Vendor Risk Management (VRM) and Third-Party Risk Management (TPRM) are two essential approaches for managing the potential risks associated with working with third-party vendors and partners. While both VRM and TPRM are crucial for identifying and mitigating risks, they have distinct scopes and focuses.
Understanding the key differences between VRM and TPRM is essential for any organization. This article describes these differences in more detail, highlighting each approach's characteristics and benefits.
What is Vendor Risk Management?
Vendor risk management (VRM) is a company's overall approach to mitigating the risks associated with any vendors it does business with. With VRM, companies can rest easy knowing that their reliance on external vendors will not cause unexpected performance disruptions or dips. Companies can benefit from VRM in assessing, monitoring, and managing their risk exposure from TPSs (Third-Party Senders) that supply IT goods and services or have business data access.
Successful implementation of VRM requires cooperation from multiple departments, including compliance, internal audit, human resources, and legal.
Benefits of VRM
1. Improved Service Quality: VRM technology can help businesses enhance the quality of their managed services and decrease costs by ensuring that third parties have robust security and privacy practices in place. All employees, vendors, clients, and the entire organization must comply with these standards.
2. Cost Savings: Implementing a VRM plan can decrease the costs associated with ensuring compliance with proper security measures from third-party vendors. VRM technology can also aid in assessing the risks of outsourcing processes and functions to third-party vendors. Organizations can keep costs low without compromising on quality or performance by reducing their dependence on third parties.
3. Enhanced Brand Image: A proper VRM plan can boost a company's brand image by reducing its risk exposure in the eyes of customers and the general public.
4. Increased Focus on Core Business Functions: Adopting VRM technology enables organizations to focus on their core business functions and reduce the time spent managing third-party security.
What Is Third-Party Risk Management?
Third-party risk management is concerned with assessing and reducing the risks that arise from outsourcing IT resources and data to external organizations (third parties). This concept applies broadly to all forms of outsourcing, be it software development, cloud computing, or financing. It is common to think of TPRM as the umbrella discipline that covers every conceivable type of third party and every possible risk.
The discipline aims to help businesses learn more about the third parties they work with, how they employ those businesses and the security measures they use. Organization-specific considerations, such as industry, regulatory guidelines, and other external elements, can greatly affect the breadth and depth of a TPRM program's objectives and stipulations. Nonetheless, many TPRM best practices are generic and may be used by any company.
Benefits of Third-Party Risk Management
- Reduced risk: Third-party risk management strategies can help businesses manage and mitigate risk throughout their organization. Outsourcing critical IT functions also reduces a company's exposure to third-party risk.
- Improved Regulatory Compliance: TPRM ensures that the organization meets all regulations and compliance requirements. It also helps monitor third parties' actions and ensures compliance with all regulations.
- Cost savings: Even though there is still an up-front expense associated with third-party risk management, it lowers the likelihood of data breaches, which may cost businesses an average of $4.35 million for each occurrence.
The Difference between VRM & TPRM
VRM is a process of identifying, assessing, and mitigating risks associated with vendors or suppliers. VRM is typically focused on managing risks within an organization, specifically related to the vendors or suppliers that an organization contracts with for goods and services.
TPRM, on the other hand, is a more comprehensive process of identifying, assessing, and mitigating risks associated with all third-party entities interacting with an organization. This includes not only the vendors and suppliers but also partners, and other entities. TPRM is typically focused on managing risks across an organization's ecosystem.
In summary, while VRM is focused on identifying and mitigating risks associated with vendors or suppliers, TPRM is a broader process that covers all third-party entities interacting with an organization. TPRM looks at the overall risk associated with all third-party interactions, and VRM is a subset of TPRM that is more specific to vendors or suppliers.
