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Understanding Vendor and Third Party Risk Management

Understanding Vendor Risk Management (VRM)

Vendor Risk Management (VRM) is the process of evaluating and assessing the risks associated with new and existing vendors in order to ensure that they do not pose unacceptable risks or disruptions to a business. This encompasses any third-party vendors that an organization regularly engages with, including software-as-a-service (SaaS) providers, manufacturers, and more.

Understanding Third Party Risk Management (TPRM)

Third Party Risk Management (TPRM) is a broader discipline that focuses on identifying, analyzing, and controlling risks presented by third parties to an organization. This includes risks to the organization’s data, operations, and finances. TPRM goes beyond just vendor risk management and also covers other types of risk management, such as supplier risk management and contract risk management.

Difference Between VRM and TPRM

The main difference between VRM and TPRM lies in their scope. VRM specifically focuses on managing the risks associated with vendors, while TPRM encompasses the management of risks posed by all types of third parties. Third parties include not only vendors but also suppliers, contractors, business partners, consultants, and more.

While all vendors, suppliers, contractors, and providers are considered third parties, the reverse is not true. Third party is a broad term that encompasses any organization that has a working relationship with another. It is often used as a catch-all term for companies that provide goods and services to other businesses, regardless of the business model (B2B, B2C, or B2G).

Vendors, on the other hand, are a specific type of third party that typically have written contracts with organizations and provide goods and services to them. The term “vendor” is commonly used when referring to SaaS offerings, such as CRM, payroll, or marketing tools.

While VRM focuses on assessing and managing the risks associated with vendors, TPRM takes a more holistic approach. It expands the scope to include all types of third parties that could pose risks to an organization, such as mergers and acquisitions, business partners, federal agencies, contractors, customers, and of course, vendors.

In addition to assessing a third party’s security posture and making risk-based decisions, a TPRM program also emphasizes the need for continuous monitoring and measurement of third party security controls. This ensures that the organization’s risk tolerance and objectives are aligned with the security practices of its third parties.

As organizations increasingly rely on third parties to scale their operations, it becomes crucial for risk and security leaders to implement effective VRM and TPRM programs. These programs help organizations mitigate the inherent risks associated with engaging with vendors and other third parties, safeguarding their data, operations, and overall business continuity.


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