oboloo FAQ's

What Is Vendor Risk Management And Why Is It Important?

What Is Vendor Risk Management And Why Is It Important?

Have you ever considered the potential risks that vendors pose to your business? From data breaches to compliance violations, vendor risk management is a critical aspect of any successful organization’s operations. In this blog post, we’ll explore what vendor risk management is and why it’s essential for every company to prioritize. So sit back, grab a cup of coffee, and let’s dive in!

What is Vendor Risk Management?

Vendor risk management (VRM) is a term used to describe the process of managing the risks posed by suppliers. VRM should be a key part of any organisation’s procurement strategy, as it can help ensure that the right supplier is selected and that the required products and services are delivered on time, budget and to specification.

One of the main aims of VRM is to maximise the chances of successful project completion by minimising the risk associated with supplier performance. This can be done by understanding and assessing supplier reliability, capability and track record; managing expectations; and overseeing delivery quality assurance. It is also important to identify potential risks early on in order to mitigate them or prevent them from developing into more serious problems.

There are a number of factors that can contribute to vendor failure, including fraud, corruption, poor quality products or services, missed deadlines, faulty equipment or software, unsupported claims and sabotage. By fully understanding the risks associated with each particular supplier, organisations can minimise their exposure to these potential problems.

The Different Types of Vendors

When you’re considering who to work with to carry out a project, the last thing you want to do is take on unnecessary risk. Vendors can be one of the most risky aspects of any project – and not just because they can cost more than you expect.

There are different types of vendors, with different risks, so it’s important to understand what those risks are before deciding whether or not to work with them. Here are four common types of vendors and their respective risks:

1. Contractors: When working with contractors, there’s always a chance that the contractor won’t meet their obligations – either because they don’t have the skills required or because they’re not properly organized. This could lead to delays and added costs for you, as well as damage to your property or reputation.

2. Freelancers: Freelancers offer a lot of flexibility – but that also means that they’re liable for their own actions and can’t be counted on to complete tasks on time or within budget. If something goes wrong, it can be difficult to get them fixed up without causing further delays or costing even more money.

3. Consultants: Consultants typically charge based on hour counts, so if something goes wrong while they’re working on your project, they may end up taking a loss rather than refunding you for the unused hours. This can add up quickly if you need consultants for long-term projects or multiple visits.


How to Handle Vendor Risk

Vendor risk management is the process of assessing and managing the risks associated with contracts with vendors. This includes understanding the vendor’s business, assets, and liabilities, as well as their ability to meet your requirements.

It is important to manage vendor risk because it can impact both the performance of your business and your financial stability. By understanding and mitigating the risks posed by your vendors, you can ensure that projects are completed on time, without costly overruns or missed deadlines.

There are a number of steps you can take to manage vendor risk effectively:

1. Review your contract specifications carefully. Contract specifications should detail all relevant information, such as delivery dates, price points, and payment terms.

2. Screen potential vendors thoroughly. Make sure that each candidate meets your requirements and has the appropriate resources (e.g., technology expertise, manpower).

3. Establish clear milestones and track progress regularly. Be sure to keep track of actual performance versus expected performance so that any unexpected delays or problems can be quickly identified and addressed.

4. Monitor financial statements closely. Be aware of any red flags in regards to a vendor’s finances (e.g., high debt levels, significant losses in past years). If there are any concerns, consider withholding payments or terminating the contract altogether


Vendor risk management is one of the most important aspects of running a business. By understanding and managing your vendor risks, you can ensure that you are taking all necessary precautions to protect yourself against potential financial losses. By doing so, you can prevent costly mistakes from occurring and keep your business afloat during troublesome times.

Want to find out more about procurement?

Access more blogs, articles and FAQ's relating to procurement

Oboloo transparent

The smarter way to have full visibility & control of your suppliers


Feel free to contact us here. Our support team will get back to you as soon as possible

Oboloo transparent

The smarter way to have full visibility & control of your suppliers


Feel free to contact us here. Our support team will get back to you as soon as possible

© 2024 oboloo Limited. All rights reserved. Republication or redistribution of oboloo content, including by framing or similar means, is prohibited without the prior written consent of oboloo Limited. oboloo, Be Supplier Smart and the oboloo logo are registered trademarks of oboloo Limited and its affiliated companies. Trademark numbers: UK00003466421 & UK00003575938 Company Number 12420854. ICO Reference Number: ZA764971