What is the Purpose of a Vendor Risk Assessment?

A vendor risk assessment, sometimes called a third-party risk assessment, is a process that helps companies choose and monitor their business partners.

First, we identify and evaluate the potential risks of working with a vendor. This could include anything from a conflict of interest to potential supply chain issues.

Then, you decide whether the rewards of the partnerships (e.g. financial, reputational) would outweigh the risks. This decision is based on your organization’s policies, procedures, mission, goals, and current needs.

Conducting a vendor risk assessment can be a long and tedious process to complete. However, failing to do so could result in reputation damage, lost business, legal fees, and fines, even if your organization operates ethically and legally. If one of your vendors fails to comply with a regulation (such as data privacy or safety standards), your company will face consequences, too.

The Risks of Non-compliance

• Compliance: Legal risks carry with them the threat of government sanctions and fines.

• Cybersecurity: Data breaches, malware attacks, and other IT-related risks can expose your sensitive data.

• Monetary: You might experience issues with the transactions themselves, such as fluctuating foreign exchange rates or fraudulent billing.

• Operational: Supply chain woes or disruptions in business operations can cause problems on your end.

How THarWi Can Help

Vendor risk management (VRM) is necessary because vendors introduce risks to your organization, and your organization is responsible for handling those risks. If you don’t manage vendor risks, your business can suffer various consequences – lawsuits, monetary penalties from regulators, a tarnished corporate reputation, lost business opportunities, and more.

Vendors that handle sensitive, proprietary, or classified information on your behalf are particularly dangerous. Regardless of how robust your internal security measures are, if your third-party providers have weak security practices, they constitute a substantial danger.

To mitigate those risks, organizations must have an enterprise-wide strategy to measure and evaluate their suppliers. If those enterprise-wide policies are not in place, individual departments may choose their metrics and ad hoc requirements, leading to a poor risk management process.