Organisations that rely heavily on vendors but don’t have enough visibility into the vendor networks are putting themselves at high risk. Fortunately, a strong vendor risk management program can help them anticipate any risks rather than merely reacting to adverse incidents and situations after they happen.
Performing risk management assessment and having a robust vendor risk management program in place can help organisations achieve business objectives more effectively. However, with rising customer demands, rapidly changing regulatory environment, and increasingly complicated vendor networks, there is massive pressure on organisations to make sure their vendors stay compliant with various evolving regulations and internal policies.
When organisations outsource business activities to a vendor, they are not outsourcing compliance responsibility along with it. If anything, the responsibility is on the organisations to conduct thorough vendor due diligence and monitoring. This is crucial so organisations can mitigate vendor risks, avoid damages, costly investigations, and compliance penalties, and understand vendor relationships.
Understanding and managing vendor risks effectively are also key to maintaining a sustainable business and ensuring regulatory compliance. In most organisations, vendor risk management programs are considered traditional. The focus however is mostly on managing vendor risk when finalising a vendor contract or selecting a vendor.
For a vendor risk management program to be very effective, there should be continuous vendor monitoring so organisations are well-prepared for any unexpected eventualities. Understandably, creating an efficient vendor risk management program can be challenging as several factors need to be taken into consideration.
Some of the factors that need to be taken into account include financial stability and location of the vendor, dependency on the vendor, and the scope of the vendor relationship. Fortunately, technology can come in handy as it can help automate and simplify vendor risk assessments.
Challenges in Vendor Risk Management
There are several reasons why organisations fail to manage non-compliance issues and vendor risks. Some of the prevalent reasons include:
- Complex vendor networks
Nowadays, organisations deal with hundreds, if not thousands of vendors who also have their own agents, partners, and sub-contractors. In a network as vast, it is expected that vendor risks can arise at any point. The challenge often occurs when vendors provide the business expertise required but do not take responsibility for any compliance violations or the risks involving any of the services or products they offer.
- Lack of training and policy awareness
A number of organisations commit the mistake of tracking vendor risks in line with internal certifications and policies. In addition, if organisation policies are not effectively communicated to vendors, a gap in terms of expectations between both parties can occur. As a result, this can impact the vendor’s ability to ensure compliance.
- Conventional approach toward vendor risk assessments
Many organisations often use obsolete manual tools like spreadsheets and documents to manage, create, and distribute vendor surveys. Unfortunately, the aforementioned tools don’t provide real-time threat intelligence. If anything, they provide nothing more than just a static view of vendor risk.
- Heightened regulatory pressure
Organisational policies that deal with vendors have to be aligned with regulatory requirements and rules. Otherwise, organisations can face significant non-compliance issues, penalties, and fines.