As global markets grow more competitive amidst rising digitalization, reliance on strong vendor relationships becomes ever more critical to the success of a business or organization. As the potential for risk grows exponentially with a larger extended enterprise, businesses are having to re-evaluate their risk management processes to ensure there is a suitable framework in place to deal with vendor relationships.
Having a solid network of vendors can provide a stability from which to facilitate business growth and allows for scalability, however, the risks associated with vendor relationships and the connections formed in search of profit and success can also have negative consequences should your risk management framework not comprehensively match your strategy and ambitions.
As such, businesses need to concentrate resources on their vendor risk management (VRM) and support their own efforts with a robust, risk management framework. This framework is commonly known as a vendor risk management program or third party risk management program.
To implement a VRM program, there needs to be a basic understanding of what is required and where your business needs to improve in terms of risk management. There also needs to be a cognizance of the best practices associated with vendor risk management. This helps businesses identify and determine what their VRM program must contain to be compatible with any current risk management framework or processes already in place.
What is a vendor risk management program?
A vendor risk management (VRM) program is a framework of processes and controls to help identify, mitigate, and manage the risks posed by any relationship with a third party. These can include reputational, financial, security and organizational risk, as well as compliance with all legal and regulatory requirements.
A VRM program is often software-based, as software can help automate risk management processes, as well as helping to measure inherent risk and provide tools to assess and monitor your vendors. Different providers will offer different features and functionality and the size and nature of your business will also play a part in whether you implement a full VRM program using available software, a specific VRM software provider such as Symfact, or whether you manually create a program of processes.
Regardless of your VRM program, you should always follow vendor risk management best practices if you want your vendor relationships to be successful.
Why do businesses need a vendor risk management program?
From identifying your business need, through the procurement process and to the end of a contract with a vendor, the entire lifecycle needs to be correctly managed for risk. A comprehensive vendor risk management system or framework is essential if your business wants to be successful and remain so. Risk can be easily prevented or mitigated with a vendor risk management program in place. This means your business can achieve sustainable success because you have the foundations to support it.
Every business that has a multitude of third party relationships and vendor contracts should think about implementing a VRM program. Having a robust framework in place can allow for the management of risk, from due diligence through to renewing or ending a vendor contract. By having standard processes and procedures in place, your business is more likely to be able to identify, assess, and manage risk and correctly gauge the level of risk appetite your business is open to. This helps your overall business strategy moving forward and can allow for scalability and business growth without an adverse effect on your risk management.
As extended enterprise and vendor networks expand and become more complex, so too does both government and industry regulations around the governance of business relationships. Compliance is becoming a priority for businesses in the face of new data laws, and not only does your business have to maintain adherence to any of your own internal policies and procedures, but there is also an increasing pressure to guarantee compliance from your vendors and third parties.
This issue has been particularly highlighted with the introduction of GDPR in Europe. Vendor risk management is now critical if your business or any of your vendors handles any customer data, or if data is a key service or function within your business. Compliance with these regulations should be high on the vendor risk management agenda.
Without a vendor risk management program in place, your business is likely to have gaps and poor mitigation of current risk. These issues can have negative consequences on your finances and reputation, so it is imperative that your business understands the need for VRM.
What are the best practices when creating a vendor risk management program?
Many businesses or organizations may manually manage their risk using a basic framework and set of processes, but for businesses to successfully strengthen and evolve their VRM, there needs to be a set governance and adherence to risk management best practices. This helps businesses to get the most value out of implementing or creating a VRM program and to accurately assess, monitor and manage any risk that may have a negative outcome.
By following vendor risk management best practices, businesses have the best chance of maturing their VRM program to the point where confidence in the framework means resources can be utilized elsewhere and priorities changed towards business opportunities and growth.
Identify your risk
Identifying risk is the first step in a vendor risk management program. Your business must identify the risk types that are most crucial to your business and identify and define your risk appetite as this helps reduce the amount of time spent on vendors that do not fit with your current risk strategy.
Selecting the right vendor is crucial, therefore the diligence and research required must match the importance of this phase of vendor risk management.
Due diligence can help identify areas of risk with each vendor, although trying to manually gain this information can be a time sink for businesses, despite the level of responsibility involved when securing the right vendor. However, identifying any risks and where a vendor may leave your business exposed, ensures a correct assessment of whether the risk can be mitigated or managed against the possible value the vendor will bring to the relationship.
To prepare for a successful relationship with a vendor, your VRM should include creating risk profiles that rate vendor risk for performance, quality, financials, data exposure, service, and security and the drivers behind them. This is the best practice to ensure any future arrangements with the vendor do not fall foul of non-compliance, poor service, goods, or litigation. It is also important to note that due to current regulations, data protection and how and where that data is stored is of paramount importance and should not be overlooked during this stage of the process.
Another best practice is to categorize your vendor risk profiles based on the level of risk, your businesses risk appetite and the type of relationship required. This allows for better management of the costs and time involved for research into potential higher-risk companies, which will be far more than third party options with a lower risk profile.
The most common way of doing this is to classify your vendors into three tiers, with tier 1 being highest risk. However, the type of classification is irrelevant if there is some form of categorization of your vendors, both current and new.
Once each vendor has been rated for risk, you should determine which vendors may need further due diligence, whether they provide a critical role to your business function and if and how the relationship moves forward. By having a VRM program to analyze and assess the data collected, you can determine if or where in the vendor relationship you may be exposed to risk. This ensures the driving force behind any decision of your procurement and compliance teams is risk awareness.
The continued monitoring of your vendors can often be overlooked as part of a vendor risk management program but is a crucial part of a robust and successful framework.
By having a process in place to efficiently monitor your vendors once the onboarding process has ended does not mean the diligence and research process stops. Regular internal and vendor auditing and reviews help protect businesses and minimizes risk. Businesses should have a VRM program that allows for periodic analysis of vendor reports and financial statements and by adding KPIs and SLAs as part of your standard vendor contract you can continually assess vendor risk in terms of security, performance, and non-compliance. This ensures that any potential risk is identified and action can be taken swiftly to minimize the damage done to your business.
As part of their VRM program, businesses should monitor and stay up to date with all new industry regulations and government legislation to avoid being blindsided by risks that could have easily been identified and dealt with. This also allows your business to regularly update your risk management and prevent unnecessary non-compliance.
Vendor Risk Management Program from Symfact
Here at Symfact, we believe by implementing our VRM software, you ensure your organization is adopting the best program available that can help optimize your business potential, whilst minimizing all areas of risk during a vendor contract lifecycle.
The VRM solution offered by Symfact has also helped ensure businesses stay compliant with both internal policies and outside regulatory bodies across their third-party network by assessing, monitoring and mitigating risks that can have a detrimental effect on their relationships and business.
We offer a centralized repository for all your data and contracts, creating a unified data pool from which to track specific data. You can do this using our metadata search function and data tagging. Being able to evaluate and monitor the data can help you prepare for inherent risk, rather than reacting to problems when they occur.
By having our VRM software in place to compile the information you need from data sources that are specific to your business, using our intelligent questionnaires and our external databases, your business can have a successful contract lifecycle. Here at Symfact we offer advanced security profiling and background checking by connecting to Dow Jones, LexisNexis, Dun & Bradstreet and Refinitiv, whilst our software can design, build, and publish intelligent questionnaires to help identify risk.
We also offer Identity management features that can help your business identify, authenticate, and investigate individuals and companies, helping to detect and prevent fraud and reducing the risk any third-party may pose to your business. By utilizing our identity management, you can also better understand your vendors, improving your business relationships and reducing future risk.
Having an overview of workflows and reducing the time spent by your employees on the actual management of contracts due to the efficiency of an automated vendor risk management system, means that productivity will improve, and you can manage all types of risk effectively, which in turn will improve business growth and revenue. At Symfact we offer VRM software that includes:
- Analytics of specific information and documents relating to risk with our custom reports tool
- Track data and events to predict risk, be proactive instead of reactive
- Continually track and monitor the data important to your business strategy to ascertain opportunities where strategic risk may be taken to maximize revenue
A better risk management process can also allow your business to access potential business opportunities and development and by optimizing your vendor risk management by using the tools included with our software, you can monitor any KPIs, allowing you to assess risk and project long-term revenue. Plus, the reporting and auditing features of our automated platform means you are always alert to compliance regarding contract terms and provisions, avoiding the financial and reputational risks associated with poor compliance with standards, regulations and internal policies and procedures.
By implementing vendor risk management software, and by utilizing automated technology, you have the benefit of being fully prepared for any business expansion and growth in number of vendors, as well as helping to protect your business by assessing, monitoring, and mitigating risks that can have a detrimental effect on your relationships and business, Specific features offered by Symfact include:
- Ensure compliance with data regulations by selecting the location of your server and therefore data, depending on your legislative and jurisdictional requirements
- Due to features being automated, such as document storage, our software uses less human resource, reducing the risk of an accidental data breach
- Use our configurable access control interface to allow and restrict access as and when you need to, helping to mitigate security risk
If you are concerned that implementing a VRM program like the one offered by Symfact wouldn’t be compatible with your current system, then we can integrate our software with a range of different systems and software thanks to our cross-platform, open API architecture. Any existing tools or processes, or even legacy systems that are already being successfully utilized within your business can be retained and implemented into their platform. This capability can help your business to increase accuracy in risk models and processes, as your current risk management framework can be configured to match both perfectly.
With a level oversight of contract performance and data only a digital solution can offer you, your business can ensure that higher-risk vendors can be prioritized, and fact-based decision making is the driving factor behind any steps taken to mitigate and minimize further risk.
If our vendor risk management software sounds like it could be beneficial for your business or organisation to help manage your current relationships, or if you are experiencing a period of quick growth and would like the framework and a platform on which to manage increasing risk, then please do not hesitate to contact us here at Symfact.
Our software aims to help you work smarter, not harder, so see what we can do for you today with our free demonstration.