What is the process for performing a vendor risk assessment?

1 Define your scope

The first step is to define the scope of your vendor risk assessment. This means determining which vendors you need to assess, based on the type, level, and frequency of service they provide, and the sensitivity and criticality of the data or systems they access or handle. You should also consider the regulatory and contractual requirements that apply to your industry and your vendor relationships. You can use a vendor risk assessment questionnaire or template to collect relevant information from each vendor, such as their business profile, service details, security policies, compliance certifications, and incident response plans.

2 Assess your risks

The next step is to assess the risks associated with each vendor, based on the information you collected and your own risk criteria. You should consider the likelihood and impact of various risk scenarios, such as data breaches, service disruptions, contract violations, or legal disputes. You should also evaluate the vendor's risk management capabilities, such as their controls, processes, audits, and reporting. You can use a risk matrix or a scoring system to rank and prioritize the vendors according to their risk level, from low to high.

3 Mitigate your risks

The third step is to mitigate the risks that you identified and prioritized. This means implementing appropriate measures to reduce, transfer, avoid, or accept the risks, depending on your risk appetite and tolerance. Some examples of risk mitigation strategies are: updating or renegotiating your contracts or service level agreements, enforcing stricter security standards or compliance requirements, conducting regular audits or reviews, establishing clear communication and escalation channels, or terminating or replacing high-risk vendors.

4 Monitor your risks

The fourth step is to monitor your risks on an ongoing basis. This means tracking and reporting any changes or incidents that affect your vendor risk profile, such as new regulations, vulnerabilities, threats, or performance issues. You should also review and update your vendor risk assessment periodically, or whenever there is a significant change in your vendor relationship, such as a new service, a merger, or a termination. You should also maintain a vendor risk register or dashboard that summarizes and visualizes your vendor risk status and trends.

5 Improve your process

The final step is to improve your vendor risk assessment process. This means collecting feedback and lessons learned from your vendor risk assessment activities, and identifying any gaps, weaknesses, or opportunities for improvement. You should also benchmark your vendor risk assessment process against best practices and industry standards, and implement any necessary changes or enhancements. You should also align your vendor risk assessment process with your overall IT risk management framework and strategy, and ensure that it supports your business objectives and values.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?