In 2023, two of the largest casinos lost access to all system resources after a malware attack on a shared IT support vendor. Similarly, when POS giant NCR lost access to its payment apps, clients’ operations around the country were affected. These examples show why vendor risk management best practices are vital for cybersecurity, operations, and compliance. Is VRM the missing piece in your enterprise risk framework?
Vendor Risk Management Best Practices for Cybersecurity

A good vendor management program addresses the unique risks your business faces from third-party relationships.
1. Set Clear Objectives for Your VRM Program
The first step in successful risk management is establishing goals for your organization. Here are a few examples:
- Improving vendor contract adherence and oversight
- Ensuring vendor compliance with HIPAA, GDPR, DFARS, or another regulatory framework
- Reducing supply-chain cybersecurity vulnerabilities
- Standardizing and streamlining the onboarding process for vendors
- Leveraging data to make more strategic supplier decisions
- Minimizing ransomware attack surfaces and software vulnerabilities
For some enterprises, the goal is to reduce costs associated with a disorganized and resource-intensive onboarding process. Others strive to enhance regulatory compliance throughout their supply chains. Establish priorities based on your organization’s risk appetite and operational strategies.
2. Perform Comprehensive Vendor Risk Assessments
Traditional methods of evaluating supplier trustworthiness are outdated. Ransomware can — and has — bring global systems screeching to a halt, including airline operations, healthcare systems, and cloud platforms.
What does a comprehensive vendor risk assessment look at? At the very least, include the following details:
- Financial health
- Cybersecurity controls and certifications
- Governance structure, operational procedures, and internal quality standards
- Compliance data (internal and external audits)
- Business continuity measures
- Service uptime
- Legal records
Manufacturers must go beyond vendor size and fulfillment capabilities and include cybersecurity concerns and ESG risks. Financial organizations need to look at business continuity and regulatory compliance for SaaS providers.
3. Rate Vendors By Risk Level and Risk Exposure

Not all suppliers pose the same level of risk or require the same investment of resources. That said, size isn’t the most important thing. Even janitorial companies can pose a major risk if workers have potential access to sensitive data.
How do you score supply-chain risks? The formula is likelihood x impact = risk. Compare a few examples related to cybersecurity:
- Low likelihood but high impact: Well-known cloud service providers, such as AWS, Azure, Google Cloud, or IBM Cloud
- Moderate likelihood with moderate impact: Staffing company with employee email addresses and/or phone numbers
- High probability and high impact: Outsourced customer service call center with access to client account information
- Moderate probability and severe impact: Third-party IT provider with complete system access
High-risk vendors are ones with the ability to cause significant disruptions to your organization’s operations. Critical risks involve regulatory compliance, sensitive customer information, and legal communications.
4. Create an In-Depth Vendor Risk Inventory
Detailed vendor risk management is only possible when you can accurately visualize and track risks. This requires creating a detailed map with all outsourced services, suppliers, software vendors, and other third-party contractors.
A secondary information layer outlines the most important risks associated with each vendor (e.g., cybersecurity, financial, operational, or compliance). The inventory list should act as a hub for all risk documents from the same vendor, including:
- Risk assessments
- Compliance reports
- List of security controls
- Product details
- Risk rating per product
This approach puts vendor risk information at your fingertips, allowing for rapid, precise assessments and improving resource allocation. Prioritizing high-risk suppliers provides better protection against security vulnerabilities and helps you mitigate the most urgent risks cost-effectively.
5. Develop a Standardized Approach to Onboarding
According to consulting firm McKinsey, many enterprises struggle with standardization. Often, it’s up to individual departments or business locations to make supplier decisions. A lack of cohesive top-down guidance can introduce operational, compliance, and cybersecurity vulnerabilities, especially for vendor selection.
To get around this issue, follow a documented approach to due diligence. Choosing a risk management framework is an excellent starting point:
- COBIT for IT security and ISO 27001 certification
- ISO 31000 and GRC for broad risk management
- COSO enterprise risk management framework
- FAIR quantitative risk analysis framework
- OCTAVE for DoD suppliers and infosec
Define the scope of risk assessments, verifications, and onboarding pilot programs. Create different standards for low-risk, moderate-risk, and high-risk vendor categories, but be consistent.
6. Assign Ownership Roles for Each Area of VRM
Like many types of governance, vendor risk management is only effective with teeth. Someone needs to take charge. In addition to board buy-in, the program should have named roles and responsibilities.
The primary responsibility usually falls to the CRO or CISO. Sometimes, professionals coordinate VRM in their particular area of expertise, such as:
- Compliance (HIPAA, GDPR, etc.)
- Networking and cybersecurity
- Legal
- Operations
- Financial services
Depending on the size of your organization, it can make sense to assign oversight roles to a committee. A dedicated VRM committee can ensure good coordination and communication.
7. Set Appropriate Compliance Targets, Tracking Metrics, and Risk Escalation Factors
You can only measure ongoing risks and the effectiveness of risk mitigation efforts with targets in place. Key performance indicators for VRM often include:
- System uptime
- Error rates
- Quality scores
- Efficiency percentages
- Regulatory compliance metrics
- Vulnerability detections, incident response times, and false positives
For responsive risk mitigation, you should also establish a set of early warning indicators that automatically elevate vendor risk levels. For example, missing performance targets for two consecutive periods can raise an alert.
Risk escalation also involves providing a channel for project coordinators or vendors to flag problems outside their contractual scope or capabilities, such as state-sponsored cyberattacks that exceed industry-standard mitigation tools. A proactive approach can prevent emergent issues from turning into full-blown data breaches or major compliance violations.
8. Centralize Data Sharing and Eliminate Silos
Technology has improved enterprise capabilities for risk management. With advanced scanning and reporting tools, your entire organization can share supplier risk data.
You’re less likely to be blindsided by threats when all departments can coordinate mitigation efforts quickly. Cybersecurity and compliance professionals need access to up-to-date vendor information for prioritizing risks.
Automated workflows also improve accountability and follow-through. Compliance platforms can ensure audits, reports, and assessments happen on time and go to the right individuals or committees.
9. Design a Secure Offboarding Process

One of the most dangerous times for enterprise cybersecurity is when you have to offboard suppliers. Intentional damage, such as asset theft and data exposure, is especially serious.
Other vendors forget to delete confidential information. Unprotected databases can come back to haunt you with HIPAA privacy violations or consumer lawsuits.
Design your offboarding process to minimize these risks. Monitor system access carefully, and request vendor verification of records disposal.
VRM Best Practices for Operational Risks
There are countless categories of vendor risk, not just information security. VRM can also help reduce operational risks.
10. Create Contingency Plans
If the supply-chain problems of 2019 taught enterprises anything, it’s that you have to plan for the unexpected. Managing risk is just as much about mitigation strategies as avoidance. This also holds true in cybersecurity.
Vendor risk management best practices call for contingency plans. Should vendor worst-case scenarios materialize, you have alternatives ready and vetted. Decide in advance how to minimize operational disruptions in the event of a supply-chain data breach or ransomware attack.
11. Require Independent Audits and Certifications
Self-evaluations are an important part of quality control and contract compliance, but they’re vulnerable to fraud. It’s reasonable to require independent audits of key systems.
Some organizations install on-site personnel for continuous monitoring. Others specify compliance tracking platforms and reporting tools. The extent of oversight measures should be appropriate to the vendor’s risk level, your company’s exposure and reliance, and the standards required by regulatory compliance frameworks.
12. Invest in Continuous Monitoring for High-Risk Vendors or Data
Continuous monitoring and real-time reporting tools are a wise investment compared to the financial, regulatory, and operational harms of a data breach. As threat actors become more proficient in locking down critical systems, mitigating risks with 24/7 threat monitoring, anti-malware tools, and vulnerability scanning is increasingly vital.
13. Build Industry and Regulatory Changes Into Vendor Contracts
Always include the risk metrics you track in vendor service level agreements. SLA terms should have clauses that adapt to regulatory changes. Trustworthy vendors must stay up-to-date with leading industry standards.
14. Gain Insight Into Fourth-Party Risks

To follow vendor risk management best practices, your organization needs a complete picture of supplier-subcontractor relationships. Unless you have insight into fourth-party vendor operating practices, it’s impossible to predict the potential compliance violations, cybersecurity risks, and supply-chain problems that can arise unexpectedly. Business disruptions that impact subcontractors can snowball, ultimately resulting in expensive downtime for your company.
Require vendors to fully disclose any fourth parties involved in the projects, products, or services contracted with your business. Suppliers should provide evidence of subcontractor compliance and accept liability for work quality.
15. Keep Performing Due Diligence
Take a zero-trust approach to all vendors, regardless of prior history. Perform risk assessments at least once a year. Always review compliance and cybersecurity controls before renewing any contract.
Vendor Risk Management Solutions for Your Organization
Many vendor risk management best practices can benefit from state-of-the-art technology. Compliance automation platforms like Compyl streamline risk assessments and improve real-time monitoring. Learn more about enterprise vendor risk management solutions today.