Optimizing Your Vendor Risk Management Budget Resources

In today's business environment, it’s increasingly common for internal budgets to remain the same or even be reduced despite an increase in workload. This can leave many vendor risk management (VRM) teams in a tight spot as they strive to maximize their resources and respond to changing and emerging vendor risks, such as cybersecurity threats, supply chain disruptions, and regulatory changes.

No matter your organization's budget, it's essential for VRM teams to understand how they can maximize their resources. How you allocate your VRM budget can significantly impact the success of identifying, assessing, mitigating, and managing vendor risks. Let's look at the importance of vendor risk management budgets and how your organization can make the most of its VRM resources.

The Importance of a Vendor Risk Management Budget

In times of diminishing resources, it can be tempting for organizations to consider cutting vendor risk management programs. However, this short-sighted approach can have serious consequences. VRM is essential to protect your organization from damaging incidents that can tarnish its reputation, drain its finances, and result in legal repercussions. To secure senior management and the board’s support of a healthy VRM budget, you should be able to effectively communicate not only why budget dollars are necessary but how they’re an investment in the health and well-being of the organization and its customers.

Here are 5 reasons why having an appropriate VRM budget is important:

1. VRM efficiency – A VRM budget is essential for optimizing your organization's VRM activities. It’s important to quickly and efficiently identify, assess, mitigate, and monitor vendor risks, which is more difficult if you’re depending on outdated manual processes, or a patchwork of systems and tools not designed to specifically address vendor risk.
2. Regulatory compliance – Regulatory expectations are increasing globally, with a strong focus on critical vendor relationships and maintaining business continuity. An adequate budget for VRM ensures the availability of necessary resources, such as access to qualified subject matter experts to conduct vendor risk reviews in order to maintain compliance and avoid legal consequences.
3. Proactive risk management – Investing in a VRM budget is recommended to improve your organization's ability to prevent and address vendor incidents. For example, by allocating resources to continuous monitoring, your organization can more proactively identify and manage potential vendor risks. In the unfortunate event of a vendor incident, having a VRM budget in place ensures your organization is financially equipped to promptly respond and minimize any associated impact.
4. Cost reduction – VRM is ultimately about cost avoidance because there are significant financial consequences associated with vendor performance failures, operational interruptions, data breaches, and regulatory violations. Unmanaged vendor risks can damage your organization’s reputation, impact customer retention and revenue, and lead to legal action and lawsuits which negatively impact the bottom line.
5. Customer protection – Happy and loyal customers are the lifeblood of successful organizations, so protecting them against unnecessary vendor risks such as transaction errors, misuse, theft, or abuse of their confidential data is essential. An adequate VRM budget can help your organization protect its customers.

How to Optimize Your Vendor Risk Management Resources

Maybe your organization has a VRM budget, but it has limited resources, or there’s no dedicated budget for a program. In these cases, you likely have to make your budget work while still efficiently and effectively managing vendor risks.

Let’s look at some ways you can get the most out of your VRM budget:

• Identify inefficiencies – For many VRM programs, managing complex processes with fewer resources is a reality. So, it's important to identify those elements that might need more investment or an alternative approach to yield better results. For example, if your team is swamped with collecting due diligence documentation, outsourcing that process may be much more cost-effective than hiring an additional full-time employee, and can add much needed VRM bandwidth to focus on managing risk.
• Adopt a risk-based strategy – Many regulators have encouraged using a risk-based strategy to manage vendor risks. That’s because not every vendor relationship will merit the same level of due diligence and will present varying levels of risks. Adopting this strategy can save your organization valuable time by focusing your resources on the most critical and highest-risk vendors.
• Define clear roles and responsibilities – To avoid confusion and duplication of effort, make sure your VRM team and other stakeholders have clearly defined and documented roles and responsibilities. One effective way to accomplish this is by creating a RACI (responsible, accountable, consulted, and informed) matrix, which can help establish the roles and responsibilities for each stage of the vendor relationship and promote accountability.
• Invest in automation – When it comes to managing vendor risks, using spreadsheets and email may seem cost-effective, but in reality, this approach is more time consuming and prone to errors. With numerous VRM activities to complete, time is often a limiting factor. By utilizing automation tools, your VRM team can efficiently manage tasks like risk assessments, due diligence, and performance management. These tools eliminate the hassle of switching between programs, improve communication, and streamline record-keeping. Remember, time is money, and investing in automated processes can save valuable time in the long run.
• Perform a cost-benefit analysis – Several regulators, including the National Credit Union Administration (NCUA) and the Office of the Comptroller of the Currency (OCC), recommend doing a cost-benefit analysis to ensure your organization is getting the expected value from its vendor relationships. For example, monitoring vendor expenses and performance can help identify vendor relationships that are failing to deliver the expected return on investment, or where the costs of managing the risks outweigh the benefits.

Establishing and maintaining a well-defined VRM budget is critically important for organizations to mitigate potential risks associated with their vendors. By allocating appropriate resources to VRM, organizations can effectively identify, assess, and address potential vulnerabilities, ultimately safeguarding their operations and reputation. A healthy VRM budget can ensure the necessary tools, training, and personnel are in place to proactively manage vendor-related risks, thereby contributing to the overall resilience and security of the organization.

Mapping out your annual budget for your VRM program can be challenging. This eBook will help you understand what to consider when estimating your budget, how to create a budget roadmap, and more. Download the eBook today.