Vendor Management: What are the Different Third-party Vendor Risks?

Vendor Risk ManagementFor any business, it is crucial to determine three things – time, money and risks. However, if we look at the current structure, companies increasingly don’t go alone. From suppliers to software and resourcing needs, we are witnessing the rise of extended enterprises.

Over the past few years, the use of third-party vendors has witnessed an exponential increase. Companies trust on a network of third-party IT vendors to render organizational value and competitive advantage. Not just this, companies consider getting software solutions for delivering their core functions, thinking essentially that it would drive more efficiency and savings.

However, this trend exposes them to high-profile risks, and the biggest challenge is to oversee the work of these third parties before it gets too late.

Emerging Risks from Third-party Vendors

Procurement issues

In the past, most of the third-party risks circled the procurement issue. Most procurement processes would start by identifying potential savings from outsourcing, and then the legal department would draft a contract for the same. That’s it!

Few would bother following up with vendors or building a relationship. However, this is not the case anymore. Every business now evaluates the action the vendors take.

And rightly so, because every vendor action will result in a consequence not just legally, but you’ve a reputation to save as well.

As a result, we are witnessing three emerging trends:

  1. Vendor related incidents: Suppliers can cause significant disruptions to your business, but the primary issue is – the risk of not being managed. For instance, there is no monitoring for information security, privacy or anti-fraud management in place.
  2. Regulators on supplier risk: Regulators are closely monitoring on supplier risks. In the last few years, regulators have been asking companies to manage their software supplier risks better.
  3. Economic Volatility: Economic volatility is adding risk to the businesses. As the margins are getting tighter for suppliers, there is an increased risk of supplier disruption.

Common Risks from Third-party Vendors

compliance risks

We know by now that threat landscape is continuously evolving, and as a result, we have to be prepared to face new threats. We have segregated the common third-party risks into three different categories:

Financial/Reputational: There is always a risk that third-party can damage your revenue or reputation. For example, if a supplier provides you with a faulty line of software components, your business can suffer from the reputation loss.

Legal and Regulatory: Not just your business, but you also need to ensure that the IT vendors you’re working with complying with the regulations. For example, if your vendor violates privacy laws, your organization can still be found liable.

Operational: A third-party could completely disrupt your operations. For instance, your software vendor is hacked, leaving you with a downed system.

What Goes into Third-party Vendor Management?

If you are looking to manage third-party risks, the large part involves understanding the network that interacts with your business. Even if you are working with two-three parties, it is likely that they might be in contact with other vendors.

This creates a rather intricate and insecure network, which is not just limited to security assessment but also involves the risk of failing to meet business objectives. While, there are other vital components to consider as well, such as:

Business Objectives

To identify vendor risks, you first need to identify your business objectives. These could include a better metric, asset growth, excellent customer service. Vendors assist you in fulfilling those imperatives.

You have limited time and money to achieve those objectives and failing to meet converts them into other the form of risk. For instance, can you afford to delay that software update? Probably not. Managing third-party vendor requires you to understand the context. This gives you a better picture into business related risks.

Vendor Competency

Look for a person who is competent in the initiatives you are hoping to meet. If the business objective involves security, collaboration, network, cloud computing, etc., you’ll need a vendor who has the right expertise.

Ask valid questions, get perspectives and do straight talk. If someone is using high-level jargon or merely saying, “Yes, we can do that,” suggests that the vendor is not as competent, and simply ignoring the intricacies.


Determine the competency of your vendor on the number of certifications they can provide. Certifications, along with case studies, exemplars, testimonials, and documents can be considered as evidence.

Verify certification numbers and expiry dates and call references for an honest appraisal of the vendors’ services. If the vendor is exaggerating or using misleading phrases in the case study, it is a big red flag.

In the end…

Risks transcend the full spectrum of IT vendors. Your enterprise may be working to meet business objectives but there are several things to evaluate. From material or service needs to diverse capabilities and support expertise, vendor risk can damage your business strategy.

Contact GRIP I.T. today and learn how to plan, or better hire us for complete third-party vendor risk management.