Choosing a potential third-party vendor is always a big decision. You must consider the quality of the solution or service, price point, ROI, and (most importantly) potential risk. Third-party risk management must always be top of mind when choosing a vendor.
In many ways, choosing a vendor is a lot like bringing on a new business partner: When you partner with a vendor, any risks to the vendor's security or reliability are risks to your company too. Consider that the average cost of a data breach in the United States is $9.44 million, and it’s not hard to see how important it is to develop an effective vendor due diligence process.
Along with helping reduce your company's risk of experiencing a data breach, proper due diligence when choosing your business relationships can also help mitigate numerous other risks, including corruption risk, supply chain risk, and regulatory risk.
To help you choose vendors that won't raise your company's risk profile, let's take a look at a step-by-step guide to performing vendor risk assessments.
Third-party due diligence is the process of taking a risk-based approach to vetting vendors, distributors, and service providers in order to identify any red flags that could signal a risk to your company. Along with vetting new vendors during onboarding, it’s also important to maintain a level of due diligence for your existing vendors and implement a system of ongoing monitoring.
Whether your organization is just starting out with establishing due diligence practices or you’re looking to improve your strategy, here are six steps to help you take an effective approach.
Before performing thorough background checks on your vendors, you first need to understand who your company's vendors are. Along with building a list of all your current vendors and their contact information, it's also advisable to organize that list based on the vendor's level of risk.
When evaluating a vendor's level of risk, you should consider any vulnerabilities that the vendor has as well as how much risk those vulnerabilities actually pose to your company. For instance, a vendor that provides a mission-critical product or service, or one that stores data, will likely be classified as a high-risk vendor regardless of its vulnerabilities.
In a 2019 survey, 64% of IT and cybersecurity professionals say that third-party misuse of confidential data is their number one cybersecurity concern.
Along with cybersecurity risks, though, there are several other potential risks that a vendor can present. If you rely on a vendor to deliver a physical product, inherent risks to the vendor's supply chain could disrupt your company. If your vendor is caught money laundering or otherwise breaking its code of conduct, then being partners with them could damage your company's reputation. These are just a few potential risks you will want to keep in mind as you document all of your vendor risks.
To learn more about documenting vendor risks, check out our comprehensive guide to vendor risk management.
Location, location, location: The phrase has applications way beyond the real estate industry. Knowing where a vendor is located can shed a lot of light on the risks they present. For example, some countries may be especially prone to sanctions, which is a risk you need to consider if you are partnering with a vendor in one of these countries.
Other locations are prone to natural disasters, which could create disruptions for your company. Partnering with vendors in locations prone to conflict can put your company at a higher risk of disruption as well; for example, Russia's war in Ukraine is estimated to cost the global economy a total of $2.8 trillion.
With all that said, a vendor's location, and the inherent risks that their location poses, are important factors to consider in your vendor risk management program.
Third-party relationships can present plenty of risks, making due diligence programs an essential part of modern business. However, performing vendor due diligence is often a tedious and time-consuming process. The good news is that the right due diligence tools can make this process far simpler and more efficient.
With HyperComply, procurement teams can leverage innovative solutions and features that automate and streamline the vendor due diligence process. This includes risk assessment questionnaire templates, automated risk assessment scheduling, security assessment workflows, a comprehensive vendor knowledge base, and much more.
Along with making life easier for your procurement team, HyperComply simplifies the risk assessment process for your vendors by utilizing artificial intelligence to autofill security questionnaire answers with 90%+ accuracy. This means that vendors can respond to security questionnaires much more quickly, further streamlining your security assessment process.
Best of all, HyperComply is completely free to use for procurement teams. Get started with HyperComply today to take the hassle out of vendor due diligence.
A comprehensive security questionnaire is the best way to conduct vendor due diligence. Ideally, this security questionnaire will include questions designed to assess a vendor's risk level across various criteria. Along with assessing a vendor's cybersecurity risk, you may also need to assess the vendor's financial posture, management and reputation, risks to its supply chain, and any inherent risks associated with the vendor's location.
Once again, the best way to ensure that you ask the right questions in your security assessment questionnaire is to utilize a security assessment template such as one of the industry standard templates provided by HyperComply.
Throughout the vendor due diligence process, it’s critical to keep an audit-ready paper trail. Audits can be stressful, and no one likes to be left scrambling for documentation when auditors ask for it. If you have a thorough, well-structured vendor risk program with a solid paper trail, you’ll have plenty of evidence to show that you conducted proper due diligence.
With HyperComply’s due diligence tools, you can automatically create an organized collection of audit-ready documentation. This eliminates tedious manual work and reduces the risk of human error, like forgotten or incorrect documentation.
In the face of heightened cybersecurity risk, enhanced due diligence is the key to protecting your company from the threats posed by third-party vendors. If you would like to start evaluating your vendors in a far more effective and efficient way, HyperComply is the ideal solution for you. See for yourself why organizations all over the globe use HyperComply to streamline their third-party due diligence process — reach out and get started today.