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How To Set Up Your Vendor Risk System

Cybercriminals are increasingly targeting startups, knowing too well that most don’t have sufficient security controls or significant cybersecurity budgets. As a startup owner, you’re at the mercy of hackers who leverage weaknesses in your vendor’s cyber environment to access your system. Setting up a vendor risk management system can help you to vet third-party vendors, and pinpoint and mitigate risks associated with them


This gives you visibility into the vendors you work with, how you share crucial data with them, and the security controls they’ve implemented. Regardless of the nature of your business, outsourcing is a must. This highlights the significance of implementing a vendor risk management system to minimize the possibility and impact of disruptive breaches. 

What is Vendor Risk Management? 

As the name suggests, vendor risk management (VRM) is all about identifying and mitigating risks associated with your vendors’ products and operations. It also entails determining the most probable impacts of risk events so that you measure and prioritize the risks you face. 


When starting a business, you’ll want to establish long-term partnerships with vendors. Thus, VRM helps you gauge your vendors’ security and privacy protocols, credibility, and data recovery plan. Remember that any breach on their side could also create disruptions. Therefore, assessing them gives you an idea of their data security and privacy and business compliance challenges. Ultimately, it will be easier for you to avoid or mitigate risks. 

Setting Up a Vendor Risk System

Here are the guidelines for establishing and implementing a vendor risk system: 

Create a Vendor Policy and Protocol

A vendor risk management system can only work if it’s guided by a concise third-party risk management policy. This is a preliminary document that details everything related to how you’ll handle vendor risk management. The policy should also stipulate how responsibilities will be assigned to your employees and vendors. 


To fully understand the risks posed by vendors, you must undertake an in-depth risk assessment of each product or service they’ll provide. In doing so, you’ll have a clear picture of the vendors’ cybersecurity environment and the risks therein. 

Define Your Vendor Selection Process

Given that you’ll share sensitive data with your vendors, you should be careful when choosing who to work with. Having a well-defined vendor selection and vetting process is vital to the success of the vendor relationship you’ll forge as your startup grows.

The vetting process should be the starting point for choosing vendors to provide a service/product to your organization. Here are the steps to follow during the vendor selection and vetting process: 

  • Issuing a Request for Proposal
  • Comparing potential vendors to competitors to gauge their strengths and weaknesses
  • Undertaking risk assessment and similar due diligence processes as defined by your vendor policy

Create Contractual Standards

Working with different vendors means undertaking unique amendments to the standard contract template. Each vendor you’ll come across has different standards, thus the significance of adding or subtracting various clauses of your vendor contract. Before entering any contract with vendors, ensure that the contract clearly defines your organization’s risk tolerance. 


A contract should also define the metrics for terminating it. For instance, failure by your vendors to implement adequate security controls warrants the cancellation of a contract. So, inserting a cancellation clause in the contract is a way to protect yourself if a vendor isn’t doing their part to stay cyber-secure. 

Undertake Due Diligence and Constant Monitoring

Your vendor relationships can only be as solid as the due diligence process you implement. Even after signing on the dotted line, constant monitoring and due diligence will help you know whether your vendors are behaving as agreed. 


Besides, you’ll stay apprised of the changes they make, which might affect your organization. Ideally, high-risk vendors should get re-evaluated annually, whereas lower-risk vendors can get re-evaluated less frequently. 


Due diligence entails more than requesting papers from your vendors. It also includes: 

  • Evaluating their financial statements whenever they’re released. If your vendors’ finances are in the red, it could affect their service levels or force them out of business, thus affecting your organization.
  • Reviewing vendors’ SOC reports, data security procedures, and business continuity plans. Remember that if your vendors fall victim to a breach, your operations are likely to suffer as a consequence. 
  • Yearly assessments of your vendors’ operational setup

Establish a Continuous and Comprehensive Reporting Process

Your management team and other decision-makers will benefit from a comprehensive and consistent reporting system. It keeps them updated on the vendor risk environment and any new regulations that come into play. Furthermore, having a reporting process isn’t merely a best practice but a compliance requirement. 

Final Thoughts

Managing your organization’s cybersecurity posture is hard enough. The job becomes even more challenging if you have an ecosystem of third-party vendors. Nonetheless, establishing a vendor risk system can help you forge strong vendor relationships while keeping cyber threats at bay. 


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