While many companies have internal security policies in place, they overlook the importance of having clear, standardized, and actionable third-party risk management policies and procedures. A vendor management policy is an essential part of a company’s larger compliance risk management strategy. It’s the best practice for companies that work with sensitive data or seek to evaluate their vendors based on risk while also establishing requirements for the level of information security that vendors need to maintain.

Vendor Risk Management Policy: What Is It?

In simple terms, a vendor risk management policy identifies any vendors and suppliers that could be a target for malicious adversaries. Its purpose is to identify vendors, which pose a risk to your organization and then define controls you can implement to minimize third-party and fourth-party risk. It starts with due diligence and assessing whether or not a third-party vendor should have access to sensitive data. A comprehensive and transparent policy acts as a strong foundation for your vendor risk management strategy and will help propel your company’s third-party risk management practices.

But as you may have to consider hundreds of vendor relationships across dozens of departments, performing due diligence assessments for third-party vendors can be time-consuming.

How to Create Vendor Management Policy and Procedures

Most vendor management policies will differ, but the steps to create one will essentially be the same. First, you need to gather a list of your vendors – all third parties, contractors and associates your organization does business with. It’s important to know exactly who your vendors are, so make sure your list is as complete as possible.

Then, you need to critically assess your vendors and determine which of them:

• Have access to sensitive data or personally identifiable information (PII)
• Have access to your internal network
• Your company relies on for important business activities

Once you identify these vendors, you should categorize them as critical and spend most of the time learning about them and monitoring them. If one of these vendors is compromised in any way, it could result in a costly data breach.

Next, you need to establish your vendor risk management procedures. At the very least, your vendor management policy and procedures should address:

• How to conduct due diligence of vendors and what questions to ask
• Content of Service Level Agreements
• Vendor compliance with regulatory and industry frameworks
• Vendor controls that are acceptable and required
• Breach liability – who’s to blame if there’s an information security breach?
• Breach procedures – outline your plan if a vendor experiences a disruption or failure in services
• Vendor review process – which certifications do you want to see, and how do you audit your vendors?
• Termination of contracts
• Oversight required from the board and senior management
• Monitoring of third-party vendors to ensure they continue to meet your requirements and comply with ever-changing regulations

You should also review your third-party risk management policy and update it regularly to ensure that it, and your company, can adapt to changing circumstances or situations.

What to Include in Your Vendor Management Policy

Before you begin writing your third-party risk management policies, take the time to review your internal compliance requirements and consider broad compliance requirements that may impact business operations.

Most companies have a unique approach to writing corporate policies. Some follow a standard policy template that requires consistent formatting and certain policy components. Others are flexible in choosing a structure and format and write their policy the way they see fit. Whichever approach you choose, make sure your vendor management policy addresses these core components:

• The specific roles and responsibilities of your team members in regards to managing vendor risks
• Categories of risk your company assesses at the start of a new vendor relationship and on an ongoing basis (e.g., operational, financial, information security, compliance, reputational, and legal risks)
• Vendor lifecycle – your policy should follow a vendor risk management framework that covers the key lifecycle stages of vendor risk management
• Applicable laws and regulations – if your company must comply with particular laws or regulations regarding vendor/third-party management, you should specifically reference those laws and regulations in your policy

When writing your vendor management policy and procedures, you should do it using high-level language and identify the policy statements regarding your vendor management program. The policy should be a short document that covers each of the pillars of third-party risk management:

• Selecting a vendor
• Risk assessment
• Due diligence
• Contractual standards
• Reporting and ongoing monitoring

You should also create a set of documents for related operational procedures, where you can explain all the details of how specific activities are to be carried out. It’s crucial to outline the roles and responsibilities of all people involved in your vendor risk management program, including senior management and, where applicable, the vendors themselves.

Third-Party Risk Management Policy: Protect Your Company

A formal third-party risk management policy is the first step in developing your vendor risk management program, and it’s essential to this program’s success. You also need to ensure that your risk management program is applied consistently to all third-party vendors from onboarding through termination. The policy will allow you to be confident that your vendors handle your sensitive data in compliance with applicable regulations, standards, and your own privacy and information security policies.

It’s critical to continuously monitor your vendors for cybersecurity risks, operational risks, and compliance risks throughout the business relationship. Just because a vendor was low-risk at the time of onboarding does not mean they will remain so.

Although conducting a comprehensive vendor risk management program is a big job, automation tools like START can help you streamline the process during vendor assessment and onboarding, eliminate overdue ongoing monitoring with automated reminders, and ensure faster remediation flow.