Building a Vendor Risk Management (VRM) Program, Complete Guide

Introduction

Third-party vendors increase efficiency, deliver better customer experiences, and reduce costs. However, they can also introduce significant security risks. A lack of due diligence can lead to data breaches and security incidents, resulting in financial losses, regulatory penalties, and reputational damage. Thus, fostering trust and ensuring security in vendor relationships is pivotal.

A robust Vendor Risk Management (VRM) program, or Third-Party Security Risk Management (TPSRM) program, enables Information Security & Assurance teams to identify, assess, and mitigate the risks associated with third-party vendors, enabling transparency, trust, and compliance.

But what does vendor risk management entail? And how can organizations construct a robust VRM program to safeguard the data that their vendors manage?

In this definitive guide from SaltyCloud, we demystify VRM, exploring real-world examples to illuminate the risks associated with third-party vendors. We’ll also cover why VRM is essential and examine its key components. To provide context, we’ll outline some legal mandates and certifications that specifically focus on VRM. Beyond that, we’ll compare various risk management models like SCRM, TPRM, VRM, TPSRM, and TPCRM to help you understand the differences and advantages of each. In particular, we’ll make a case for why TPSRM offers a more comprehensive approach than traditional VRM.

What is VRM?

VRM (Vendor Risk Management) is a systematic process to identify, scrutinize, monitor, and mitigate inherent security risks that third-party vendors may introduce.

While VRM can encompass various risks—strategic, operational, business continuity, legal, financial, and reputational—this guide focuses on information security and regulatory compliance.

What is a third-party vendor?

A ‘Third-Party Vendor’ is an outside organization you hire to provide specific goods, services, or functions for your company. Often, this means they’ll need access to your systems, data, or infrastructure.

Why is VRM important?

Vendor Risk Management (VRM) is essential for protecting an organization’s data and ensuring transparency in relationships with third-party vendors. In a world where outsourcing is commonplace, especially for large organizations managing vast amounts of data, dependence on vendors is considerable. Ensuring due diligence with third-party vendors promotes transparency and trust in relationships, ultimately guaranteeing that vendors have, and maintain, robust security measures to protect sensitive or critical data.

Important components of VRM

A vendor risk assessment, also known as a third-party security review, third-party security assessment or third-party security evaluation, is a pivotal part of vendor risk management. It involves a thorough examination of a vendor’s security policies, methods and controls to ascertain their trustworthiness in managing and safeguarding your organization’s data. If a vendor lacks adequate security practices, you must weigh whether to accept the risk, request the vendor enhance its practices or seek an alternative vendor.

Data classification, or “triaging” vendors based on the data they process, is another key component of VRM. This practice aids organizations in categorizing data into different classifications, such as regulated data (e.g., Controlled Unclassified Information or data protected by HIPAA) or valuable data (such as proprietary information). By organizing data and vendors, organizations can more effectively identify and prioritize potential risks.

Maintaining an accurate third-party vendor inventory is essential for an effective VRM program. This inventory should include a list of all third-party vendors, the types of data they process, their level of access to your organization’s systems and all stakeholders involved. It is also crucial to centralize attestations, documentation, assessments and any active risks associated with each vendor. Regularly updating and reviewing this inventory helps identify any new risks that might arise due to changes in the vendor’s operations or your organization’s requirements. It ensures no vendor is overlooked and appropriate risk management strategies are applied consistently.

Regulations that require VRM

Due to a rise in incidents involving third parties, regulatory agencies across the globe are either implementing or working on establishing more rigorous vendor risk management guidelines. Modern organizations are complex entities that operate across various sectors, dealing with a diverse array of data types. Take an academic medical center, for example: it not only needs to comply with HIPAA when handing electronic Protected Health Information (ePHI), but also with PCI-DSS for credit card transactions and potentially CMMC for defense contracts. The evolving complexity of data classification and corresponding regulations makes VRM, management, and third-party security risk management, an increasingly vital process in an organizations information security program.

In the U.S., numerous important data regulations mandate strict information security measures which extend to third-parties and even fourth-parties. These regulations encompass HIPAA, PCI-DSS, GLBA, Title 23 NYCRR Part 500, CCPA, VCDPA, GDPR, NERC CIP, FISMA, CMMC, ITAR, SOX, and FERPA, among others. Importantly, these regulations are not limited to specific industries but frequently cross over into multiple sectors, thereby increasing the level of regulatory complexity that organizations must navigate.

Frameworks and certifications for VRM

When it comes to vendor risk management, guidance from industry-standard frameworks and certifications serves as your navigational compass. Two essential frameworks worth noting are NIST SP 800-161 and ISO/IEC 27036.

• NIST SP 800-161: Primarily targeted at federal systems, this framework provides detailed, tactical guidelines for identifying, assessing, and mitigating supply chain risks, including ongoing monitoring of existing controls.
• ISO/IEC 27036: Serving as a more strategic guide, ISO 27036 offers a principles-based approach, enabling organizations to tailor implementation according to their specific suppliers and risk appetites.

SCRM vs. TPRM vs. VRM vs. TPSRM vs. TPCRM

While terms like TPRM, TPSRM, TPCRM, SCRM, and VRM are commonly used interchangeably, each term has its own distinct implications. Comprehending these differences is essential for building an effective risk management strategy.

• Supply Chain Risk Management (SCRM):SCRM focuses on identifying, evaluating, and mitigating risks throughout the supply chain. Although it can include third-party risks, its broader purview encompasses various elements of the supply chain, from choosing vendors to overseeing distribution and delivery. The objective is to maintain business operations, even in the face of potential disruptions like supplier bankruptcy or geopolitical issues affecting logistics.

• Third-Party Risk Management (TPRM): TPRM is dedicated to overseeing the risks linked with third-party affiliations. These can range from operational and financial risks to compliance, reputational, and cybersecurity issues. It adopts an all-encompassing approach, taking into account the wide array of potential risks arising from relationships with third parties.

• Vendor Risk Management (VRM): VRM primarily focuses on vendor-related risks and shares many similarities with TPRM and TPSRM. It encompasses the full cycle of a vendor, from initial onboarding to eventual offboarding. This entails assessing the risk associated with each vendor, continuously monitoring their risk profile, and ensuring they meet all compliance standards and operational benchmarks.

• Third-Party Security Risk Management (TPSRM): TPSRM specifically targets security-related risks that come from third-party associations. Beyond just IT concerns, TPSRM works to ensure that third-party affiliates adhere to security and compliance standards comprehensively. This includes safeguarding against vulnerabilities in data storage, transmission, and even physical and security protocols.
• Third-Party Cybersecurity Risk Management (TPCRM): TPCRM is a specialized form of TPSRM. While the primary objectives overlap, TPCRM takes a more focused approach to continuously monitor the cybersecurity posture of third-party vendors. This may include more intensive efforts like continuous penetration testing and vulnerability evaluations.

Why TPSRM is better than VRM

While managing vendor risk is crucial, it’s just a part of a larger, more intricate puzzle. Third-Party Security Risk Management (TPSRM) expands the scope to include all third parties, not just vendors. Ultimately, vendors aren’t the only ones that can jeopardize your organization’s information security. Partners, clients, contractors, consultants, and intermediaries all pose unique risks. Those with significant roles or access to sensitive data require rigorous vetting. Choosing TPSRM over VRM strengthens and future-proofs your risk management strategy.

For a detailed guide on how to build an effective TPSRM program, check out our comprehensive guide, “Building a Third-Party Security Risk Management (TPSRM) Program, Complete Guide.”

How IsoraGRC helps you bring your VRM program together.

An effective and collaborative Vendor Risk Management (VRM), or Third-Party Security Risk Management (TPSRM), Program is essential for defending an organization’s most critical data against escalating supply chain attacks.

But it’s about more than just security—it’s about building trust in your partnerships and empowering internal and external stakeholders to participate.

Isora empowers Information Security & Assurance teams to create a collaborative workspace where their VRM program can thrive and scale.

By centering GRC around people, Isora not only facilitates risk reduction and regulatory compliance but also promotes program adoption, participation, and, most significantly, a risk-aware culture.

With Isora, Information Security & Assurance teams of all sizes can:

✔ Build a data-focused, organization-wide third-party inventory, where assessments, documents, and risks are centralized and metadata details like data classification, owners, users, contacts, and risks can be tracked.

✔ Launch custom or prebuilt security questionnaires (e.g., SIG, CAIQ, HECVAT, and others) where internal teams and third-parties can answer questions, collaborate, collect evidence, and sign attestations.

✔ Produce insightful risk reports and scorecards based on completed questionnaires that help you identify compliance gaps and perform statistical comparisons.

✔ Connect with any other platforms, including existing procurement, risk intelligence, and GRC platforms to enable the flow of information.

Join dozens of innovative teams who trust Isora to help them build and scale their GRC programs.

Discover how Isora can help your team build a VRM program everyone can trust.