When assessing risk from third party vendors, one term usually comes up: due diligence. What is due diligence, though, and how does it relate to vendor management?
Due diligence is the investigation that a business or person takes before entering into an agreement or contract with another party, in order to confirm the accuracy of the offer and appraise its value.
These investigations are conducted across industries in many business cases, such as:
Throughout the years, the term due diligence has grown from everyday use to encapsulate legal, business, compliance, and investment connotations.
With increased reliance on third party vendors for critical services, as well as increased scrutiny from examiners and customer expectations, security and compliance leaders are under pressure to deliver vendor due diligence results in a timely manner.
In the context of third party risk management (TPRM), vendor due diligence is the process by which an organization examines a current or potential third party vendor’s risk to its business operations. It’s often a regulatory requirement in guidelines such as those issued by the OCC and the FFIEC.
As outlined in the FDIC Financial Institution Letter 44-2008:
Comprehensive due diligence involves a review of all available information about a potential third party, focusing on the entity’s financial condition, its specific relevant experience, its knowledge of applicable laws and regulations, its reputation, and the scope and effectiveness of its operations and controls.
In essence, vendor due diligence is a risk-based decision making process, where you collect and analyze as much information as possible from a vendor before making a decision to engage with them in a business relationship.
Read more: How to conduct a vendor risk assessment
While often perceived as manual and time-consuming, due diligence can be streamlined, standardized, and automated given the right toolset.
After all, it’s in your organization’s best interest to ensure that vendors have been appropriately vetted and are protecting your sensitive data.
Here are some tips for your reviews:
Whether you use a standardized questionnaire for all vendors or a series of custom questionnaires, due diligence is a fundamental pillar of vendor management. One that ultimately protects your organization, your customers, and your data.
Need help with your vendor management program?
ThirdPartyTrust specializes in vendor risk management, with a dedicated tool where enterprises and vendors connect to perform risk assessments, automate TPRM and compliance workflows, and share security documents. Contact us today to learn more.
Finding the right TPRM tool is a unique process for every organization as they navigate their journey to TPRM maturity.
This guide will help you decide based on your needs around security ratings, custom questionnaires, integrations, and other features.
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