How to Perform a Third-Party Vendor Risk Review

Third-party vendors—from payroll providers to cloud storage platforms—can expose your organization to serious cybersecurity and compliance risks.

Unfortunately, many small businesses delay or avoid vendor reviews due to the perceived complexity or cost.

The good news: You can perform a practical, risk-based vendor review using free tools and a simple process. This guide shows you how.

Why Vendor Risk Reviews Matter

When vendors handle your sensitive data or business-critical systems, their vulnerabilities become your liabilities. Without proper oversight, a breach on their end can jeopardize:

• Your customers’ data
• Your compliance with laws and standards
• Your business operations and reputation

Regulatory Relevance:

• GDPR: Requires organizations to ensure processors offer sufficient guarantees for data protection.
• CCPA: Holds businesses accountable for third-party data sharing practices.
• HIPAA: Mandates Business Associate Agreements (BAAs) and appropriate safeguards for covered entities.
• SOC 2 / ISO 27001: Require evidence of vendor management processes and due diligence.
• Cyber Insurance: Often demands proof of third-party risk management practices.

In short, vendor risk management is not optional—it’s a fundamental compliance requirement.

Step 1: Build a Vendor Inventory

Start by identifying all vendors that access sensitive data or perform critical services.

Capture the following details:

• Vendor name and service
• Data types shared (e.g., PII, PHI, credentials)
• Business criticality (High / Medium / Low)
• Internal point of contact
• Contract start/end dates

Suggested Tool: Google Sheets or Airtable. Use filterable fields for easy prioritization.

Step 2: Categorize Vendors by Risk Level

Not all vendors present equal risk. Classify them based on:

• Data Sensitivity: Do they store or process confidential or regulated data?
• Operational Impact: Would a vendor failure disrupt your business?
• Access Scope: Do they have administrative privileges or system integrations?

A basic tiering model (High / Medium / Low) will help prioritize efforts.

Step 3: Distribute a Vendor Security Questionnaire

For Medium and High-risk vendors, issue a concise security questionnaire.

Example Questions:

• Do you enforce multi-factor authentication (MFA)?
• Is customer data encrypted at rest and in transit?
• Do you maintain an incident response plan?
• Do you conduct background checks on employees?
• Can you provide a recent SOC 2 Type II or ISO 27001 report?

Suggested Tools: Google Forms or Microsoft Forms for collection and tracking.

Step 4: Review Contracts and Data Processing Agreements (DPAs)

Examine each vendor’s contract for key security and compliance provisions.

Look for:

• A formal Data Processing Agreement (DPA) if personal data is involved
• Defined breach notification timelines
• Liability and indemnity clauses
• A clear outline of security responsibilities
• Your right to audit or request third-party certifications

Legal Note: For contractual or regulatory implications, consult your legal counsel. Even basic agreements may require review to ensure you’re protected.

Step 5: Document Risks and Mitigation Actions

Summarize findings in a centralized register. Include:

Track all communication, findings, and decisions in one location to ensure auditability.

Step 6: Establish a Review Cadence

Vendor risk is dynamic. Regular reviews are essential.

• High-risk vendors: Review annually
• Medium-risk vendors: Review every 1–2 years
• Low-risk vendors: Review every 2–3 years

Use a shared calendar or task board to assign and track review cycles.

Suggested Tools: Google Calendar, Trello, or Asana for review reminders and assignments.

Optional: Scale with Automation Tools

If you’re ready to mature your process, consider vendor risk platforms:

• Tugboat Logic / Drata – Automate questionnaires and evidence tracking
• OneTrust / Whistic – Offer vendor portals and risk scoring
• Google Workspace + Apps Script – Automate spreadsheet reminders

These tools can significantly reduce manual overhead as your vendor ecosystem grows.

Final Thoughts

Performing a third-party vendor risk review doesn’t require expensive platforms or dedicated teams.

Start with what you have. Build a repeatable, auditable process. Protect your organization.

Even simple actions—like classifying vendors and asking the right questions—can make a meaningful difference.

Need help building a vendor risk management workflow or preparing for your first audit?

Anchor Cyber Security specializes in helping small businesses develop practical, compliant GRC processes.