A vendor risk management assessment matrix could enhance your visibility into vendor risk exposure, helping you make more efficient risk management decisions.

In this post, explain what a vendor risk assessment matrix is, how to use it, and provide a step-by-step guide for designing your own.

What is a Vendor Risk Management assessment matrix?

A vendor risk assessment matrix is a visual representation of your overall potential to be affected by vendor-related cybersecurity risks

The matrix is built on the assumption that vendor-related security risks are ever-present; some just have a greater likelihood of occurring and a greater potential impact than others.

The cyber risk data represented in a vendor risk matrix is drawn from vendor risk assessment data, representing risk distribution through colored tiles ranging from green to red. Green represents acceptable risks and red represents critical risks and vulnerabilities requiring immediate remediation. The spectrum between these two extremes represents risks requiring management considerations.

Learn the ideal automation features of vendor risk remediation software >

The principle of a vendor risk matrix can be applied in a Vendor Risk Management program to highlight vendors posing the greatest security risks to an organization at any given time - invaluable intelligence helping security teams quickly identify vendors most likely to suffer data breaches.

Learn how UpGuard streamlines Vendor Risk Management >

A vendor risk matrix can track third parties most likely to be compromised in cyberattacks throughout the entire vendor lifecycle.

Depending on the requirements of your vendor risk management (VRM) process, vendor risks could include additional categories outside of data security risks and information security breaches, such as:

  • Reputational risk
  • Financial risk
  • Operational Risk
  • ESG risks
  • Supply chain risks
  • Business operations risks
  • Business continuity risks
  • Service disruption risks
  • Procurement risks

If you haven't yet established a VRM program, refer to this guide on designing an efficient VRM framework.

These other types of risks are usually considered in a broader risk management strategy in a third-party risk management program. If your risk-scoring processes need to consider this broader risk range, read this post about third-party risk assessments.

Learn the difference between Vendor Risk Management and Third-Party Risk Management >

How does a Vendor Risk Management assessment matrix work?

A vendor risk assessment matrix highlights vendor security risks and individual vendors with the greatest potential impact on a business’s security posture. This tool helps security teams understand which cybersecurity risks need to be immediately addressed and which are safe to accept.

A vendor risk assessment matrix helps security teams understand how to best respond to identified risks.

On a vendor risk assessment matrix, Likelihood and Impact are the two primary dimensions, creating a distribution known as a heat map.

vendor risk assessmsent matrix

Both Impact and Likelihood are typically measured against four levels of risk.

  • Extreme
  • High
  • Medium
  • Low

This 4x4 matrix is the simplest form of a vendor risk matrix. If your cybersecurity program is governed by a more detailed severity range, the fidelity of your risk matrix can be enhanced accordingly.

Here’s an example of a higher dimension 8x8 risk matrix representing vendor security risk distribution in more detail.

higher dimensino vendor risk assessmsent matrix

The numbers in a vendor risk matrix represent the number of vendors at a point of the potential impact x likelihood distribution. For example, in the following risk matrix, two vendors have a cybersecurity risk profile with an extreme likelihood of having a low business impact.

VRM matrix showing numebr of vendors in tiles

There’s a strategy behind the color distribution of the VRM matrix too. The area of the most critical section in the upper right quadrant (usually colored in a deep red) is determined by your risk appetite.

Your organization’s unique risk appetite establishes the approximate threshold for this quadrant (extreme severity), and your risk tolerance calculations determine the approximate width of the central band of the matrix (medium-high severity).

VRM matrix with toletance band.

For high-fidelity vendor risk matrices, the severity segments aren’t divided linearly. The higher dimension area creates more of a curvature as the borders of each segment become more defined.

high definition risk matrix showing curved tolerance bands

Learn how to calculate your TPRM risk appeite >

Why is a Vendor Risk Management assessment matrix important?

By identifying which third-party vendors pose the greatest threats to your sensitive data, a vendor risk management assessment matrix allows security teams to proactively mitigate vendor security risks before they develop into third-party breaches.

Because a vendor risk assessment matrix is a simplified explanation of your organization’s overall third-party security risk exposure, it's a great feature for efficiently communicating VRM performance in cybersecurity reports for stakeholders.

Stakeholders, who usually aren’t comfortable with cyber jargon, greatly appreciate it when third-party threat exposure is represented visually in a risk matrix.

Learn how to create a Vendor risk summary report >

When to use a vendor risk assessment matrix

This matrix can be used at two stages of the Vendor Risk Management lifecycle, during onboarding and continuous monitoring throughout the entire vendor relationship lifecycle.

Vendor Onboarding

The onboarding phase usually includes vendor due diligence, the process of vetting potential vendors to see how their risk profiles compare to your risk appetite. Vendor inherent security risk data is collected through the following primary sources, which collectively form the basis of your initial vendor risk assessment.

  • Security questionnaires - Risk assessment questionnaires either based on relevant regulatory and industry standards or cybersecurity metrics.
  • Automated external attack surface scanning results - Non-invasive scans of internet-facing assets against commonly exploited attack vectors.
  • Additional evidence - Any additional cybersecurity evidence broadening the picture of a vendor’s security posture, such as completed questionnaires, certifications, or compliance-related documents.
  • Publicly available security information - Links to a vendor’s trust and security pages with more information about their cybersecurity efforts.

This collection process occurs at the Evidence Gathering stage of a vendor risk assessment process.

vendor risk assessments with evidnce gathering as a subset

The combination of these data sources then allows vendor inherent risks to be weighted and plotted on a vendor risk assessment matrix, resulting in an complete visualization of which vendors fall outside of your risk tolerance and should, therefore, be instantly disqualified and which service providers are safe to consider partnering with.

Vendor Monitoring

After onboarding, a vendor risk assessment matrix can be used to enhance the efficiency of your Vendor Risk Management program.

In this example from the UpGuard platform, a vendor risk matrix is provided as an instant high-level summary of vendor security posture performance

vendor risk overview by UpGuard

For this use case, distribution is based on each vendor’s security rating, where vendors with low-security ratings are automatically assigned as high-risk and pushed toward the upper-right quadrant. With the support of this matrix, security teams achieve instant clarity about which vendors need to be prioritized in risk mitigation efforts, making VRM approaches more proactive and, therefore, effective.

Learn how UpGuard calculates its security ratings >

Security ratings are a convenient automated alternative for defining your risk tolerance, compared to time-consuming manual quantification methods.

Watch this video to learn how UpGuard further enhances Vendor Risk Management efficiency by streamlining vendor risk assessment workflows.

Get a free trial of UpGuard >

How to create a Vendor Risk Management assessment matrix

The relationship between a vendor risk assessment and a vendor risk matrix could flow in one of two directions:

  • Vendor risk assessment data could feed into a risk matrix to display a vendor's risk distribution.
  • A risk matrix could feed into a risk assessment to indicate risk severity as the assessment is being completed.

The second option is the easiest to replicate in a Google sheet. That is the process outlined below - first, we explain how to build a vendor risk assessment template in Google Sheets, then, we outline how to create a risk matrix that will feed into this risk assessment. 

Once completed, you'll have a vendor risk assessment that automatically determines risk severity for recorded events.

Note: To prevent this tutorial from being too lengthy, the outlined risk assessment design template is substantially simplified. To learn what’s included in a thorough risk assessment, read this post. If you don’t yet have a vendor risk assessment process in place, learn how UpGuard can get one implemented fast.

A risk assessment should include regulatory compliance risks in its risk identification process, such as GDPR and HIPAA compliance (for healthcare).

Creating a vendor risk assessment template in Google Sheets

Step 1 - Construct the Header

Add the following fields to the header:

  • Department (text format: format > number > plain text)
  • Reviewer (text format: format > number > plain text)
  • Last updated (date format: format > number > date)
vendor risk assessment matrix header
Modify any of the fields in this template based on your unique vendor assessment requirements.

Related: Vendor Risk Management examples

Step 2 - Construct the table heading

Below the header, add the following centre-aligned table headings:

From Columns B-E:

  • ID
  • Risk Description
  • Risk Cause
  • Risk Owner(s)

Columns F-H:

These headings should be grouped inside Inherent Risk - vendor security risks that are present in the absence of security controls.

  • Probability
  • Impact
  • Rating

Columns I-J:

  • Control(s)
  • Control Owner(s)

Columns K-M:

These headings should be grouped inside Residual Risk - Remaining risks after security controls have been implemented.

  • Probability
  • Impact
  • Rating
vendor risk assessment matrix header

Step 3 - Create a table grid

Add grid lines to the risk assessment table. To do this, select as many rows as you like, then click on the Borders function. Repeat every time you need to expand your risk assessment.

VRM assessment template

Creating a vendor risk matrix in Google Sheets

Step 1 - Create Matrix border and headings

Construct a 4x4 matrix. Add sufficient space for axis labels. Label the outer dimensions Impact and Probability. Use the “borders” function in Google Sheets to create the gridlines.

vendor risk matrix template
If you require a risk matrix dimension higher than 4x4, expand the table accordingly.

Besides the matrix, construct a table listing all of the severity levels for probability and impact. Then, set the matrix dimensions to reference each corresponding table value.

We’re constructing a 4x4 matrix, so label each axis with the following four levels of severity:

  • Low
  • Medium
  • High
  • Extreme
VRM assessment matrix template

Step 4 - Complete the risk matrix heatmap

Add the following labels to the matrix heatmap. For simplicity, the bandwidth of potential risk levels low-risk to high-risk colors) is distributed evenly without considering the risk appetite or threshold of high-risk vendors.

  • Acceptable
  • Moderate
  • Severe
  • Critical

For simplicity, the bandwidth of potential risk levels (low-risk to high-risk colors) is distributed evenly without consideration of risk appetite or threshold of high-risk vendors.

VRM assessment matrix template

Step 5 - Set the risk assessment template to reference matrix labels.

In the risk assessment template, select the entire column of cells under the Probability heading, then navigate to:

Data > Data Validation > New Rule > Criteria > Dropdown (from range)

VRM assessment matrix template

Select the label range in the Probability table.

VRM assessment matrix template

Repeat the process for the Impact column in the inherent risks and residual risks groups.

VRM assessment matrix template

Step 5 - Establish a relationship between the risk assessment template and the risk matrix

In order for rating data to auto-populate in the risk assessment based on probability and Impact inputs, apply the following formula to the Rating columns in both inherent and residual risk groupings. You may need to adjust the references based on your unique risk assessment and/or matrix dimensions.

IFERROR(INDEX(R$6:U$11,MATCH (F7,Q$8:Q$11,0), MATCH(G7,R$7:U$7,0),"'')

VRM assessment matrix template

Step 6 - Conditionally format rating values

To set the resultant rating labels in the risk assessment matrix to match the corresponding colors in the risk matrix, select the Ratings rows, then follow this sequence:

Format > Conditional Formatting > Format Rules > Text Contains: Critical > Set fill color to the same color for the critical tiles in the risk matrix heat map.

VRM assessment matrix template

Repeat for all severity levels.

VRM assessment matrix template

Now. risk rating labels and their corresponding colors will automatically populate as the risk assessment is completed.

VRM assessment matrix template

Vendor Risk Management assessment matrix by UpGuard

UpGuard offers a vendor risk assessment matrix to help users gain an instant understanding of their entire VRM program performance without having to drill down on individual vendor performance.

Vendor Risk Assessment Matrix by UpGuard
Vendor Risk Assessment Matrix by UpGuard.

UpGuard’s vendor risk matrix data is automatically fed into its cybersecurity reporting feature, for the instant generation of reports clearly outlining VRM program performance for stakeholders and board members.

A preview of the cybersecurity reports on the UpGuard platform.
A preview of the cybersecurity reports on the UpGuard platform.

Ready to see
UpGuard in action?

Ready to save time and streamline your trust management process?