in your vendor relationships.
Understanding the Types of Vendor Risks
To put together a successful third-party risk management program, you need to understand the many forms that vendor risk can take.
Operational Risks: Protecting Critical Services
If a vendor is supplying services or technology that is central to your business, you could face an operational risk if those services are interrupted. For example, if a cyber attack shuts down an SaaS service your company relies on, business could grind to a halt until it is returned. You risk losing money for the hours or days you can’t operate as a result. How are your vendor’s cyber security protocols?
Reputational Risks: Maintaining a Positive Image
Of course, data breaches and cyber attacks aren’t the only third-party risks your company could face. Your organization could suffer reputational damage if, for example, it’s discovered that one of your third-party vendors has poor environmental practices or a poor social justice record. You could face strategic risks if you and your vendors aren’t collaborating seamlessly toward a common goal.
Financial Risks: Ensuring Contractual Obligations
When vendors have a direct impact on your revenue, you could take a financial hit if they fail to hold up their contractual obligations. Supply chain issues, insolvency, and even staffing problems can all contribute to these kinds of risks. Sometimes, vendors may experience setbacks that impact both of you financially, like extreme weather events or disease outbreaks. Even vendor systems that are used to track your company’s sales could create security risks for your organization.
Compliance Risks: Meeting Regulatory Requirements
Compliance risk is another biggie for many organizations operating under strict regulatory guidance. If a vendor doesn’t comply with applicable regulations, your company could be held just as responsible as if you’d broken the rules yourselves. In situations where regulatory requirements are a factor, it’s vital to not only assess a vendor’s compliance protocols prior to onboarding but to monitor them with close oversight throughout the vendor relationship.
Mitigating Vendor Risks
Third-party risk management can make or break your business because it can be what protects you from that devastating data breach or regulatory nightmare — or not. With the right vendor risk management tools and strategies in place, you can make the most of your third-party relationships and work together with your vendors to mitigate risks and meet common goals.
Focus on Due Diligence and Contractual Agreements
– Perform thorough background checks and due diligence before entering into a vendor relationship.
– Clearly define contractual obligations and responsibilities to minimize risks.
– Include specific clauses related to data security, compliance, and disaster recovery.
Implement Ongoing Monitoring and Assessment
– Regularly assess vendor performance to identify potential risks and issues.
– Monitor vendor compliance with security protocols and regulatory requirements.
– Continuously evaluate and update risk management strategies based on changing circumstances and emerging threats.
Build Strong Communication and Collaboration
– Establish open lines of communication with vendors to foster trust and transparency.
– Collaborate with vendors to align goals and strategies for risk mitigation.
– Regularly engage in vendor meetings to address concerns and discuss proactive measures.
### Diversify Vendor Portfolio
– Reduce reliance on a single vendor by diversifying your vendor portfolio.
– Engage multiple vendors for critical services to minimize the impact of potential disruptions or failures.
– Regularly review and assess vendor performance to ensure they meet your company’s changing needs.
Conclusion
Managing vendor relationships is crucial for the success and security of your business. By understanding the various types of risks that can arise and implementing proactive measures to mitigate those risks, you can protect your organization from potential data breaches, operational disruptions, reputational damage, financial losses, and compliance issues. Remember, continuous monitoring and effective collaboration with vendors are key to maintaining a strong and secure vendor ecosystem.
