What Should be in a Vendor Management Policy
A vendor management policy is crucial for companies handling sensitive data. Having internal security policies is not enough. Organizations should understand the risks that third-party vendors bring. Increased security, along with legal, financial and regulatory reasons, prove the need for a vendor management policy.
In this article, the definition, necessity, and components of a vendor management policy are identified.
What is a vendor management policy?
A vendor management policy is usually developed by a diverse team. Having a vendor management policy is in line with your greater risk management strategy. It reviews vendors, identifies those that pose cybersecurity risks to your organization, organizes them into tiers, and lists controls that the company will implement to lessen risks for each vendor. An example of a control is to rewrite existing contracts to include annual inspections.
Why do you need a vendor management policy?
As your company grows and interacts with more vendors (think fourth to nth parties), your cybersecurity risk goes up.
Regulators have emphasized that data breaches and data leaks linked to third parties pose a huge cybersecurity risk. In fact, 59% of data breaches originate from third-party vendors. That is why it is so important to ensure the security of your vendors, especially the vendors who have access to personally identifiable information or PII.
Consequently, organizations under many industries have been required to draw up vendor management policies for better online security. In other words, you can be sued for not having this policy. More importantly, you could be a target of cyberattacks if you have no vendor management policy in place.
Without this policy, many organizations might not be bothered to review the risks involved with each vendor they transact with. Beyond that, there will not be any clear security standards for vendors to follow, which could lead to disastrous consequences if the vendors have access to PII and other sensitive data.
What does a vendor management policy contain?
So, how do you write or rewrite a vendor management policy?
General tips for writing a vendor management policy
- Create a dependable team
Now that you know how important it is to have a solid vendor management policy, you should choose the right people to write or revise your policy. Besides people from upper management, get representatives from acquisitions and procurement, the legal department, the certified IT security experts, and the business unit. The diversity of the team will mean different positions and perspectives, but they will ultimately be able to contribute something significant to your policy.
- List all your vendors
Now that you have a team you trust, it is time to list and assess your vendors. Think of every third party, contractor, and associate that your organization conducts business or partnerships with. This should be a literal list of vendors complete with the following information:
- Vendor details (industry, address, etc.)
- Details about their access to your sensitive information
- Details about their access to your corporate network
Those vendors who have access to your corporate information and important data should be classified as “Critical” and monitored. Most importantly, learn about how secure these vendors are to prevent malicious actors from using them as a backdoor into your organization.
- Orient and filter new vendors
With a clear vendor management policy, you can impose specific security standards on both new and old vendors. Additionally, you can come up with criteria for cybersecurity standings and use this to decide whether or not you will work with a new vendor.
- Continuously monitor risk
You need a way to continuously monitor and verify if a third party’s security protocols are consistently strong. Your team should also be alerted to new risks and vulnerabilities in their networks to prevent harm to your own network.
Components of a vendor management policy
Policy Scope
Your policy should list specific requirements for third parties in the areas below:
- Security in human resources, physical environment, networks, and data
- Access control
- IT acquisition and maintenance
- Vendor management (i.e., how your vendors manage their own vendors)
- Incident management
- Disaster recovery
- Compliance
Risk Scoring Criteria
In assessing vendor risk, there should be a clear system and criteria for scoring stipulated in your policy. “Critical” vendors can be further classified into high, medium, and low-risk tiers. The following questions should be considered in your security ratings:
- Are these vendors’ services crucial to my own products and services?
- Does this vendor have access to PII for my employees and/or customers?
- Does this vendor have access to private information like financial reports and intellectual property?
- How long have I been working with this vendor?
- How much have I spent on this vendor?
Other core components
- Roles and responsibilities
Identify who owns the policy (the Board or executive management) and the key stakeholders and their roles in mitigating vendor risk.
- Categories of risk
Include the risks that you want to assess in old and new vendors (e.g., financial, operational, reputational, compliance and legal risks).
- Vendor lifecycle
This includes risk assessments, Due diligence, Contracting, Ongoing monitoring, and Termination/off-boarding.
- Related laws and regulations
Conclusion: Key parts of a vendor management policy
Your vendor management policy should help you choose, classify, monitor, and hold your vendors accountable when it comes to security concerns. Make sure your policy has a policy scope, risk scoring criteria, and other essentials like roles and responsibilities and risk categories.
About The Author: Chatty is a freelance writer from Manila. She finds joy in inspiring and educating others through writing. That’s why aside from her job as a language evaluator for local and international students, she spends her leisure time writing about various topics such as lifestyle, technology, and business.
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