The Ultimate Guide to Vendor Risk Management in 2025

Introduction

Vendor risk management (VRM) has evolved from a compliance checkbox into a critical business function. In 2025, with supply chains growing more complex and digital ecosystems becoming increasingly intertwined, the risks posed by third-party vendors have never been higher. Our panel of award-winning experts—spanning cybersecurity, compliance, and enterprise risk—have come together to offer a comprehensive, forward-looking guide to VRM.

This guide is designed for CISOs, risk professionals, compliance officers, CFOs, and board members seeking a practical and strategic understanding of vendor risk in today's volatile environment. We explore essential VRM frameworks, cutting-edge assessment methodologies, and actionable strategies to mitigate compliance and cybersecurity exposures introduced through third-party partnerships.

By synthesizing global best practices, recent regulatory changes, and emerging threats, this article aims to serve as a definitive reference point for vendor risk oversight. For additional context on why vendor risk is accelerating across industries, consider these six types of vendor risk highlighted by Security Scorecard and this step-by-step assessment guide from Prevalent.

Understanding Vendor Risk Management

Vendor Risk Management (VRM) refers to the comprehensive process of identifying, assessing, monitoring, and mitigating risks associated with third-party vendors and service providers. These risks may include cybersecurity vulnerabilities, regulatory non-compliance, operational failures, financial instability, and reputational harm. In a globally interconnected environment, any single weak link in your vendor network can trigger cascading effects across your business.

At its core, VRM involves establishing formal processes to evaluate vendors before onboarding, monitor them throughout the relationship, and respond swiftly to incidents. A mature VRM program aligns with your enterprise risk appetite and regulatory obligations while enabling agility in your supply chain and digital operations.

Common types of vendor risk include:

• Cybersecurity Risk: Data breaches, ransomware entry points, or poor security practices.
• Compliance Risk: Failing to meet obligations such as GDPR, HIPAA, or industry-specific standards.
• Operational Risk: Service disruptions or poor performance affecting your operations.
• Financial Risk: Vendor insolvency or financial instability.
• Reputational Risk: Ethical missteps or data leaks that damage brand trust.

Gartner defines VRM as "the process of ensuring that the use of service providers and IT suppliers does not create an unacceptable potential for business disruption or negative impact on business performance." You can explore more in Gartner’s VRM guide.

As organizations deepen their reliance on cloud providers, SaaS platforms, and outsourced functions, the importance of VRM has moved well beyond procurement. It is now a board-level issue tied directly to enterprise resilience.

The Evolving Landscape of Third-Party Risks in 2025

The vendor risk landscape is undergoing rapid transformation. In 2025, organizations are facing a surge in third-party relationships driven by digital transformation, remote work ecosystems, and an increasingly globalized service economy. With this expansion comes a broader and more complex risk surface that traditional risk management approaches can no longer adequately cover.

One of the most significant shifts is the rise of interconnected digital supply chains, where vendors are integrated deeply into systems, data workflows, and infrastructure. This tight coupling creates a domino effect—if a vendor suffers a breach or disruption, it may compromise your systems as well. This has been evidenced by incidents like the SolarWinds and MOVEit breaches, where vendor vulnerabilities had downstream impacts across industries.

In addition to cyber threats, new compliance requirements—such as the EU’s Digital Operational Resilience Act (DORA) and proposed U.S. SEC regulations—are placing stricter obligations on third-party oversight. Companies are now expected to implement robust due diligence, continuous monitoring, and real-time risk visibility across their entire vendor ecosystem.

Emerging third-party risks in 2025 include:

• AI-Driven Attacks: Vendors leveraging AI may introduce attack vectors or unvetted algorithms with ethical implications.
• Shadow Vendors: Business units onboarding vendors outside official procurement processes, creating hidden risks.
• Fourth-Party Risk: Risks inherited from your vendors’ vendors (i.e., subcontractors).

For a deeper dive into the categories of vendor risk, refer to this breakdown by Bitsight, and see SecurityScorecard’s 2025 risk trends for emerging threats.

Organizations that fail to adapt their VRM programs to meet these new realities risk falling behind in both security and regulatory compliance. It’s no longer just about managing vendors—it’s about building resilience into the fabric of your business ecosystem.

Building a Robust Vendor Risk Management Framework

Establishing a strong Vendor Risk Management (VRM) framework is essential to systematically identify, assess, and mitigate third-party risks. In 2025, a robust framework must be both scalable and adaptive—capable of responding to dynamic threats, evolving compliance requirements, and growing vendor complexity.

A well-designed VRM framework typically consists of the following core components:

• Governance Structure: Define ownership, roles, and responsibilities across procurement, IT, compliance, and risk teams.
• Vendor Onboarding Process: Formal procedures for due diligence, risk classification, and approval.
• Risk Assessment Methodology: Standardized tools to evaluate vendor risks based on impact and likelihood.
• Contractual Safeguards: Incorporate risk mitigation clauses, audit rights, SLAs, and breach notification requirements.
• Continuous Monitoring: Track changes in vendor posture, performance, and risk level over time.
• Exit Strategy: Predefined protocols for disengaging from high-risk or non-compliant vendors.

It's also critical to align the VRM framework with your organization's enterprise risk appetite and regulatory obligations. The integration with enterprise risk management (ERM) allows for a more comprehensive view of how vendor exposures contribute to overall business risk.

Customization is key—there’s no one-size-fits-all approach. For example, financial institutions may emphasize regulatory compliance and data privacy, while tech companies may focus on supply chain integrity and cyber resilience.

To benchmark your framework, consider reviewing the NIST Cybersecurity Framework, which offers a flexible foundation for integrating third-party risk controls into your broader security program.

A mature VRM framework is not just policy—it’s a living, evolving capability that enables informed vendor decisions and safeguards business continuity.

Conducting Effective Vendor Risk Assessments

Vendor risk assessments are the backbone of any successful VRM program. They enable organizations to evaluate the potential impact a vendor may have on their operations, compliance posture, and cybersecurity. In 2025, these assessments must go beyond static questionnaires and embrace dynamic, data-driven methods that reflect real-time risk exposure.

The assessment process typically involves several key stages:

1. Risk Tiering: Classify vendors based on the criticality of their service and level of access to sensitive systems or data.
2. Initial Due Diligence: Collect data on the vendor’s security controls, financial health, regulatory standing, and incident history.
3. Questionnaires and Certifications: Leverage standardized templates like CAIQ or SIG Lite, along with certifications such as ISO 27001 or SOC 2.
4. Risk Scoring: Use quantitative scoring models to assess the likelihood and impact of various risks, adjusting thresholds by vendor tier.
5. Remediation Planning: Identify gaps and enforce corrective actions through risk mitigation plans or contract renegotiation.

While traditional assessments still hold value, they must be supplemented with continuous monitoring tools that track vendor risk posture over time. Solutions such as BitSight, SecurityScorecard, and Prevalent provide ongoing visibility into vendor behavior, external attack surfaces, and breach activity.

For practical guidance, refer to Prevalent’s vendor risk assessment guide, which outlines modern techniques and technologies used by risk leaders.

Also, it’s critical to integrate findings into decision-making processes across procurement, legal, and IT. An assessment isn’t just a snapshot—it’s a living insight that should drive risk-informed relationships throughout the vendor lifecycle.

In today’s landscape, it’s not a question of whether a vendor introduces risk—it’s whether you’ve assessed it well enough to stay ahead of it.

Mitigating Cybersecurity Threats from Vendors

Cybersecurity threats introduced by third-party vendors represent one of the most critical and fast-evolving risks facing organizations in 2025. Whether it’s a compromised cloud provider, an insecure software dependency, or a vendor with poor access controls, the fallout from vendor-related breaches can be severe—both financially and reputationally.

Mitigating these risks requires a proactive, layered approach. Organizations must not only assess vendors up front but also implement strong technical and contractual safeguards to minimize attack surfaces and response times.

Key strategies to mitigate cybersecurity threats from vendors include:

• Zero Trust Access: Ensure vendors are granted the minimum necessary access using principles of least privilege and just-in-time access control.
• Security-by-Contract: Embed detailed cybersecurity expectations, encryption standards, breach notification clauses, and audit rights in vendor agreements.
• Continuous Threat Monitoring: Use attack surface monitoring platforms like BitSight and SecurityScorecard to track vendor vulnerabilities in real time.
• Incident Response Playbooks: Prepare pre-defined response protocols that include vendor escalation paths and responsibilities during cyber incidents.
• Shared Responsibility Awareness: Educate internal stakeholders on which security responsibilities lie with vendors—especially for SaaS, IaaS, and PaaS models.

Many breaches occur because vendors either weren’t properly vetted or were operating under outdated assumptions about shared security duties. High-profile incidents, such as the Okta third-party breach or Kaseya ransomware attack, have demonstrated how threat actors actively exploit supply chains to gain footholds in target environments.

To strengthen your cyber resilience, review the U.S. CISA’s Supplier Risk Management guidance, which includes useful resources and checklists for vendor cybersecurity controls.

In 2025, cybersecurity is no longer just a firewall or endpoint issue—it's an ecosystem issue. And if one node in your vendor network fails, the entire chain could be exposed.

Ensuring Compliance with Regulatory Requirements

As regulatory scrutiny intensifies across jurisdictions, compliance risk has become a central pillar of vendor risk management. In 2025, organizations must not only manage their own obligations, but also ensure that third-party vendors meet an expanding set of regional and industry-specific compliance standards.

Failure to manage vendor compliance can result in penalties, legal exposure, and reputational damage. In some cases, regulators now explicitly hold organizations accountable for the behavior of their vendors and subcontractors.

Key regulations to consider in vendor oversight include:

• GDPR & CCPA: Privacy laws that impose strict data handling and processing requirements on both controllers and processors.
• HIPAA: Healthcare organizations must ensure their vendors (Business Associates) safeguard protected health information (PHI).
• DORA (EU): The Digital Operational Resilience Act mandates financial entities to manage ICT third-party risk with formal contracts, monitoring, and testing.
• SOX & GLBA: U.S. financial institutions must uphold strong controls and auditing mechanisms across vendor relationships.

Best practices for managing regulatory compliance through vendors include:

• Regulatory Mapping: Map vendor services to applicable compliance frameworks and identify control gaps.
• Contractual Clauses: Include specific regulatory obligations, data transfer restrictions, and breach reporting timelines in contracts.
• Audits and Certifications: Request SOC reports, ISO 27001 certificates, and independent audits as evidence of compliance readiness.
• Ongoing Oversight: Implement compliance monitoring tools and perform periodic reviews of high-risk vendors.

For example, the EU DORA regulation requires contractual clarity, real-time monitoring, and incident notification within tight timelines—placing significant emphasis on vendor readiness and transparency.

Another helpful resource is the U.S. HHS compliance portal, which outlines expectations for managing vendor relationships under HIPAA.

Ultimately, vendor compliance isn’t just about documentation—it’s about visibility, accountability, and continuous enforcement of shared responsibilities across your risk landscape.

Leveraging Technology in Vendor Risk Management

As vendor ecosystems become larger and more complex, manual processes alone are no longer sufficient to manage risk effectively. In 2025, organizations are increasingly turning to technology-driven solutions to streamline vendor onboarding, automate assessments, monitor risks continuously, and improve decision-making accuracy.

Modern Vendor Risk Management (VRM) platforms offer end-to-end functionality that supports every phase of the vendor lifecycle. These solutions not only reduce administrative burden, but also improve transparency and responsiveness across departments like procurement, legal, compliance, and IT.

Key technological tools used in VRM include:

• Third-Party Risk Platforms: Centralized platforms like Prevalent, OneTrust, and Aravo that automate onboarding, questionnaires, risk scoring, and reporting.
• Attack Surface Monitoring: Tools like SecurityScorecard and BitSight that track vendor cybersecurity posture in real time.
• Contract Lifecycle Management (CLM): Software that helps manage risk clauses, renewal timelines, and compliance commitments.
• Workflow Automation: Integrations with GRC systems and ticketing tools to automate remediation workflows and approvals.

Incorporating AI and machine learning is also on the rise, allowing for predictive risk scoring, anomaly detection, and faster classification of vendor responses. These technologies enable organizations to prioritize resources and make informed, real-time decisions.

One emerging area is the integration of VRM platforms with broader GRC suites—allowing risk data from vendors to influence enterprise-level decision-making. This shift moves VRM from a reactive compliance task to a strategic enabler of operational resilience.

For guidance on selecting a VRM solution, Gartner’s Market Guide for IT Vendor Risk Management Tools offers a detailed comparison of vendors and capabilities.

Leveraging the right tools is no longer optional—it’s a foundational requirement for building scalable, real-time, and defensible vendor risk programs.

Best Practices for Effective Vendor Risk Management

Strong policies and technologies form the backbone of VRM, but real-world success depends on embedding effective practices into daily operations. In 2025, the most resilient organizations treat vendor risk management as a living, organization-wide discipline—not just an annual check-the-box exercise.

Here are several best practices that help mature your vendor risk management program and make it more resilient to both known and unknown threats:

• Start with a Risk-Based Approach: Prioritize vendor reviews based on criticality and risk exposure. Not all vendors require the same level of scrutiny.
• Standardize the Onboarding Process: Establish clear intake procedures, standardized risk assessments, and procurement checkpoints to ensure consistency across departments.
• Involve Stakeholders Across the Business: Include representatives from IT, legal, procurement, and compliance to ensure a holistic evaluation of vendor risks.
• Train Staff on Vendor Risks: Equip employees with training to identify and escalate vendor-related concerns. People often miss the early warning signs.
• Review and Refresh Regularly: Update risk classifications, assessments, and contracts on a scheduled basis—or immediately following incidents, changes in scope, or industry alerts.

Effective programs also focus on vendor collaboration. Rather than treating vendors as outsiders, high-performing teams foster transparency and partnership by sharing expectations and providing feedback loops. This builds trust while ensuring risk controls are actionable and realistic.

For a checklist-style overview, the SANS Institute VRM best practices paper outlines additional steps for building a scalable, defensible program.

Lastly, document everything. If a breach or audit occurs, having well-organized evidence of your diligence—risk scores, due diligence records, monitoring logs—can mean the difference between business continuity and liability.

There’s no perfect vendor, and there’s no perfect control. But with consistent best practices, organizations can reduce their exposure and respond with agility when things go wrong.

Future Trends in Vendor Risk Management

As we look ahead, vendor risk management is poised for further evolution in both scope and complexity. What was once a narrow procurement-driven function is now a strategic pillar tied directly to enterprise resilience, ESG performance, and digital trust. Understanding emerging trends helps organizations future-proof their programs and respond faster to risk signals.

Here are key trends shaping the future of VRM in 2025 and beyond:

• Predictive Risk Intelligence: Organizations are shifting from reactive assessments to predictive analytics powered by AI and real-time threat intelligence. This allows earlier detection of vendor-related vulnerabilities and pre-emptive action.
• Integration with ESG Metrics: Environmental, Social, and Governance (ESG) considerations are being woven into vendor risk scoring. Stakeholders now expect visibility into labor practices, sustainability, and ethical sourcing.
• Greater Focus on Fourth-Party Risk: Companies are realizing the need to monitor their vendors’ vendors, especially when core services are subcontracted. Visibility into fourth-party networks is becoming a regulatory expectation.
• Automated Risk Exchanges: The rise of shared vendor risk networks—where organizations can access pre-validated vendor data—reduces redundancy and accelerates onboarding.
• Global Regulatory Convergence: Regulatory bodies worldwide are increasingly aligning on principles like continuous monitoring, cyber resilience, and shared accountability across supply chains.

To stay ahead, organizations must evolve their frameworks and tooling to address these shifts. Waiting until regulations mandate these changes—or until an incident exposes a blind spot—can be costly and reputationally damaging.

The Deloitte Third-Party Risk Outlook explores many of these shifts in detail, especially around digital and ESG-driven pressures. Similarly, PwC’s 2025 tech risk landscape notes an expected surge in AI-based vendor assessments and automation-led remediation.

Ultimately, the future of vendor risk management will be defined by integration, automation, and intelligence. Organizations that embrace these changes now will be better positioned to manage the unexpected—and thrive in it.

Conclusion

In 2025, vendor risk management is no longer a side task delegated to procurement or compliance—it’s a strategic imperative. As third-party ecosystems grow in complexity, so too do the risks they introduce, from cybersecurity threats and regulatory liabilities to reputational fallout and operational disruption.

This guide has outlined the foundational elements of effective VRM, from establishing risk-based frameworks and performing detailed assessments to leveraging technology and responding to emerging trends like ESG integration and predictive analytics. Whether you're overseeing a small vendor portfolio or managing hundreds of providers across global operations, the principles remain the same: visibility, accountability, and adaptability.

Leadership engagement is key. Boards, CEOs, and CFOs must recognize that vendor risk is business risk. Investing in modern VRM capabilities—tools, governance, and culture—will not only reduce exposure but enhance agility in an uncertain world.

For further insights, explore ISACA’s vendor risk management strategies and UK NCSC’s supply chain security guidance, both of which complement and expand on the topics covered in this guide.

At the end of the day, the strength of your organization’s risk posture will depend not just on who you trust—but how well you verify and manage that trust every single day.