A Comprehensive Guide to Vendor Risk Assessment

August 23, 2022
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If you’re running a company, you are likely working with many different vendors to take care of your team and your customers. These vendors provide everything from HR and accounting software to cleaning services and electronics.

After a few years, you probably work with so many vendors that you don’t actually know how many you have. Walmart works with 10,000+ suppliers, as do many businesses of their size. Smaller companies—those with roughly 200 employees—work with an average of 120 vendors.

When you’re working with so many external partners, it’s essential that you understand how safe and secure those vendors really are. Vendor risk assessment needs to be a key piece of your procurement process to ensure that you can protect customer and team information.

In this guide, we’ll share what vendor risk assessment is, why it’s so important, benefits to consider, and dangers to watch out for. We’ll also help you understand vendor risk assessment tools and offer a step-by-step guide for their implementation.

What is a Vendor Risk Assessment?

A vendor risk assessment is a specific type of vendor review designed to understand the tools, systems, and processes a vendor uses so that you can assess your level of risk and vulnerability.  

When you conduct a vendor risk assessment, you’re seeking to understand how your data will be handled in a vendor’s systems so that you can prevent sensitive information from being exposed.

Conducting a vendor risk assessment not only helps keep your company information safe, but it also ensures you’re protecting your customers’ information.

Why is a Vendor Risk Assessment Important?

Every vendor you partner with works with dozens (possibly hundreds!) of their own vendors, each of which introduce new risks. You've worked hard to earn the trust of your customers, and now you need to ensure that all the companies you work with will honor that trust as well.

Even reputable companies suffer from security breaches and cybersecurity attacks. Vendor risk assessments are important because:

  • 300,000 pieces of new malware are created each day (Web Arx Security).
  • hacking cost companies worldwide $6 trillion to fix in 2021 (Cybercrime Magazine).
  • 30,000 websites are hacked daily worldwide (Web Arx Security).

In a world of so many cybersecurity threats, it’s important to make sure that the vendors you work with are taking security and compliance as seriously as possible.

The Key Benefits of Vendor Risk Management

Vendor risk management is more than important—it’s essential. Assessing vendors to determine their level of risk protects your company, but it also can provide helpful information for developing your own risk management strategy. 

Here are some key benefits of vendor risk management:

Provides Data and Insights For Future Risk Management

Each risk assessment you run will likely uncover new possible scenarios or risk surfaces that you want to incorporate in future assessments. These scenarios may even help you identify opportunities to improve your internal security systems. And, as your vendor network grows, you need to be even more thoughtful about how all of your systems play together.

Risk Management Creates More Efficient Processes

The bias of risk management is to have data stored in as few places as possible. This forces teams to evaluate what's really critical and envision more streamlined data pipelines or processes to limit third-party exposure. Rather than having customer data stored in multiple tools by default, your team may be able to streamline their reporting and CRM workflows into a single tool, reducing the number of potential risk surfaces.

Simplifies the Vendor Sign-Up Process

Having a strong vendor risk management process is a key piece of vendor onboarding. Completing the vendor review process helps both parties to understand exactly how their businesses and data will align, and where each company has responsibilities to maintain security. Streamlining onboarding helps you get to value sooner with each vendor as your team can get to work with new partners more quickly.

Offers Defensibility Against Data Breaches

No one looks forward to being audited, but planning ahead for a possible audit can save a huge amount of scrambling to find evidence when auditors come calling. Having a consistent and comprehensive vendor risk program leaves a strong paper trail that auditors will be asking for should a breach ever happen. This is your first line of defense to prove that you conducted sufficient due diligence.

Possible Vendor-Related Dangers to Look Out For

Although cybersecurity threats are the most obvious dangers, there are other red flags that may reveal themselves when you conduct your assessment. These red flags may indicate that the vendor is cutting corners when it comes to security and compliance. “Shortcuts” are usually not acceptable and aren’t something to be taken lightly.

Here are some possible vendor-related dangers to look out for during an assessment.

Cybersecurity Threats and Potential Hacks

Cybersecurity threats and vulnerability to hacks are the most obvious red flags. These are also what companies are typically looking for when they do an assessment. Although they’re the most obvious and arguably the most important, they’re also the hardest to stay on top of, as the world of cybersecurity changes on a daily basis. This is why many companies assess vendors based on their compliance to accepted standards such as SOC 2 and ISO 27001.

Vendor Financial Problems

If a vendor is experiencing financial problems such as issues with cash flow or sweeping layoffs, it’s in your interest to closely examine their security protocols. Vendors who are underwater are more likely to cut corners or lay off staff who would have been responsible for managing security programs. Financial problems aren’t necessarily a dealbreaker, but vendors who are experiencing such issues should be under extra scrutiny.

Legal or Regulatory Compliance Issues

Vendors that have legal or regulatory compliance issues have them for a reason, so make sure you’re reviewing where they stand. Don’t ignore these issues, as all companies are required by law to follow certain legal and regulatory standards. If they’re not able to follow these guidelines, then will they be able to follow high enough standards to protect your sensitive information?

Operational Threats

If a company is unable to deliver what they promised then that represents an operational threat. For example, if your HR software is constantly down and employees are unable to access it, then you may be at risk of delaying paychecks or having unhappy employees. Some businesses create business continuity plans when they hire a vendor, which is basically a backup plan in case that vendor goes dark.

Poor Reputation

Some companies simply have a bad reputation. They’re well-known in the industry as a company to “watch out” for. This is usually because of past cybersecurity attacks, financial problems, or legal or regulatory compliance issues. Sometimes, however, companies have a bad reputation because of customer service issues or treatment of employees. If you choose a vendor with a poor reputation in your space, you’re potentially creating a bad name for your brand, as well. 

What to Look For in a Vendor Risk Assessment Tool

Vendor risk assessments can help you determine whether your accounting, HR, or engineering software is going to keep your company information private. But how do you actually conduct an assessment? And, if you’re the one getting assessed, how can you ensure the process is smooth? 

Some companies opt for a manual approach, but this can take time away from security engineers, CISOs, and expert team members who have other responsibilities. Many companies today are using vendor risk assessment tools to not only speed up the process, but ensure the vendors they’re working with meet their standards.

Uses Automation for Completing Security Questionnaires

Security questionnaires can be tedious, especially if a vendor is given hundreds of questions to answer. Not only that, but sending out questionnaires manually requires your busy team to be on the ball. Automation can help, as more automation = more ability to run risk assessments regularly rather than just one point in time. This results in better security.

Simple and Easy to Use

If your vendor risk assessment tool is clunky and hard for your team to use, then they’ll be less likely to use it at the cadence necessary to protect your company from vulnerabilities. That’s why finding a tool that is simple and easy to use is more than a nice-to-have.

Seamlessly Identifies Gaps

A great tool should seamlessly identify gaps in responses from vendors. If they answer a question and the answer does not meet your standards, the tool should be able to flag it. Tools that combine automation with human review are best equipped to seamlessly identify gaps on your behalf.

Offers Standardized Templates

Standardized security questionnaires, such as those produced by SOC 2 and ISO 27001, are a great option for those looking to remain compliant but aren’t sure where to start. Standardized templates make it easy to get started quickly for companies who may not have a dedicated procurement team and are comfortable relying on third-party industry standards.

Offers Customized Templates

Some companies, especially larger ones with established security programs, may need to load their own customized templates into their vendor risk assessment tool. These customized templates offer the flexibility and power needed to larger companies who have custom security programs and need to tailor their vendor risk templates to meet internal demands.

Step-By-Step Guide for Implementing a Vendor Risk Assessment Tool

Whether you’re creating a vendor risk assessment for the first time or improving the process you already have, you’ll need to implement the right tool. Here’s a step-by-step guide for how to do so:

1) Research and Choose the Right Tool

There are a few options available on the market today when you’re shopping for vendor risk assessment tools. Here at HyperComply, we’ve worked with customers who previously tried vendor security assessment tools created by Whistic, Conveyor, and One Trust. However, HyperComply is different from most other tools because we offer streamlined vendor security reviews that use a combination of advanced machine learning plus expert human review. AI combined with human review means you’ll spend 86% less time completing security questionnaires. 

Want to learn more about HyperComply? Watch a demo video.

2) Get Your Team Up to Speed on the Vendor Risk Assessment Tool

Once you’ve chosen and implemented a tool, you’ll need to get your team up to speed. Typical users of a vendor risk assessment tool will be stakeholders from your security, procurement, and compliance teams. Your team needs to feel comfortable in the tool so that they’ll be able to execute your vendor risk assessment process. Schedule an hour or two with your team, and walk through how your vendor risk process will work in the new tool.

3) Import Existing Vendor List or Build a New Vendor Inventory

If you already have a vendor review process in place, then you may be able to simply import your existing vendor list into your vendor risk assessment tool. If you’re starting the review process for the first time, you’ll build a new vendor inventory list, which is simply a list of all vendors used across your company from SaaS products to physical service providers As part of this process, you might also categorize vendors based on risk level.

4) Select an Assessment Framework 

Larger, established companies may have their own assessment frameworks based on specific user data requirements or regulatory concerns they want to address. But many smaller companies rely on established security frameworks to check for compliance best practices. Some of the most popular options out there are CAIQ Lite and SIG Lite Licensing these third-party standards can be pricey (thousands of dollars!) but are informed by industry experts and are a short-cut to ensuring your security bases are covered.

5) Build Your Vendor Risk Assessment Processes

Once you’ve chosen a tool, gotten your team up to speed, built a vendor list, and chosen a framework, you’ll want to nail down your process. Who is going to own the vendor risk assessment process? Who will participate in the review? In what order will each member participate? At what stage will the vendor risk assessment come into the procurement process? How often will you send security questionnaires? These are all questions to answer as you’re building out an established process. 

6) Worry Less About Vendors

Once you’ve established a vendor risk assessment process, you’ll be able to execute on it and ultimately worry less about vendors and the risks they pose to your company. By having a strategic process backed by a world-class risk assessment tool, you’ll be able to regularly survey your vendors and onboard new ones, all the while protecting yourself from risk.

Vendor Risk Assessment Simplified With HyperComply

Whether you’re a vendor providing services or a security leader looking to ensure that vendors meet your standards, you’ll want to be well-positioned to participate in vendor reviews. You want these reviews to be accurate so that there are no surprises down the line. That means having a vendor review process that is as efficient and seamless as possible. 

With HyperComply, vendor management becomes a simple and secure process so companies know they are building strong partnerships.

If you’re looking to streamline your vendor risk assessment process, we'd love to show you how HyperComply can help accelerate your procurement cycles. Learn more about our product or request a demo today.