vendor risk management (VRM) definition

This definition is part of our Essential Guide: Enterprise risk management strategy: A planning guide for CIOs
Contributor(s): Ben Cole

Vendor risk management (VRM) is a comprehensive plan for identifying and decreasing potential business uncertainties and legal liabilities regarding the hiring of 3rd party vendors for information technology (IT) products and services. 

When an enterprise outsources business processes to an external vendor, sensitive data may be transmitted, stored and processed on both company and vendor networks.  Regulations such as the Sarbanes-Oxley Act (SOX), Payment Card Industry Data Security Standard (PCI DSS) and the Health Information Portability and Accountability Act (HIPAA) mandate that risk management policies extend to third-party vendors, outsourcers, contractors and consultants. 

A solid vendor risk management strategy should include:

  • A contract outlining the business relationship between the organization and the business.
  • Consistent monitoring of vendor performance to ensure that contract stipulations are being met.
  • Guidelines regarding who will have access to what information as part of the vendor agreement.
  • Stipulations to ensure that vendors meet regulatory compliance guidelines for your industry, and a method to monitor this compliance.


This was first published in August 2011

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