Understanding Vendor Risk Management (VRM)
Vendor Risk Management (VRM) is a crucial process for organizations that engage with third parties to scale their operations. It involves vetting new and existing vendors through risk assessments to ensure that they do not pose unacceptable potential risks or disruptions to the business.
VRM encompasses all third parties that an organization regularly purchases from, including SaaS providers, manufacturers, and more. The goal is to evaluate the potential risks associated with these vendors and mitigate them effectively.
Exploring Third Party Risk Management (TPRM)
Third Party Risk Management (TPRM) is a broader discipline that goes beyond VRM. It is a continuous process that involves identifying, analyzing, and controlling risks presented by third parties to an organization’s data, operations, and finances.
A TPRM program enables organizations to manage the risks that arise from outsourcing services and products by shedding light on potential areas of business risk. It covers various aspects of risk management, including VRM, supplier risk management, and contract risk management.
Differentiating VRM and TPRM
The distinction between VRM and TPRM becomes clearer when we consider 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 between them.
All vendors, suppliers, contractors, and providers are considered third parties to an organization. However, not all third parties can be classified as vendors. The term “third party” encompasses any organization that has a working relationship with another, including suppliers, contractors, providers, vendors, business partners, consultants, and more. It is a broad term that covers various business models, such as B2B, B2C, and B2G.
Vendors, on the other hand, are a specific type of third party that typically have written contracts with organizations 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.
The primary difference between VRM and TPRM lies in their scope. VRM focuses specifically on managing the risks associated with vendors, while TPRM encompasses the management of risks posed by all types of third parties. TPRM expands the scope of a VRM program to include mergers and acquisitions, business partners, federal agencies, contractors, customers, and, of course, vendors.
However, the distinction between VRM and TPRM goes beyond the range of parties involved. TPRM takes a more holistic approach to risk management. It not only assesses a third party’s security posture and makes decisions based on a set of requirements but also proposes continuous monitoring of third party security controls. This approach ensures alignment with the organization’s risk tolerance and objectives as it grows its third-party ecosystem and undergoes digital transformation.
