Understanding Vendor Risk Management (VRM)

As organizations continue to expand and engage with more third parties to scale their operations, risk and security leaders are faced with the challenge of ensuring that these vendors align with their risk appetite. However, a concerning statistic reveals that 79% of businesses are adopting technologies faster than they can address related security issues. This highlights the need for effective vendor risk management (VRM) programs to mitigate potential risks and protect the organization.

Vendor risk management, or VRM, involves the process of vetting both new and existing vendors through risk assessments. The goal is to ensure that these vendors do not pose an unacceptable level of risk or business disruption. This includes any third party that the organization regularly engages with, ranging from SaaS providers to manufacturers and more.

By implementing a VRM program, organizations can proactively identify and address potential risks associated with their vendors, safeguarding their operations and reputation.

Understanding Third Party Risk Management (TPRM)

Third party risk management, or TPRM, is a continuous process that involves identifying, analyzing, and controlling risks presented by third parties to an organization. These risks can impact various aspects of the organization, including its data, operations, and finances.

A TPRM program enables organizations to effectively manage the risks associated with outsourcing services and products. It sheds light on areas of potential business risk, allowing the organization to implement appropriate controls and safeguards.

TPRM is a broader discipline that encompasses vendor risk management (VRM) and other forms of risk management, such as supplier risk management and contract risk management. It provides a comprehensive approach to managing the risks posed by all types of third parties.

The Difference Between VRM and TPRM

The distinction between VRM and TPRM becomes clearer when considering the difference between vendors and third parties.

While terms like supplier, provider, contractor, vendor, and third party are often used interchangeably, there is a distinct difference. All vendors, suppliers, contractors, and providers are considered third parties to an organization. However, not all third parties are vendors.

The term “third party” is a broad term that encompasses any organization that has a working relationship with another, including suppliers, contractors, providers, vendors, business partners, consultants, and more. It is a catch-all term that refers to companies that provide goods and services to your business, regardless of the business model (B2B, B2C, or B2G).

Vendors, on the other hand, are a specific type of third party that typically have a written contract with an organization and provide goods and services to them. The term “vendor” is commonly used when referring to SaaS offerings, such as CRM, payroll, or marketing tools.

While VRM focuses specifically on vendors, TPRM encompasses the management of risks posed by all types of third parties. TPRM expands the scope of a VRM program to include any outside party that could potentially pose a risk to the organization. This includes mergers and acquisitions, business partners, federal agencies, contractors, customers, and of course, vendors.

However, the difference between VRM and TPRM is not solely based on the list of parties involved. TPRM takes a more holistic approach by not only assessing a third party’s security posture and making a decision but also by measuring and continuously monitoring their security controls. This ensures that the organization’s risk tolerance and objectives are aligned with the third party’s security practices.

As organizations continue to expand their third party ecosystem and undergo digital transformation, implementing a robust TPRM program becomes crucial in managing and mitigating the risks associated with these external relationships.