How to Better Understand and Manage Risks Across Your IT Vendors

In the interconnected digital landscape of 2025, IT vendor supply chains have become critical enablers of business operations. However, as revealed in the 2024 Gartner Q4 Emerging Risks Survey, IT vendor supply chain risks have emerged as the top concern for organisations globally. This rising concern highlights the importance of understanding and mitigating these risks to maintain operational resilience and safeguard organisational integrity.

In this article, we will explore the key challenges organisations face, practical strategies to mitigate vendor risks, and how businesses can build stronger partnerships with their IT suppliers to stay ahead.

The Growing Risk in IT Vendor Supply Chains

1. Complexity of Multi-Vendor Ecosystems

Most organisations now rely on multiple IT vendors to manage diverse services like cloud computing, cybersecurity, and software development. While this approach increases efficiency, it also creates vulnerabilities when these vendors fail to meet service level agreements (SLAs) or experience disruptions.

2. Data Security Concerns

Third-party vendors often have access to sensitive company data, increasing the risk of breaches or misuse. High-profile cybersecurity incidents, like the SolarWinds breach, underscore how compromised vendors can impact not only one organisation but an entire supply chain.

3. Lack of Visibility and Oversight

Many organisations struggle to maintain full visibility of their vendors’ activities, including subcontractors or secondary suppliers. This lack of oversight makes it difficult to identify and mitigate risks proactively.

4. Regulatory Compliance

Australia's regulatory landscape is increasingly focusing on holding organisations accountable for IT vendor risks, particularly in cybersecurity and operational resilience.

• New Cyber Legislative Package: The Australian government introduced comprehensive reforms in 2024, which include mandatory reporting for cyber incidents affecting critical infrastructure. This legislation holds businesses responsible for their vendors’ cybersecurity practices, ensuring third-party compliance with national security standards.

• APRA CPS 234 and CPS 230: For APRA-regulated entities, these standards set stringent requirements for information security and operational resilience, especially in the context of IT vendors.

  • CPS 234: Focused on ensuring robust information security frameworks, this regulation mandates that financial institutions assess vendor security controls, monitor their ongoing performance, and respond promptly to incidents. Organisations are required to hold vendors accountable for meeting these standards, including regular audits and reporting mechanisms.

  • CPS 230: Addressing operational risk and resilience, CPS 230 raises expectations for organisations to prepare for and manage disruptions across their supply chains. It requires businesses to identify critical dependencies, assess vendor capabilities to recover from incidents, and implement detailed business continuity and disaster recovery plans. The regulation places a greater emphasis on proactive risk management, ensuring entities can minimise operational downtime in case of vendor failures.

• ASIC’s Accountability Focus: The Australian Securities and Investments Commission (ASIC) is increasingly holding directors personally accountable for lapses in cybersecurity governance, including vendor-related risks. Recent enforcement actions have highlighted the need for directors to ensure vendors meet compliance standards and align with best practices.

Failing to meet these obligations can lead to hefty fines, reputational damage, and legal consequences.

Strategies to Manage IT Vendor Risks

1. Establish Clear Risk Assessment Processes

Conducting thorough due diligence before onboarding vendors is essential. This includes evaluating financial stability, technical capabilities, and cybersecurity posture. Use vendor risk assessment frameworks like ISO 27001 or NIST to standardise the process.

Key Steps:

• Assess vendors’ historical performance and incident response times.

• Require proof of compliance with relevant security and regulatory standards.

• Analyse risks posed by vendors’ subcontractors.

• Obtain independent assurance reports (e.g., SOC 2 or ISO 27001 certifications) that validate the effectiveness of vendors’ controls.

2. Implement Strong Vendor Agreements

Contracts and SLAs should outline clear expectations for performance, security, and compliance. Include clauses that hold vendors accountable for breaches, delays, or non-compliance.

Best Practices:

• Define response times for resolving issues and compensations for non-compliance.

• Require vendors to provide regular security and performance audits.

• Include provisions for vendors to participate in continuity testing and share results with your organisation.

3. Enhance Monitoring and Reporting

Continuous monitoring of vendor activities is critical to identify potential risks in real-time. Use tools like security information and event management (SIEM) systems and vendor risk management (VRM) platforms to automate oversight.

Recommended Actions:

• Request vendors to provide regular performance and compliance reports.

• Monitor for changes in vendor’s operational or financial health.

• Require periodic testing of key controls, including cybersecurity measures and disaster recovery plans.

• Collaborate with vendors to ensure their monitoring processes align with your organisation’s expectations.

4. Develop a Vendor Risk Contingency Plan

Even the most robust systems can fail. Develop contingency plans to ensure minimal disruption in case of vendor-related incidents.

Key Actions:

• Maintain alternative vendors or backups for critical services.

• Conduct regular drills to test business continuity and disaster recovery plans, including vendor involvement.

• Establish escalation protocols to ensure rapid response during incidents.

5. Foster Transparent Relationships

Building open communication channels with vendors promotes trust and improves collaboration in risk management.

Suggestions:

• Share your organisation’s expectations and priorities clearly.

• Encourage vendors to share their challenges and potential risks proactively.

• Schedule regular meetings to discuss performance, emerging risks, and joint mitigation strategies.

Real-World Example: Supply Chain Resilience in Financial Services

A major Australian bank faced significant operational challenges due to a cyberattack on one of its cloud vendors. To mitigate future risks, the bank implemented the following measures:

• Conducted a comprehensive risk assessment of all IT vendors.
• Introduced mandatory quarterly performance audits.
• Partnered with an independent firm to continuously monitor vendor cybersecurity practices.

Outcome: The bank reduced vendor-related incidents by 35% within a year and increased overall operational resilience.

Takeaway: A proactive approach to vendor risk management can safeguard businesses from disruptions and enhance trust with stakeholders.

Embracing a Risk-Aware Culture

Managing IT vendor risks is not a one-time activity but an ongoing process that requires collaboration across teams. By fostering a risk-aware culture and leveraging the right tools and strategies, organisations can minimise vulnerabilities and ensure seamless operations.

As IT vendor ecosystems continue to grow, so will the associated risks. However, organisations that prioritise proactive risk management will not only avoid disruptions but also position themselves as leaders in their industries. If you’re looking for expert guidance on managing IT vendor risks, contact us today to learn how we can help.