By Hilary Jewhurst, Head of Third-Party Risk Education & Advocacy at Venminder
Most third-party risk professionals understand the importance of conducting thorough due diligence. After all, it’s essential to ensure that your potential vendors have the appropriate practices and controls to address the risks of the products and services they’ll provide to your organization.
However, it’s important to remember that performing initial due diligence and signing a contract doesn't eliminate vendor risks. Due diligence only captures a snapshot in time. Vendor risks, controls, quality, and service fluctuate. To lessen the impact and severity of vendor risks on your organization, it's crucial to practice continuous monitoring – also known as ongoing monitoring. This ensures that your vendors remain in compliance with applicable laws and regulations, provide quality products and services, and address any issues effectively and promptly.
What Does Continuous Monitoring on Vendors Mean?
Continuous monitoring is the practice of constantly and consistently keeping your eye on your vendors and their risk and performance. You’ll need to periodically reassess their risks and validate controls throughout the contract term to verify vendor performance aligns with contractual requirements and industry standards.
It's important to keep continuous monitoring risk based. This means that the frequency and rigor of monitoring is proportionate to the vendor's (and their products’ and services’) risk. A rule of thumb for reviews is annually for all critical and high-risk vendors, every 18-24 months for moderate-risk vendors, and every two to three years for low-risk vendors.
Four Benefits of Vendor Continuous Monitoring
Not only is continuous monitoring a best practice, but for many industries, it's a regulatory requirement. This may be your organization’s only incentive for performing continuous monitoring, but it has other important benefits, including:
Decisions based on real-time data – As vendor risk is subject to change, it’s essential to gather multiple forms of data to compare and analyze. Initial due diligence can help you quickly compare two vendors, but continuous monitoring tracks changes over time in a specific vendor's risk. It offers the most comprehensive understanding of your vendors' risks and enables better organizational decision-making.
Maximized productivity – To use your limited resources effectively, it’s important to clearly understand which vendors need the most attention. By identifying which vendors are a priority, you can allocate your time and resources so that pressing issues are addressed on time.
Confirmed vendor value – Continuous monitoring keeps your vendor relationships productive and beneficial for your organization. This enables you to evaluate whether your vendors fulfill contractual expectations. You can then make the necessary adjustments to improve the partnership.
Avoided expensive surprises. With continuous monitoring, you can identify and address potential costly situations, including regulatory violations, data breaches, and vendor instability. A proactive approach ensures your operations are efficient and mitigates the risk and expense of potential issues.
How Vendor Continuous Monitoring Safeguards Your Organization
It's crucial to have a clear understanding of how your organization should handle any issues that arise during vendor monitoring. It's not enough to simply recognize a problem exists, but you have to take action.
Here are three significant outcomes of continuous monitoring:
Identifying problems and issue management: Identified problems should be added to a formal issues log. The log should include a full description of the issue, root causes, ownership, remediation steps, and timing. Issues must be tracked and monitored until closed. Issues at risk or past due should be escalated to management to ensure proper closure.
Identifying emerging risks: It's important to keep an eye on emerging risks that could affect your vendor relationship. Changes in vendor management or ownership, regulatory requirements, or even declining financial health are all examples of emerging risks. You should discuss any emerging risks with your vendor and gather additional documentation or remediation plans as needed. You may also need to perform vendor control assessments or other risk reviews. Don’t hesitate to sign up for vendor risk monitoring and alerts, such as Google Alerts, or seek help from outside risk intelligence firms that specialize in this. By taking these steps, you can ensure that emerging risks are kept in check.
More frequent monitoring. If vendors have any issues or emerging risks, it's important to monitor them more frequently and rigorously. This is because problems rarely occur in isolation and can signal the presence of other potential issues or emerging risks. By keeping a close eye on problem areas, you can identify and address any problems before they become more significant or difficult to manage.
Vendor risk is always changing, and continuous monitoring is an essential activity to minimize vendor risks and their potential impact on your organization and customers. By implementing a risk-based approach to continuous monitoring, your organization can identify and address issues early on before they become unmanageable. Although it may seem like a daunting task, don't view monitoring as a chore. Instead, embrace it as a valuable tool for successful third-party risk management.