Vendor risk assessment

What is a vendor risk assessment?

A vendor risk assessment is the process of identifying and evaluating potential risks that involve your vendors, that could have an overall impact on your organisation. A vendor risk assessment determines the effects of uncertain events, which then enables you to prioritise them. Potential risks could include security breaches, compliance, financial information, or the overall effectiveness of the operations. Once the assessment is complete, you’ll be able to mitigate and monitor the risks.

Why is vendor risk management important?

As supply chains get bigger and often heavily reliant on outsourcing, vendor risk management becomes a key part within your organisation. Many third parties have access to sensitive data such as financial and personal data, which makes them more susceptible to security breaches. Vendor risk management helps to manage cyber-risk and ensures your third parties are adhering to regulations and compliance.

Examples of high-risk vendors

A high-risk vendor is a vendor that has access to your organisations sensitive information or handles financial transactions. These could include:

• Heavily regulated industries: These could include the likes of healthcare, aerospace, or banking.
• Vendors that have access to your data: Third parties that have access to your data are deemed as high risk, so you’ll need to put a plan in place to document useable data and ownership guidelines.
• Third parties that access your finances: If you deal with a third party to process your financial transactions, it’s important to ensure that data isn’t compromised. These can include credit card companies, third party payroll, banks, and credit unions. Also understanding your vendors financial exposure and risk will support mitigation against their failure and impact on your own supply chain activity.