How To Create a Results-Driven Supplier Risk Assessment

How to Create a Results-Driven Supplier Risk Assessment

Seventy percent of organizations have under-invested in their supplier risk assessments. This fact is startling given the growing reliance organizations have on third-party outsourcing arrangements.  

Supplier risk assessments help your organization to gain a realistic sense of the risk that third-party vendors pose. They are a critical piece of effective supplier risk management, yet many organizations struggle to get the information they need from their responses. This data can help the organization build up its defenses against service interruptions, data breaches and supply chain threats. 

Knowing what to expect from each supplier starts with conducting effective due diligence and continuous monitoring. Learn how to create a precise, data-driven supplier risk assessment to increase visibility into your third-party risk. 

What is a Supplier Risk Assessment?

Supplier risk assessments allow you to understand a supplier’s risk level before entering a contractual relationship with them. They enable the organization to collect data on the supplier’s security policies, issue history and the supplier’s suppliers – or your fourth parties. This information helps your organization to make informed decisions to mitigate supplier risk. 

The modern supply chain is deeply interconnected; the viability of your organization is one domino in a chain of global suppliers. If a third party suffers a disruption or breach, your organization will likely experience the ripple effects. Your organization is not prepared to understand or address these threats without proper vetting of your third parties.  

Strategies for Creating Effective Assessments

Don’t make the mistake of assuming that your program should create and distribute assessments equally throughout your vendor population. The most successful supplier risk management programs have a defined process for assessing their third parties at the appropriate scope and frequency. Organizations create program inefficiencies by over or under-scoping their suppliers with a one-size-fits-all assessment. To get the most insight from your supplier assessments, ensure that you:  

Know Who Your Suppliers Are & Assign Inherent Risk Scores

Identify the suppliers in your third-party population and assign them an inherent risk score to prioritize program resource allocation. Your organization may have hundreds, if not thousands, of suppliers that should not be afforded the same level of attention. 

Critical vendor criteria include:  

  • The supplier has access to highly sensitive data, whether it’s your organizational data or your customer’s data 
  • The supplier provides a critical function to your organization’s operations 
  • The supplier has a history of past incidents that warrant a higher level of monitoring 

From here, develop an inherent risk score for each supplier: critical, medium or low risk. Vendors can be tiered based on their criticality to streamline assessment distribution. 

Scope the Assessment Based on Inherent Risk & Vendor Data

Develop a master questionnaire template that breaks down questions into topic sections. Examples of topic sections might include standards and regulations, financial data and fourth party data. Your template should have questions for every risk area that is a concern to your organization. To get an objective response, write assessment questions in a clear and specific manner. 

Organizations often fall into the trap of distributing supplier risk assessments that are not relevant to the supplier. As a result, they suffer from vendor fatigue, which leads to low-quality responses and assessment backlogs.  

Avoid vendor fatigue by leveraging a supplier’s inherent risk score and other vendor data to determine the depth of an assessment. The assessment should be created by pulling topic clusters relevant to the supplier’s service type, geographic location and criticality tier. 

The assessment should allow you to learn more about the supplier’s complete risk profile. When creating a questionnaire, aim to:  

  • Only include questions that are relevant to the vendor. You wouldn’t ask your landscaper about their compliance with GDPR requirements. Keep questionnaires short by focusing on the topics that matter. 
  • Write straightforward questions that avoid any confusion. If necessary, translate questions in the supplier’s primary language. 
  • Create a set of preferred responses for the assessment to provide context for vendor responses. Your team will analyze and act on vendor responses more efficiently with a baseline to reference. 

Designing your supplier questionnaires with the steps above will help you create an efficient, objective process for assessing supplier risk. 

Analyze Supplier Responses and Address Risk Areas

Assessing your supplier population provides plenty of data for making actionable decisions to mitigate risk. Analyzing and acting on assessment responses will help your supplier risk management program determine vendor controls and due diligence levels. 

Use your set of preferred responses to compare vendor responses to the organization’s expectations and risk tolerance levels. Flag responses that do not align with your organization’s preferred responses. Escalate issues with the line of business owner for the third-party relationship. Remember to prioritize the most critical issues to your organization: those that can cause the most disruption to your reputational, operational and financial health. 

Lastly, maintain evidence of vendor responses over time. This data can help you determine the frequency of future assessments and understand trends in the supplier’s security posture.  

ProcessUnity Vendor Risk Management Automates Supplier Risk Assessments

ProcessUnity Vendor Risk Management automates the entire supplier risk assessment process to provide your organization with a consistent, repeatable process. ProcessUnity VRM automatically scopes questionnaires and scores vendor responses based on company policy. Your organization gains better insight into supplier risk throughout your vendor population while eliminating wasted time and resources. To learn more about ProcessUnity automated vendor risk assessments, visit https://www.processunity.com/third-party-risk-management/vendor-risk-assessments/