How to Fill Out a Vendor Risk Assessment

Back in 2013, Target suffered a huge data breach that hacked the information of 41 million credit and debit records and 70 million customer records.?

The reason? Their third-party HVAC company fell for a phishing email.?

To avoid such data breaches, it is necessary to get a third-party risk assessment for your organization so you don’t get off track in your organization’s security strategy.?

Our CISO expert says it’s non-negotiable.?

Industries like healthtech, automotive, retail, e-commerce, and a few others rely heavily on third-party services to fulfill their operational needs.?

With the growing needs of external vendors, it has become imperative to conduct vendor risk assessments.?

Let’s see how you can fill out a vendor risk assessment for your organization’s strong security posture.?

Performing Vendor Risk Assessment?

Before you engage with a third-party vendor, it is essential to fill out the assessment and know the potential risks associated with the vendor.

Here are the five key steps to perform and fill out a vendor risk assessment.?

1. Assess the Vendor Risks

Before you jump into the evaluation process, it is better to understand and identify the vendor risks that might be associated with your vendor. There can be different types of vendor risks such as:

• Cybersecurity Risks
• Operational Risks
• Compliance Risks
• Reputational Risks
• Environmental, Social, and Governance (ESG) Risks
• Financial Risks
• Strategic Risks

You must identify the third parties that have access to the organization's systems, data, or processes. This includes suppliers, vendors, contractors, cloud service providers, and any other external entities. This covers contractors, suppliers, vendors, cloud service providers, and any other outside parties.

1. Create a vendor risk assessment framework

Before evaluating third-party vendors or developing an operational model, your organization must develop a framework and methodology for vendor risk assessment in order to classify your business partners. You can either go with a questionnaire-based risk assessment or a manual one in which the internal team member’s experience and knowledge determine each vendor’s risk level.?

For creating a risk assessment framework, you need to have qualitative and quantitative documentation so that you can better assess it and form the report. Here is what you will need to have:

Here is a free Vendor Risk Assessment checklist that you can download with a single click.

Risk Assessment Qualitative Documentation

• Vendors are categorized by service type
• Access needed to internal data
• Nature of data categorized by risk (client confidential, private data, corporate financial, identifiers, passwords)
• Data and information security expectations

Risk Assessment Quantitative Documentation

• Financial solvency baselines
• Contract size
• Beneficial owners of third-party’s business
• Location of headquarters
• IT Security Ratings

1. Analyze Vendor Risk Profiles

Once you have created the vendor risk framework and gathered all the necessary details for assessment, you will get an idea of the kind of risks they pose. Conduct a detailed analysis of each vendor’s risk profile by reviewing their security practices, financial reports, audit results, and compliance certifications.

This way, you can assess potential risks such as data breaches, service disruptions, compliance failures, financial instability, and legal or regulatory issues.?

1. Categorize Vendors According to Risk Profiles?

After you've evaluated your vendors' risk profiles, award scores based on the degrees of risk they present. Vendors who have access to sensitive data, and critical infrastructure, or are involved in important operational procedures should receive higher risk rankings.

Vendors should be classified according to their criticality and potential impact on your organization.

It is advisable to avoid dealing with vendors whose questionnaires revealed inadequate security measures.

1. Create Risk Mitigation Strategies

In the final step of the process, you'll create specific risk mitigation strategies to reduce the risks associated with each vendor category you've identified. It could include implementing various security measures, such as encryption or access controls, based on each vendor's profile. Here is what you can do as a part of your strategy:?

• Conducting regular security assessments will help ensure ongoing compliance and identify any emerging risks.?
• Establishing clear performance metrics enables you to monitor the effectiveness of these strategies over time.?
• Defining contractual obligations related to security and compliance sets clear expectations for vendors and reinforces accountability.
• Conducting regular audits ensures that vendors are meeting their obligations and maintaining the desired security posture.?

By developing these risk mitigation strategies, you can proactively manage vendor-related risks and safeguard your business operations.

Bottom Line

By following these steps, you can effectively fill out a vendor risk assessment to mitigate risks associated with working with external vendors and ensure the security and resilience of your business operations.