Vendor Risk Management Best Practices for Success in 2025

Protecting your business from third-party risk takes a well-structured cyber risk management program

By Jonathan Moody

In today’s interconnected business environment, organizations increasingly rely on third-party vendors to enhance operational efficiency and drive innovation. However, these vendor relationships introduce significant risks that can impact information security, regulatory compliance, and business continuity.

As the recent SAFE research report Risk Radar: Actionable Insights for CISOs found, smaller third parties are now disproportionately attacked as criminals have discovered they are an easier vector into larger, better defended enterprises. Some recent examples:

• CDK, a small but dominant vendor software services for the automotive industry, was knocked offline by ransomware, taking down some 15,000 car dealerships.
• ION, another small but dominant vendor of financial services software, took down the exchange traded derivatives business of the world’s largest financial firms in a ransomware attack. 

As data breaches and cyber threats become more sophisticated, organizations must adopt an effective vendor risk management strategy to manage vendor risks proactively. This article outlines essential vendor risk management best practices tailored for 2025, helping businesses strengthen their risk management framework and protect sensitive data from vendor-related threats.

Why Vendor Risk Management Is Evolving

The landscape for both enterprise risk management and third party risk management is shifting due to several key factors:

Increased Third-Party Dependencies

Businesses are outsourcing critical functions to vendors, increasing exposure to third-party threats. The build-vs-buy consideration has never been more tilted toward the buy side. Whether it’s data storage, ecommerce, billing and payments, customer service/help desk, HR and payroll or manufacturing of product components enterprise, enterprises make a wise choice to go with the specialists but in the process, give up complete control over critical functions, effectively outsourcing risk. 

Advanced Technological Integrations

The rise of AI and cloud-based solutions introduces specific risks that demand stronger security controls that push risk managers out onto unexplored frontiers. You may not even know that your partner is running a Generative AI solution, creating the risk that your proprietary data that they hold could spill out into the open – in fact, your partner may not understand the AI activities going on under its roof. On the cloud services side, vendor Snowflake failed to require multi-factor authentication, giving hackers easy access to data from Ticketmaster, Advance Auto Parts and other major enterprises, affecting millions of customers.

Stricter Regulatory Requirements

Governments and industry bodies are tightening regulatory requirements for vendor due diligence, making compliance more complex. The EU’s DORA regulations, for instance, explicitly hold financial enterprises responsible for third party risk. 

To stay ahead of these challenges, organizations must continuously monitor vendor activities and ensure their vendor risk management program evolves with the latest threats and compliance mandates.

Core Challenges in Vendor Risk Management

Organizations face several obstacles when trying to manage vendor risks effectively:

• Complex Vendor Ecosystems: Tracking numerous party relationships with different levels of risk can be overwhelming. Large organizations may have hundreds, even thousands of vendors scattered across business units. 
• Dynamic Risk Landscapes: Emerging threats require real-time adaptation of security policies and ongoing monitoring. Watching out for new vulnerabilities, threat actors, and attack vectors – and then prioritizing responses all in rapid order is simply beyond the capabilities of most organizations. 
• Resource Constraints: Many companies lack the time and tools to conduct vendor due diligence at scale across a horde of vendors. 

But the problem runs deeper. Most solutions on the market today for managing third-party, vendor or supply chain risk are simply up to the task. Techniques include 

• Cybersecurity Risk Ratings: The scoring is usually via black box methodologies that are based on data collected from outside-in (external and public) scans with no insight into internal controls:
• Questionnaires: Typically, the enterprise requires these reports on security status from a vendor only once a year and with loose oversight – a vendor might check the box indicating the presence of a control, with no gauge of the status (on or off?) or effectiveness of the control. 

These all-too-common approaches fail to provide contextual insights that reduce risk or effectively aid in risk burndown decision-making. They are still largely manual, work in silos without considering the vendors’ internal controls, and ultimately, do not help build scalable security programs.

Practical Takeaway

• A well-structured risk management framework and real-time risk assessment tools can help organizations streamline vendor relationship oversight, ensuring a vendor risk management program that scales with business needs.

Best Practices for Vendor Risk Management in 2025

Practices in vendor or third party risk management haven’t evolved to keep up with the times. But now, new techniques are emerging, based on a thorough re-think of the cyber third party risk management (CTPRM) space. 

1. Building and Maintaining an Accurate Vendor Inventory

• Problem: Without a centralized vendor inventory, businesses struggle to assess their level of risk across all party vendors.
• Solution: Develop a comprehensive vendor inventory that includes vendor details, security controls, compliance statuses, and risk assessments.
• Pro Tip: Use automated tools to update your vendor inventory in real time, ensuring continuous accuracy and visibility.

2. Developing a Vendor Assessment Process with Customizable Checklists

• Problem: Generic assessments fail to capture specific risks posed by different vendors.
• Solution: Create tailored vendor due diligence checklists that evaluate vendor security, financial stability, and compliance with regulatory requirements.
• Pro Tip: Incorporate industry frameworks like FAIR, NIST, ISO 27001, or SOC 2 to ensure your vendor assessments meet top-tier standards.

3. Tiering Vendors Based on Actual Risk

• Problem: Enterprises can’t effectively prioritize among vendors to direct risk management efforts. 
• Solution: Identify vendors that pose the most loss exposure because of the value of the data they hold, the criticality of the functions they provide, the extent to which they are embedded in your network, and whether backups are adequate – or is the vendor a potential single point of failure. 
• Pro Tip:  Practice FAIR quantitative cyber risk analysis to understand the likely scenarios by which a risk could occur and the dollar impact of a service outage, data breach or other loss event. 

4. Prioritizing Continuous Monitoring of High-Risk Vendors

• Problem: Periodic assessments do not provide real-time visibility into vendor security issues.
• Solution: Gain vendor cooperation to implement continuous monitoring to track their activities — scanning controls from outside in and inside out – to detect anomalies and receive alerts on potential threats.
• Pro Tip: Leverage AI-driven analytics to improve ongoing monitoring and proactively address risks before they escalate.

5. Defining and Tracking Vendor Performance Metrics

• Problem: Without defined KPIs, businesses cannot accurately measure a vendor’s security posture or reliability.
• Solution: Establish clear performance metrics, such as uptime, security controls, incident response times, and compliance rates.
• Pro Tip: Review and refine vendor performance metrics quarterly to align with evolving risk management framework strategies.

6. Mitigating Fourth-Party Risks

• Problem: Many companies overlook the risks associated with their vendors’ subcontractors (fourth-party risks).
• Solution: Require vendors to disclose their subcontractors and assess their impact on your vendor risk management program.
• Pro Tip: Include contractual clauses holding vendors accountable for fourth-party risks and requiring them to conduct vendor due diligence on their own suppliers.

7. Strengthening Internal Resilience to Minimize Vendor Risk 

• Problem: The missing piece in traditional vendor risk assessment is the defenses of the enterprise itself.  
• Solution: Always assume your third parties have not addressed critical security exposures, and that your enterprise needs to safeguard itself. The best choice: a zero-trust approach that limits the mobility of any attacker insider your network. 
• Pro Tip: FAIR analysis has identified the Top 10 Controls most likely to reduce risk from third-party suppliers. 

8. Preparing for Vendor Incidents: Continuity and Recovery Planning

• Problem: Without a vendor incident response plan, data breaches or outages can disrupt operations.
• Solution: Develop a vendor-specific incident response and recovery plan that outlines how to handle security breaches or compliance failures.
• Case Example: A financial institution faced a data breach due to a vendor’s security lapse. Thanks to a strong continuity plan, the company responded immediately, limiting sensitive data exposure and preventing reputational damage.

9. Forming a Dedicated VRM Committee for Strategic Oversight

• Problem: Without centralized oversight, VRM efforts can become disjointed and inconsistent.
• Solution: Establish a cross-functional vendor risk management program committee to oversee policies, assessments, and compliance efforts.
• Pro Tip: Include IT, legal, procurement, and compliance stakeholders to ensure a risk management framework that covers all aspects of vendor security.

10. Communicating Expectations and Updates with Vendors

• Problem: Misalignment on security policies can lead to compliance issues and weaker security controls.
• Solution: Regularly update vendors on evolving security policies, compliance expectations, and new risk assessment procedures. Security is a shared responsibility!
• Pro Tip: Host quarterly vendor relationship meetings and provide training to reinforce information security expectations.

Emerging Trends in Vendor Risk Management 

• Automated Risk Assessment: Organizations are adopting AI tools for real-time risk assessments that quickly ingest security questionnaires or other evidence of compliance and continuously monitoring the status of controls and vulnerabilities at the third party. 
• Unified View of Risk: First-party and third-party risk exposure treated with equal importance from a “single pane of glass.”
• Risk–based Approach: No more prioritizing vendors based on the size of the vendor company or the size of the contract – take a tight focus on the risk from the third party for likelihood and financial impact. 
• Stricter Third-Party Regulations: New regulatory requirements are reshaping how companies approach vendor due diligence. 
• Cloud Security Enhancements: As businesses rely more on cloud-based vendors, securing party relationships in cloud environments is a top priority.

Tiering vendors on the SAFE One platform 

How SAFE Can Enhance Your Vendor Risk Management Program

Implementing these vendor risk management best practices requires robust technology, real-time analytics, and automated compliance tracking. SAFE provides an industry-leading vendor risk management program that helps organizations:

✔ Continuously monitor vendor risks with AI-driven insights

✔ Automate vendor due diligence and compliance tracking

✔ Strengthen information security using standard risk frameworks, not black box solutions

✔ Ensure real-time visibility into vendor threats

Ready to enhance your first- or third-party risk management strategy? Learn more about SAFE today.