Vendor Management Step One: The Threshold Analysis
“We don’t do diligence on that vendor because we have mitigating controls in place.”
A common problem in most organizations is that nobody is on the same page about the way vendors are classified. Purchasers are classifying them by ease-of-use, CFO’s by value, Compliance Officers by residual risk, and information security professionals are just now getting a handle on the issue.
We have found that the easiest manner of classification considers the following factors:
- Access to Information: If they host (possess, take-with-them, provide-in-the-cloud-services) information that is considered to be confidential or critical in nature (see data classification articles) then they should be considered to be Critical Vendors. If they have access to information temporarily, and that information is not large volumes of customer information (NPI), then they should be considered High Risk. We have a handly “threshold analysis” that helps sort through these questions.
- Business Impact: If the vendor provides a product or service that, if suddenly unavailable, would cause a critical business impact, that vendor should be considered a Critical or High Risk Vendor, depending upon available mitigating controls or compensating factors. Again, we have a template “threshold analysis” that helps sort through these questions.
A good threshold analysis helps lay a paper-trail not only for those vendors whom you perform due diligence upon, but more importantly, for those vendors you do NOT scrutinize. The analysis should be quantitative, and it should be applied to all vendors at least once.
We actually suggest a quantitative analysis be run on all active vendors periodically (for our program, it’s every three years.) New vendors are analyzed, of course, prior to engagement. But to make sure nobody falls through the cracks . . . . and they do . . . . and to also be sure that changes in service-sets do not change vendor profiles enough to change their classification . . . we run a full analysis on all active vendors every three years. Some of our bank clients do this annually, others bi-annually.
The minimum-effective-dosage approach to vendor management would warrant that at least once, all active vendors undergo a full analysis. The analysis would consider various risk-factors such as type of information, type of access to the information, volume, how easy it is to replace the vendor, and other questions along side the standard financial statement and security controls review.
It is important to remember that the initial threshold analysis is about inherent risk, rather than residual risk. The controls we can apply should not factor into determining whether we should consider the controls we can apply. (Re-read that sentence, it is correctly stated.) Very often we will hear statements like, “we didn’t put them through the threshold analysis because we do background checks on their employees for them.”
A templated threshold analysis is available as a stand-alone document and is also available in our Vendor Management Kit. Of course, Clients are welcome to any of our boilerplates at no charge, just e-mail us.
The threshold analysis is where we sort vendors by Inherent Risk.