Enterprise Vendor Risk Management: 2025 Guide

In today's interconnected business world, managing vendor risk is not just a necessity—it's imperative. With enterprises increasingly relying on outsourcing to a network of vendors, suppliers, and third-party service providers, the potential for risks that can disrupt operations, impact compliance, and affect reputational integrity has skyrocketed.

This comprehensive guide will help you navigate the complexities of enterprise vendor risk management (VRM) in 2025, ensuring your organization remains robust and resilient amidst ever-evolving challenges. From the latest technologies and frameworks to actionable strategies and industry insights, this article covers everything you need to manage your third-party vendor risks effectively. For enterprises looking to enhance an established system, this guide offers key perspectives tailored to the current landscape to help large organizations build effective VRM programs.

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What is an enterprise vendor risk management program?

An enterprise vendor risk management (VRM) program is a systematic approach for assessing, monitoring, and managing third-party risk during the vendor lifecycle, calibrated explicitly for large businesses. Third-party risks can include:

• Cybersecurity Risk
• Compliance Risk
• Reputational risk
• Operational risk
• Financial risk
  

Enterprise VRM programs ensure that the organization’s many third-party vendors or service providers align with its security standards and business objectives throughout their entire lifecycle. These programs are also crucial for ensuring external entities involved in a company’s operations adhere to compliance standards and do not negatively impact the organization’s financial stability, reputation, data security, and continuity of services and allow the business to scale its VRM programs effectively.

Key components of effective enterprise VRM programs

Enterprise VRM programs utilize various vendor risk management strategies to manage third-party risk across a large organization effectively. Alongside standard VRM best practices, enterprise VRM programs should also pay close attention to the following key components:

• Secure onboarding workflow
• Data breach risk identification
• Continuous monitoring
• Attack surface management

Secure onboarding workflow

Creating and implementing a secure procurement and onboarding workflow establishes a robust foundation for vendor partnerships. This process includes comprehensive due diligence, verifying that new vendors comply with industry standards and regulatory requirements, and integrating them into the existing risk management framework. The ultimate goal is to ensure an organization will only onboard vendors with acceptable security risks. 

Workflows should include detailed vendor contract negotiations outlining security requirements, data protection expectations, and offboarding processes. A seamless workflow also supports an organization's fast and secure scaling objectives, setting clear expectations and responsibilities from the outset.

Data breach risk identification

Data breach identification involves assessing vendors' information security measures and determining the potential impact of a data breach on the organization. This identification process should utilize vulnerability assessments, ransomware prevention, penetration testing, and reviewing past security incidents.

Given the higher likelihood of supply chain attacks impacting an enterprise, data breach identification should extend across an enterprise’s third—and fourth-party threat landscape. Consider the type of data accessed by vendors and prioritize supplier risks based on the sensitivity and value of that data. Effective identification helps proactively address weak points in the data security chain and ensures business continuity while preventing reputational damage.

Continuous monitoring

Continuous monitoring is a cornerstone of effective VRM programs, especially for large enterprises with up to thousands of vendors. This process includes reviewing vendors' security posture and performance to ensure compliance requirements with established standards and contractual obligations. For highly regulated industries like healthcare and finance, one compromised vendor could potentially affect the entire supply chain network.

Continuous monitoring is critical to ensure that the enterprises are notified immediately of any potential risk exposures with around-the-clock monitoring. Common ongoing monitoring techniques include monitoring real-time data, regular audits, and reviewing performance reports to assess and address risks associated with third-party relationships.

Enterprises should also implement compliance tracking methods to support a large vendor network. Poor vendor security performance can heavily impact enterprises, as seen in the following real-world examples:

• Target Corporation (2013): Cybercriminals used an HVAC vendor’s poor security measures as a gateway to infiltrate Target’s network and steal the credit and debit card details of approximately 40 million customers, resulting in lawsuits, financial losses in settlements, and a significant hit to Target’s reputation.
• Capital One (2019): A vulnerability in a third-party cloud service provider’s web application firewall exposes customer social security numbers and bank account information, resulting in an $80M fine, regulatory scrutiny, and other penalties.
• Quest Diagnostics and LabCorp (2019): A third-party billing collections vendor breach allowed hackers to access the sensitive data and medical information of nearly 20 million customers at Quest and LabCorp, leading to multiple class-action lawsuits and investigations.
• Marriott International (2018): Malicious individuals hacked a third-party reservation database, exposing customer data of up to 383 million Marriott guests, resulting in fines and legal costs.

Attack surface management

Attack surface management refers to the process of reducing the exposure of IT assets, services, and data accessible to third-party vendors. This process ensures a vendor’s attack surface is managed and kept minimal, reducing potential pathways for unauthorized access and cyber attacks.

Comprehensive attack surface management includes thoroughly mapping all touchpoints and connections between the organization and its vendors. This step is followed by implementing controls to limit access to essential services and information only. These controls must be regularly updated in response to changes in the vendor's environment or the broader threat landscape.

Why is vendor risk management important for enterprises?

Large enterprises are attractive targets for cyber attacks through third-party vendors, making vendor risk management necessary. Vendors often have less robust security measures than their enterprise clients, increasing their likelihood of being targeted by cyberattackers and their enterprise partners' likelihood of suffering a third-party breach.

According to the Ponemon Institute’s 2023 Cost of a Data Breach report, the average cost of a data breach in 2023 was USD $4.45M. However, if a breach involved a third-party vendor, the incident cost increased by over $13 per record.

Unique VRM challenges for large businesses

Large businesses face unique VRM challenges due to the size and scope of their business operations. Reducing and mitigating vendor risk in an enterprise setting requests specific tactics to overcome common VRM challenges, which include:

• Extensive vendor networks: Managing numerous vendor relationships complicates oversight and consistent risk assessment
• Operational complexity: Difficulty integrating VRM processes with existing enterprise systems without disrupting business operations
• Scalability issues: Challenges in expanding VRM practices so unable to scale business securely

Best practices for implementing VRM in large enterprises

Enterprises looking to implement an effective VRM program should consider several best practices that elevate and address specific challenges for large organizations. Below are some strategies to help with VRM program implementation, which your enterprise can customize to fit its unique organizational needs and outcomes.

Integrate with enterprise risk management

Large enterprises must integrate vendor risk management (VRM) into the broader enterprise risk management (ERM) framework. This integration ensures vendor risks are assessed within the enterprise's broader risk management process, leading to a comprehensive risk evaluation and mitigation approach.

By aligning VRM processes with ERM strategies, enterprises can allocate resources more effectively and maintain consistent risk management practices across all areas of operation. Additionally, this integration supports improved communication and reporting structures, ensuring senior management and decision-makers are well-informed about potential risks from third-party engagements.

Utilize technology solutions

Technology solutions play a crucial role in the smooth implementation of VRM programs, enhancing the efficiency and effectiveness of processes in large enterprises. Advanced risk management software platforms streamline due diligence and continuous monitoring processes while providing real-time insights into vendor performance and risk exposure.

Automation, in particular, is a powerful risk management solution. Leveraging automated tools for risk assessment, monitoring, and reporting enhances efficiency and coverage. UpGuard Trust Exchange is one example of VRM automation streamlining VRM by automating security questionnaires.

Technology solutions also include risk metrics, compliance tracking, and customizable notifications, which help risk managers quickly identify potential issues and respond proactively. Additionally, technology enables better data integration and analytics capabilities, facilitating deeper insights into vendor relationships and improving vendor selection and management decision-making.

Vendor segmentation

Vendor segmentation is a process in which vendors are categorized based on the risk they pose, and personnel tailor management strategies accordingly. This process, sometimes called vendor tiering, enables companies to apply different management strategies and allocate resources according to each vendor segment's criticality and risk profile.

High-risk vendors, such as those handling sensitive data or critical operations, are subject to more stringent security controls, service levels, and frequent vendor risk assessments. In contrast, an organization may monitor low-risk vendors with less intensive procedures. This approach enhances risk management efficiency and optimizes the allocation of VRM resources, ensuring that the most critical risks are prioritized and managed effectively.

Examples of successful enterprise VRM implementations

UpGuard has helped multiple large-scale organizations implement enterprise VRM programs, mitigating enterprise security risks and improving third-party risk management.

Burgess Group

Burgess Group, an enterprise that provides integrated healthcare payment solutions, leveraged UpGuard for enhanced enterprise risk management, specifically focusing on third-party risk management. This technology allowed them to proactively identify and remediate discrepancies between their stage and production environments, safeguarding against enterprise security risks associated with rapid scaling. The implementation of UpGuard not only streamlined their deployment process but also ensured compliance with critical HIPAA regulations, reinforcing the integrity and reliability of their IT systems.

Schrödinger

Schrödinger, facing inefficiencies in managing third-party security with spreadsheets, adopted UpGuard to streamline and enhance vendor security processes. The platform allowed rapid integration, replacing cumbersome spreadsheets with a centralized system that automates security assessments and provides dynamic security ratings and customizable questionnaires.

This transformation significantly improved Schrödinger's security posture, enabling Schrödinger to manage vendor risks more effectively and offering comprehensive visibility to stakeholders. Through UpGuard, Schrodinger elevated its third-party risk management to a new level of sophistication and control.

Open-Xchange

Open-Xchange enhanced its security management by implementing UpGuard for continuous attack surface monitoring and instant asset discovery. This enterprise utilized UpGuard to automate vulnerability assessments and vendor risk management, significantly improving the efficiency of these processes. Open-Xchange's approach streamlined cybersecurity and improved executive reporting and competitive positioning within their industry, demonstrating the platform's comprehensive impact on their overall security strategy.

Tech Mahindra

Tech Mahindra enhanced its security management by implementing UpGuard to automate risk assessments and vulnerability scans across its extensive vendor network and internal applications. This shift has led to more efficient issue identification and remediation processes, significantly improving operational efficiency and positioning the company for secure growth. UpGuard's tools also facilitate improved collaboration and communication within the team, ensuring continuous monitoring and swift responses to security threats.

Take control of your organization’s vendor risk management with UpGuard:

UpGuard Vendor Risk is a third-party risk management (TPRM) platform that aims to automate and streamline an organization’s program for managing risks associated with third-party vendors. UpGuard Vendor Risk helps organizations efficiently assess, monitor, and mitigate risks associated with their vendors and suppliers by using technology to simplify the often complex and time-consuming task of evaluating vendor risks.

Additional Vendor Risk features include:

• Customizable templates: UpGuard provides customizable questionnaire templates that users can tailor to meet specific industry standards, regulatory requirements, and organizational risk profiles.
• Bulk distribution and tracking: Vendor Risk enables the distribution of questionnaires to multiple vendors simultaneously and tracks the progress of each questionnaire, sending reminders and updates as necessary.
• Centralized vendor information: UpGuard centralizes all vendor information, including questionnaire responses, in a single platform, making it easier for organizations to access, review, and analyze vendor data.
• Automated risk scoring: UpGuard automatically scores vendors based on their questionnaire responses and other relevant data, which helps organizations quickly assess vendor risk levels and prioritize follow-up actions.
• Continuous monitoring: Vendor Risk monitors vendors’ cyber risk and alerts users to changes or emerging vulnerabilities. Real-time visibility into vendor risks helps organizations respond swiftly to potential threats before they become incidents.
• Compliance management: UpGuard Vendor Risk helps vendors reach regulatory compliance with relevant regulations and standards (like GDPR, HIPAA, and SOC 2), tracking vendors’ certification statuses and identifying gaps or issues that need addressing.
• Collaborative features: Vendor Risk facilitates collaboration between internal teams and vendors, enabling seamless communication and efficiently resolving identified issues or risks.‍‍
• Comprehensive reporting: UpGuard provides detailed reports and dashboards that offer insights into the organization’s overall vendor risk landscape, which security teams can use for internal risk management purposes and to demonstrate compliance to stakeholders, auditors, and regulators.