Vendor Risk Management Is Broken — Here’s Why

In the current interconnected digital landscape, an organization's security is often determined by its most vulnerable vendor. While third-party relationships drive innovation, scalability, and efficiency, they also pose considerable risks. Vendor Risk Management (VRM), which was once merely a formality, has now become an essential component of cybersecurity and business resilience.

However, despite increased investment, tools, and focus, Vendor Risk Management remains fundamentally flawed.

Let's explore the reasons why.

In many organizations, Vendor Risk Management (VRM) is often approached primarily as a compliance activity rather than a means of risk mitigation. The main focus tends to be on "passing the audit" instead of genuinely understanding and addressing potential risks. Security questionnaires are filled out, documents are gathered, and checkboxes are ticked. However, the uncomfortable truth is that a vendor may "pass" your assessment yet still pose a significant risk to your organization. Static assessments fail to accurately capture real-world risks, and as threat landscapes evolve daily, vendor evaluations are often limited to annual reviews or, even more concerning, are conducted only at the time of onboarding.

Overreliance on Questionnaires

Security questionnaires are flawed and often fail to provide a thorough assessment necessary for robust security practices. Their common use reveals several shortcomings that can undermine effectiveness. Completing security questionnaires is labor intensive for both vendors and organizations, leading to delays and resource diversion. Additionally, vendors often provide unclear or overly optimistic answers, which can mislead organizations about their true security posture. Organizations rarely verify vendor responses, resulting in gaps in understanding actual security controls. Furthermore, the variability in vendor responses complicates comparisons and creates a fragmented view of security practices. Most importantly, questionnaires rely on self-attestation, which is unreliable. Vendors may present their security practices favorably, creating a false sense of safety. Without independent validation or continuous monitoring, organizations may mistakenly believe they have conducted due diligence, exposing themselves to significant risks and potential breaches.

Continuous Monitoring

Organizations require continuous visibility into vendor risk, as risks can change rapidly in today's interconnected business landscape. Relying on periodic assessments can leave organizations vulnerable to unforeseen threats and security breaches.

Continuous visibility enables real-time monitoring of vendor risk profiles, allowing organizations to identify and respond to emerging threats swiftly. For instance, if a vendor faces a data breach, immediate insights help organizations assess their own risk exposure and take necessary actions.

This proactive approach enhances risk management by integrating real-time data analytics and threat intelligence. Utilizing technologies like AI and machine learning enables organizations to analyze data from diverse sources, improving risk identification and informed decision-making.

Additionally, fostering transparency and communication with vendors is essential. Encouraging vendors to share information about their security practices and incidents can improve risk management and strengthen the relationship between the organization and its vendors.

One Size Fits All Approach

The strategy for vendor risk management (VRM) frequently lacks consistency, despite the considerable differences among vendors. Many VRM programs fail to appropriately consider these distinctions, resulting in scenarios where a marketing SaaS tool and a cloud infrastructure provider undergo the same level of scrutiny, which is unsuitable. This misalignment leads to unnecessary effort on low-risk vendors, insufficient evaluation of high-risk vendors, and overall assessment fatigue. To ensure effective VRM, it is crucial to implement risk tiering, concentrating resources and efforts where they are most needed.

Inadequate Integration with the Business

Effective vendor risk management is essential for strengthening organizational security. Security teams often find themselves reacting to incidents rather than proactively managing vendor risks, primarily due to limited resources and inadequate collaboration. This reactive approach hinders the ability to address risks before they escalate.

The substantial volume of vendor-related alerts further entrenches this reactive posture. As third-party cyber threats become increasingly sophisticated, security professionals are overwhelmed, diverting their focus from long-term strategic planning.

Poor collaboration between departments exacerbates vendor risk challenges. Security teams operating in isolation lack the influence necessary to make decisions that could enhance vendor security, such as identifying vulnerabilities in contracts.

Organizational culture significantly affects vendor risk management. Without leadership prioritizing security, teams face difficulties in securing the necessary changes and resources.

To address these challenges, organizations should cultivate a proactive culture of shared responsibility, enhance inter-departmental communication, integrate vendor security into existing processes, and provide continuous training. Empowering security teams to anticipate vendor risks will ultimately strengthen overall security.

Lack of Ownership and Accountability

Who’s in charge of vendor risk? Is it security, procurement, legal, or the business owner? In many organizations, the answer is everyone and no one. This uncertainty can lead to exciting challenges and potential vulnerabilities, as accountability can blur when departments like security, procurement, and legal get involved, resulting in a fragmented approach to risk management. Without clear ownership, critical issues can pop up, such as risks being accepted without proper review, leading to overlooked vendor risks and unmitigated threats. Plus, remediation actions might not be tracked due to a lack of coordination, leaving vulnerabilities unaddressed. Exceptions can even become permanent, as temporary policy exceptions may normalize complacency in risk management. But fear not! A mature Vendor Risk Management (VRM) program is within reach with defined ownership and governance. Organizations should designate specific individuals or teams to manage vendor risk, ensuring a consistent approach to identifying and mitigating risks. Effective governance structures should include regular reporting and tracking of remediation actions, fostering accountability and enhancing resilience against vendor-related risks.

Tooling Without Strategy

Organizations are increasingly recognizing the importance of Vendor Risk Management (VRM) platforms for managing vendor relationships and risks. However, simply investing in these tools is not enough; a deep understanding of business processes and a clear strategy are essential for successful implementation. Without a solid strategy, VRM tools can become expensive data repositories, where organizations may accumulate fragmented or outdated data that becomes a burden rather than an asset, highlighting the need for effective data management. They can also lead to overcomplicated workflows, as complex processes can hinder productivity and frustrate employees, necessitating simpler processes that enhance user experience. Additionally, poorly implemented systems can create administrative overhead, adding to bureaucracy and requiring careful integration and training to avoid unnecessary burdens. Ultimately, VRM technology should enhance risk-based decision-making, empowering teams with insights while complementing human expertise, rather than dictating the decision-making process.

So, What Should Be Different?

To improve Vendor Risk Management, a mindset shift is essential:

From compliance → to real risk reduction

Organizations should transition from viewing vendor risk management as mere compliance to actively reducing risks. This proactive approach focuses on identifying, assessing, and mitigating vendor risks to build a resilient supply chain.

From periodic → to continuous monitoring

Shifting from periodic assessments to continuous monitoring provides real-time insights into vendor performance and emerging risks. Utilizing advanced technologies allows organizations to stay informed about changes in a vendor's risk profile.

From generic → to risk-based assessments

Instead of generic assessments, organizations should adopt risk-based evaluations tailored to each vendor's context. This approach helps prioritize resources on vendors with the highest risks, enhancing overall risk management strategies.

From siloed → to integrated processes

Integrating vendor risk management into broader business processes fosters collaboration and ensures risk considerations are embedded in decision-making, promoting a holistic view of supply chain risks.

Practical steps include:

• Implement vendor risk tiering to prioritize high-risk vendors.

• Leverage continuous monitoring tools for real-time risk data.

• Reduce reliance on static questionnaires for dynamic assessments.

• Embed VRM into procurement workflows for aligned risk management.

• Define clear roles and responsibilities for effective coordination.

• Prioritize critical vendors for thorough risk assessments.

Final Thoughts

Vendor Risk Management is not failing due to a lack of concern from organizations; rather, it’s failing because the approach has not evolved quickly enough to keep pace with today’s threat landscape.

Third-party risk has become one of the most exploited attack vectors. Treating VRM as a mere formality is no longer viable.

It’s essential to move beyond checklists and begin managing vendor risk with genuine importance.

Forged in Security

Enhancing resilience with clear strategies and practical security insights