As businesses face higher regulatory scrutiny around their vendor relationships, a strong third-party risk management program is more important than ever.
However, this area remains a struggle for many organizations. Effective due diligence, risk management and measurement, contract review and management, and regulatory oversight can be overwhelming for smaller companies or those without a vendor management program in place.
In fact, according to a third-party risk study, 60% of organizations feel underprepared to perform due diligence on their vendors. Furthermore, more than half of organizations don’t keep an inventory of all the third parties with which they share sensitive information. This lack of oversight heightens for fourth-party vendors — more than 80% of organizations surveyed didn’t know where sensitive information was being shared.
The lesson here is that every organization utilizing outsourced products or services needs a comprehensive vendor management program to protect critical data and minimize risk exposure. If your team or business finds itself in a similar situation — not equipped to analyze vendor risk or maintain oversight into third-party partnerships — then it may be time to begin a formal management plan or bolster an existing program with some best practices.
Not sure where to get started? When implementing vendor management strategies and solutions, keep the following steps in mind:
Due diligence involves investigating third parties to better understand the level of risk that a partnership is likely to pose to your organization. A thorough due diligence process considers the following areas:
While due diligence is a critical part of the screening process for new vendors, it is also important to maintain ongoing due diligence activities and monitoring for existing vendors, particularly as contracts or business processes change.
→ Pro Tip: A good vendor management solution should give you the ability to perform due diligence and score your vendors to determine overall risk.
Managing vendor information (financials, contracts, insurance certificates, etc.) is critical. Many organizations rely on manual methods such as physical files, spreadsheets, and word processing software to manage and track their vendor relationships. However, these techniques are time consuming and no longer meet growing requirements from auditors or regulatory agencies.
→ Pro Tip: Look for a solution that can provide a centralized digital database to store and access your vendor contracts and information.
Integrating data across the organization eliminates redundant activities, processes, and documentation, saving valuable time and resources. In addition to these benefits, sharing data across business functions provides clear visibility into enterprise-wide risk management activities, including business continuity, information security, and audit management, among others. This enables leadership to make more strategic, risk-aware decisions.
→ Pro Tip: Not all risk management platforms are equipped with integration between products. When considering GRC software vendors, look for platforms or software bundles that offer integrated data-sharing, which in turn enables powerful automation capabilities, accurate risk and control analysis, and effective reporting.
Regulator expectations for vendor management are intensifying. As an example from the financial services industry, the National Association of Federally-Insured Credit Unions (NAFCU) recently reported that examiners from the NCUA and FDIC are paying extra attention to service provider arrangements and vendor management issues. Due diligence, contracts, and business continuity planning were highlighted as areas under particular scrutiny.
Don’t get caught unprepared. Find out if your organization is audit-ready:
Download the Vendor Management Audit Readiness Checklist
To stay compliant and ensure audit readiness, there are many contract management and vendor management solutions available, from ad-hoc tools to fully integrated solutions from dedicated software providers. However, few are designed to meet specific regulatory requirements from agencies like the NCUA, FDIC, and OCC, among others.
→ Pro Tip: When considering vendor management systems, look for the ability to organize and generate reports that are not only suitable for executive or management review, but that also meet the needs of auditors during compliance examinations.
Managing multiple third parties can be overwhelming, since each vendor or supplier is unique. Choosing the right vendor management solution can play a big part in your organization’s success.
The goal of using a web-based (also known as software-as-a-service / SaaS) vendor management solution is to improve the availability and reliability of critical business functions while lowering costs. But organizations should also consider usability and long-term compatibility. A user-friendly and customizable platform can provide at-a-glance information and streamlined task management, but also offers organizations the flexibility to modify the solution to fit their needs, manage a range of vendor situations, and scale appropriately as the business grows and changes.
According to an Ernst & Young third-party risk management survey, only 4% of organizations feel that their third-party risk management tools fully integrate and capture overall risk for reporting purposes.
It doesn’t have to be that way. At Quantivate, we understand the challenges of effective vendor risk management. That’s why we designed our Vendor Management Software to be a comprehensive solution for organizations of all types and sizes. It includes built-in risk management integration, with functionality for: