How To Create a Vendor Management Policy + Template
A vendor management policy (VMP) is a way for companies to identify and prioritize vendors that pose a risk to their business. The policy identifies potentially risky vendors and prescribes controls to minimize risk and ensure compliance with popular frameworks like SOC 2.
Vendor management policies are a critical component of an organization’s overall compliance risk management strategy.
You may be quick to think of a VMP as just another document or a box to be checked on your path to compliance. But a vendor management policy is just the start of managing vendor relationships and determining whether they should have access to sensitive data.
Ready to find out how a vendor management policy can safeguard your organization against vendor risk? We break down how to create one and offer a template to get you started below.
Why you need a vendor management policy
While organizations tend to have a clear picture of the internal risks their business faces, the risks that come from vendors can be a bit murkier.
Regulatory bodies have begun to step in and implement stricter protocols regarding vendor oversight and third-party risk management. A 2022 Venminder report found that 69% of organizations feel they’ve been getting more scrutiny over the last 12 months by regulators and auditors.
The more vendors you work with and share sensitive information with, the more exposed your organization is to hackers. And when a third party is involved, data breaches tend to cost more.
A study by Ponemon Institute and IBM found that the cost of a third-party data breach increases by over $370,000, for an adjusted average total cost of $4.29 million.
Whether you work with just one vendor or dozens, not having a vendor management policy puts your organization in a vulnerable position.
How to create a vendor management policy
To begin creating a vendor management policy, you must first put together a team to spearhead the policy creation process.
This should be a comprehensive team that brings together different viewpoints from across the organization.
Here are team members to consider including:
- IT department team member
- A legal representative
- Member of upper management
- Team members that communicate with vendors on a daily basis
- Subject matter experts
- Someone representing the business unit
- Internal auditors
Once you’ve assembled your vendor management policy team, assign roles and responsibilities to own different sections of the process.
Next, gather your list of vendors. This should be an in-depth list containing all third-party vendors, contractors, partners, and associates that you work with.
Pay special attention to those vendors that:
- Have access to sensitive data or Personally Identifiable Information (PII)
- Have access to your internal network
- Your organization relies on them to perform critical business functions
The vendors that meet any of the above criteria should be considered critical vendors because of the level of information they can access.
This master list will serve as a blueprint to help you prioritize vendors based on the risk they pose.
What should a vendor management policy include?
There’s no one-size-fits-all approach for creating a vendor management policy.
Each organization comes with its own unique set of vendors and information to protect.
Whether you’re creating a vendor management policy for the first time or looking to strengthen your current policy, here are a few sections that will help build a solid foundation for managing vendor relationships.
The purpose section of your VMP is an overview of what the policy will entail. You can think of this as a thesis statement introducing the many sections that will follow.
Here’s an example of what a purpose statement could look like:
- (COMPANY) utilizes third-party products and services to support our mission and goals. This Vendor Management Policy contains the requirements for how (COMPANY) will preserve and protect information when using third-party products and services.
Audience and scope
The audience and scope sections will define whom exactly the policy applies to. This is where the careful consideration in creating the master list of vendors comes in handy.
Doing your due diligence in identifying your vendors helps ensure that none fall through the cracks and that you are able to appropriately monitor and track every vendor that poses a risk.
A few vendor areas to consider including in your vendor management policy are:
- Human resources security
- Physical and environmental security
- Network and system security
- Data security
- Access control
- IT acquisition and maintenance
- Fourth-party vendors
- Incident management
- Business continuity/disaster recovery
Roles and responsibilities
Each person that plays a significant role in your vendor management process should be included within the VMP. Include their specific responsibilities as it relates to vendor management.
Outline each role within your organization that handles key vendor management duties, such as a vendor manager. List the specific responsibilities under each role within this section.
Some key aspects to include are:
- The role (or roles) responsible for enforcing the vendor management policy
- The role (or roles) responsible for reviewing and updating the policy
List and define some of the common terms used within the policy. This is an opportunity to establish common terminology that will be easily understood by anyone who may need to review your vendor management policy.
For example, you may want to clearly define what a vendor is or the type of data you’ll be referring to within the document.
However, remember that your vendor management policy should be a high-level document that’s meant to outline in basic but broad terms how the organization will conduct third-party management.
The assessments section should include all of the ways vendors will be vetted before becoming fully operational.
While this section will look different for each company, many organizations include information about:
- Non-disclosure agreements or business associate agreements
- When vendors may have access to data (such as after the NDA is signed or following a risk assessment)
- What to do if high-risk findings are identified in risk assessments
- The frequency with which vendor risk assessments will occur
- Any regulations such as PCI DSS or HIPAA that a vendor must comply with
This section will explain the management processes the organization will follow to ensure vendors are assessed and held accountable.
Within this section, be sure to specify what vendor agreements and contracts must include.
For example, you may want to include verbiage about minimum information requirements, instructions for the destruction or disposal of the organization’s information, and incident response requirements.
This section should also detail the vendor lifecycle management process. Include information for onboarding a new vendor as well as managing and offboarding current vendors.
After stating all vendor requirements, you must also include a section of how the policy is going to be enforced.
This section should clearly state the consequences a vendor will face if they fail to follow the policy. This may include termination of contract, removal of access rights, or related civil or criminal penalties.
How to assess new vendors
Before signing a contract with a potential new vendor, organizations can rate vendors against vendor management controls to determine a security rating.
That rating can be used to determine if the organization should work with the vendor. It can also serve as a benchmark to evaluate security performance over time.
Vendor management policy best practices
Vendor management policies will differ from organization to organization. However, here are a few important tips to keep in mind as you create or improve your vendor management policy:
- Have a plan in place for vendor service failures: Be proactive by documenting what areas of the business would be affected in the event of a vendor service failure. Create an internal response plan for each vendor and assign specific roles to your vendor management team.
- Have a dedicated vendor manager: When creating your vendor management team, it can be helpful to assign a specific vendor manager for each of your vendors.
- Hold all vendors to the same standards: While vendors posing a critical risk often take up the majority of vendor management efforts, it’s important that all vendors are required to follow the same set of requirements and uphold the same expectations.
- Keep your policy short and sweet: A vendor management policy should serve as a broad overview of how you plan to tackle vendor management. Aim for 5-7 pages.
- Review your VMP annually and make adjustments as needed: As we’ve stated before, the vendor management policy is just the beginning of your vendor risk management journey. As lessons are learned and internal processes change, be sure that your vendor management policy is refreshed at least on an annual basis.
- Cover the six pillars of vendor management in your policy: To ensure an airtight policy, you’ll want to include information on selecting a vendor, assessing risk, due diligence, contractual standards, reporting requirements, and ongoing monitoring.
Vendor management policy template
Still unsure of what your vendor management policy should look like? We’ve created a template that you can use as a foundation for building your own.
How Secureframe can help you manage vendor risk
Continuous monitoring is a must for vendor management programs, but it can be a burdensome undertaking for your team.
Tools like Secureframe help companies automatically monitor and rate their vendors’ security performance and automate security questionnaires that make the vendor management process all the more manageable.
With Secureframe, you’ll have access to auditor-certified security questionnaires to help vet potential vendors seamlessly. Secureframe also offers up-to-date security reports of each vendor with risk levels and in-depth descriptions.
Looking to safeguard your vendor relationships and better manage your security? Schedule a demo with our team today to see how we can fit your exact needs.