Vendor Risk Management

What Is Vendor Risk Management?

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Nowadays, a business can’t handle all the facets of their business operations. This is more so the case in the computing world, where a company will outsource some aspects that support their core business processes. This, in most cases, grants the third-party organization access to business data and internal systems, which poses an inherent security risk. For the organization to manage these risks, it has to carefully analyze and create mitigation strategies in case of a catastrophe.

Vendor risk management is the process of assessing and creating mitigation strategies posed by the use of third-party relationships. This process involves determining, assessing, and monitoring risks throughout the process or product’s life cycle.

Vendor Risk Assessment

Vendor Risk Assessment

Vendor risk assessment is the analysis of risk posed by third-party vendors along an entire supply chain. This is also referred to as third-party risk management. These risks include threats to the organization’s security, business continuity plans, privacy, and reputation. Vendor risk assessment aims to establish the extent of damage or disruption posed by affiliation with an external entity.

Any interaction with an external entity guarantees some form of risk to the organization. This is because of the dependence of the organization’s critical assets and processes on the external entity.

Legal Risks

Vendors who interact and form part of an organization’s supply chain pose potential legal risks. An organization should determine what the potential legal drawbacks for transacting with the vendor are. Some of the legal risks include:

  • Regulatory risk: This type of risk comes from the dynamic behavior of laws and regulations which influence the business environment. These may affect the legality of individual transactions.
  • Compliance risk: This risk comes from non-compliance with internal policies and best practices. This results in financial loss or legal penalties. Examples include worker safety policies.
  • Contractual risk: This is a risk that arises from the failure to fulfil contractual liabilities. Failure to meet terms, service level, and risk-mitigating clauses are forms of contractual risks.
  • Financial Risks: In associating with a third-party vendor, the organization may face potential financial backlash. This may be the result of operational terms or contract clauses. It also comes as a result of the exposure of company resources to the organization. Some of the financial risks caused by third-party vendors include losses from theft and lower quality.

Importance of Vendor Risk Assessment

In the context of business risk management, it is crucial to prepare for potential scenarios that could impact the company’s productivity. Third-party risk assessment forms an integral part of a business continuity plan and is relevant to the entire risk management process. Some of the benefits seen in this process include:

More secure business continuity plans

By accounting for external factors of production and process relevant to the organization, the company can create more robust business continuity and risk management policies. This makes the business more secure from external threats to its operations.

Greater organizational stability

An organization that considers the external stakeholders to its critical assets while implementing risk management policies is more likely to recover in the event of a catastrophe. Due to the reliance of stakeholders for critical implements and processes, it is necessary to examine the company’s vital forms of liability and how to mitigate them. Such strategies include finding additional suppliers.

Reduced costs

An organization with better risk management enjoys financial benefits ranging from lower insurance premiums and legal compensation thanks to reduced legal liability, to lesser costs associated with resuming operations in case of a disaster. This cements the company’s financial position, helping it access more significant lines of credit.

Vendor Risk Management Process

Vendor Risk Process

An information security officer tasked with implementing policies to mitigate the fallout from systems failure or breach must perform a vendor risk assessment on the organization’s supply chain. In recent years, numerous organizations have suffered losses due to a third-party vendor breach. This is an Achilles heel to any computing infrastructure as they fall out of the information security officer’s domain.

As such, for it to bear any fruit, the entire process is carried out using a conceptual framework. This is to ensure it covers all the necessary information needed for the process to be successful. An iterative approach should be taken with a constant review of policies and methodology.


What are third-party vendors
Third-party vendors are organizations and entities that are tasked with supplying operationally critical infrastructure and material.
Do third-party vendors pose any risks?
They pose a risk to the organization due to their necessity in an organization’s operations. They possess critical knowledge of the firm and are relied upon by the organization.


The chief information security officer in the organization is responsible for ensuring data security and privacy within the organization. Due to this task’s complexity, they are required to facilitate and coordinate the entire risk management process giving it the appropriate level of cooperation necessary from the management.

The Chief Information Security Officer needs to be trained appropriately to ensure they are prepared to handle third-party vendor risks. At EC-Council, industry-standard training is given to professionals seeking further training and certifications. With practical, hands-on experience given through the course, the trainee is given the skills and knowledge to carry out a risk assessment.

About EC-Council CCISO – Certified Chief Information Security Officer

The CCISO Certification is an industry-leading program developed for current and aspiring CISOs. The CCSIO program does not focus solely on technical knowledge but on the application of information security management principles.

CCISO covers the five important domains of Information Security Management:

  • Governance and Risk Management
  • Information Security Controls, Compliance, and Audit Management
  • Security Program Management & Operations
  • Information Security Core Competencies
  • Strategic Planning, Finance, Procurement, and Vendor Management

For more information, visit the CCISO program page.


OCC: Third-Party Relationships: Risk Management Guidance
“Managing third-party risk in a changing regulatory environment” McKinsey & Company

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