7 Scary Scenarios to Avoid in Vendor Risk Management

Vendor risk management may not always be for the faint of heart, but it's essential for identifying and thwarting the many risks lurking in your vendor relationships. Of course, there are plenty of ominous tales involving ineffective vendor risk management programs, such as frightful third-party data breaches, alarming financial losses, or reputational damage that haunts an organization for years. Unlike the monster under your bed, vendor risks are real, but they don't have to be terrifying. By approaching them proactively and systematically, you can confidently fend off those vendor risk concerns that may be keeping you awake at night.

7 Scary Vendor Risk Management Scenarios to Avoid 

In your vendor risk management program, you likely face many unexpected scenarios at any given time. However, some can bring negative consequences to your organization. Below we cover seven scary scenarios to avoid:   

1. Facing the unknown: Unidentified vendor risks

   It's impossible to defend against vendor risks if they aren't identified. Most of us don't have a magic crystal ball to provide insights on vendors. Implementing standardized and comprehensive inherent risk assessments is the best way to ensure you effectively identify the types and amounts of risks associated with your vendor relationships. These assessments are important tools for identifying and understanding risks related to data security, privacy, legal and compliance, financial, and more. You must know what you are up against to fight vendor risks effectively.

2. Skeletons in the closet: Insufficient due diligence 

   Due diligence is the process of delving deep into your vendor's reputation and control environment. This ensures risks that could haunt your organization and its customers are sufficiently neutralized. Without it, your organization may not know that the vendor has declining financial health, compliance failures, inadequate data and privacy protections, or worse. Insufficient vendor risk management controls and practices can be frightening, so your organization should summon qualified subject matter experts (SMEs) to conduct comprehensive and risk-based reviews to pinpoint any lurking concerns. 

3. Caught in a spider's web: Unknown fourth- and nth-party risk 

   Like a spider's web, vendors may seem like separate strands, but they often depend on their own vendors to make it possible to deliver products and services to your organization. It's chilling to think that a fourth- or nth-party vendor without any contract with your organization could be skittering around your sensitive data, ready to tangle up your operations or ensnare your reputation. It's crucial to shine a light on the intricate dependencies of your vendors, especially those of your critical vendors. Requiring your vendors to disclose material fourth and nth parties is a first step. Don't forget to review and assess how your vendors manage subcontractors (your fourth and nth parties) and require evidence of vendor risk management practices like risk assessments, due diligence, and ongoing monitoring. 

4. No escape: Poor business continuity and disaster recovery (BC/DR) planning 

   Your critical vendors must have fail-safe BC/DR plans for a clear and tested strategy to keep the lights on when things get spooky. When the winds howl and the ghosts of disruption stir, processes for returning to business as usual become paramount. Suppose your vendor doesn't have well-developed and tested BC/DR plans. In that case, your organization may be trapped and scrambling through the dark due to a cyberattack, natural disaster, or other unforeseen business-disrupting event resulting in operational failures, negative customer impacts, or reputational damage. Review and assess your critical vendor's BC/DR plans and testing results at least once a year. Verify your vendors have done the same for their critical vendors and ask them to share testing results or any issues discovered.

5. Zombie attacks: Unmanaged vendor issues

   Vendor issues, whether declining performance, an unplanned outage, or a failure to meet contractual obligations, aren’t uncommon. Simply acknowledging an issue isn’t enough. Even minor problems can quickly morph into horrendous situations without proper issue remediation, tracking, and reporting. Consistent and documented issue management helps keep everyone accountable, ensures problems are remediated promptly, and prevents issues from resurrecting.

6. The cursed hourglass: Flawed contract management practices 

   No matter how many vendor contracts you have, failing to manage them properly can cause more years of bad luck than breaking a mirror can. Your vendor contract might seem valuable initially, but it may contain unfavorable terms that can cause significant long-term harm. Missing important contract dates, such as an auto-renewal notice period, could result in being locked into a vendor contract for longer than expected, increased costs, or loss of negotiating power due to delayed action. Vendor contracts are a crucial tool for organizations to manage risks, incentivize vendor performance, and ensure vendor compliance with risk management and regulations. To avoid getting frozen in time with a less-than-ideal vendor contract, prioritize establishing key dates and calendar reminders for contract management as soon as a vendor contract is executed.

7. Phantom files: Insufficient or missing documentation 

   Vendor risk management should be a fully auditable process, which means that documentation and reporting are key elements. Failing to provide clear documentation is, at best, a sign of taking shortcuts in the name of time or effort, or may be considered negligent or interpreted as a lack of transparency. Vendor risk management processes must leave a clear trail of evidence. Examiners, senior management, and the board will all expect processes to be well-documented, records to be kept, important meeting minutes to be accessible, and a paper trail supporting how decisions were made. Lack of documentation and notes can summon sinister repercussions from the shadowy realms of noncompliance.

3 Strategies to Prevent Spooky Scenarios in Vendor Risk Management    

Now that you know seven spooky scenarios to avoid, here are three tips to help keep your vendor risk management program in top shape:

• Dust off your vendor risk management program and policy – Make time to brush away any cobwebs and review the information so that it’s current and roles and responsibilities are clearly outlined. If they’re shrouded in mystery, it might be time to employ the RACI (responsible, accountable, consulted, and informed) method. Work products and procedures should follow policy requirements and account for any recent modifications to regulatory requirements. Current and well-maintained governance documents can help ward off vendor risks like garlic repelling vampires.
• Watch out for the gremlins of new and emerging risks – New and emerging risks are always hiding in the shadows, ready to pounce when least expected. Well-developed ongoing risk and performance monitoring can help safeguard your organization and its customers against all types of mischief. Forget about a magic amulet – for an extra layer of protection, consider investing in professional risk intelligence. It will keep you alerted to changes in a vendor's financial health, cybersecurity or privacy profile, compliance issues, and more. In the battle against unseen forces, it's important to be forewarned to be forearmed.
• Embrace the modern magic of vendor risk management platforms – Instead of relying on outdated manual processes and spreadsheets, which are as unreliable as a creaky coffin, organizations can opt for modern dedicated vendor risk management platforms. These platforms are designed to provide proactive and systematic control over vendor risks. Similar to a witch's broomstick granting the power of flight, these dedicated platforms can give your organization the power of automation, centralized data storage, structured workflows, automated alerts, and various reporting tools, all of which are powerful assets for your vendor risk management program.

If you still feel scared by vendor risk management, try to remember that protecting your organization is less about battling unseen forces and more about taking an organized approach to identifying vendor risks and systematically remediating them using well-documented processes, clear roles and responsibilities, applied best practices, and appropriate tools.