Vendor Management: Using COBIT 5

Introduction

New Guidance from ISACA

Areas covered

• IT

• Process owners and stakeholders

• Compliance and laws

• Risk management

• Audit

• Contracts

• Service monitoring

Vendors

• A vendor is a third party that supplies

products or services to an enterprise.

• Most enterprises seek external vendor support for assistance with operations for one of the following reasons:

– Vendor expertise

– Vendor capacity

– Vendor assuming risk

– Vendor leveraging scale

Vendor Management

• Vendor management is a strategic process

that is dedicated to the sourcing and

management of vendor relationships so that:

– value creation is maximized and

– risk to the enterprise is minimized

Vendor Management Objectives

Managing vendors has many benefits, including:

• Data loss reduction

• Decrease in audit findings

• Cost optimization

• Increased availability

• Liability reduction

• Increased end-user satisfaction

• Value creation

Vendors to include

Play a critical role in daily operations

Can have critical impact on the success of strategic projects

Require long-term contracts

Have potential significant financial implications

Are difficult to change overnight

Require frequent interaction and/or disputes

Access or manage substantial critical or sensitive data

Important Documents

Contract Lifecycle

Contract

Contracts accomplishes the following:• Form a common understanding of what needs to

be achieved

• Define all deliverables, relevant service levels and metrics

• Define responsibilities and obligations

• Define the terms and conditions

• Specify how risk will be allocated between parties

• Define legal counsel and jurisdiction stipulations

SLAs

• An SLA is an agreement, preferably documented, between a product or service provider and the enterprise that defines minimum performance targets for a deliverable and how they will be measured and reported.

• The SLA enables customer and vendor accountabilities and expectations to be clearly understood. Performance can have the following implications:– Financial rewards (for exceeding targets)

– Financial penalties (for underperformance)

SLA Common Pitfalls

• Focus on the wrong objectives

• Simplistic metrics

• Inappropriate terminology

• Room for interpretation

• Labor-intensive reporting requirements

SLA Management Benefits

• Better alignment with business objectives

• Ability to manage services proactively

• Greater transparency of service delivery

• Lower service level management overhead

• Better relationships between the enterprise and vendor

SLA Diagram

Stakeholder Responsibilities

Risk – 5 Threat Categories

• T1 – Selection: Wrong vendor

• T2 – Contract: Incomplete | Static

• T3 – Requirements: Poorly defined

• T4 – Governance: Inadequate vendor management

• T5 – Strategy: Vendor lock-in

Mitigation Strategy

Threat COBIT 5 Guidance

1. Diversify sourcing strategy to avoid overreliance or vendor lock in

T5 APO02 Manage strategy, APO10 Manage suppliers

2. Establish policies and procedures for vendor management

T4, T5 APO11 Manage quality– Enablers: Principles, Policies and Frameworks; Information

3. Establish a vendor management governance model

T4, T5 APO09 Manage service agreements, APO10 Manage suppliers– Enabler: Organisational Structures

4. Set up a vendor management organization within the enterprise (VMO)

T4, T5 APO10 Manage suppliers-- Enablers: Organisational Structures; People, Skills and Competencies

5. Forecast requirements regarding the skills and competencies of thevendor employees

T2 APO10 Manage suppliers– Enablers: People, Skills and Competencies

6. Use standard documents and templates

T2 – Enabler: Information

Mitigation Strategy

Threat COBIT 5 Guidance

7. Formulate clear requirements T3, T5 BAI02 Manage requirements definition, BAI03 Manage solutionsidentification and build– Enabler: Information

8. Perform adequate vendor selection

T1, T5 APO10 Manage suppliers, APO12 Manage risk– Enablers: People, Skills and Competencies

9. Cover all relevant life-cycle events during contract drafting

T2 APO11 Manage quality, APO12 Manage risk– Enabler: Information

10. Determine the adequate security and controls needed during the relationship

T4, T2 APO11 Manage quality; APO12 Manage risk, MEA01 Monitor,evaluate and assess performance and conformance– Enablers: Service, Infrastructure and Applications; Information

Mitigation Strategy

Threat COBIT 5 Guidance

11. Set up SLAs T2 APO09 Manage service agreements– Enabler: Information

12. Set up operating level agreements (OLAs) and underpinning contracts

T2 APO09 Manage service agreements– Enabler: Information

13. Set up appropriate vendor performance/service level monitoring and reporting

T2, T4 APO09 Manage service agreements, APO10 Manage suppliers,MEA01 Monitor, evaluate and assess performance and conformance– Enabler: Information

14. Establish a penalties and reward model with the vendor

T2 APO09 Manage service agreements, APO10 Manage suppliers

Mitigation Strategy

Threat COBIT 5 Guidance

15. Conduct adequate vendor relationship management during the life cycle

T4 APO08 Manage relationships, APO10 Manage suppliers– Enablers: Ethics, Culture and Behaviour

16. Review contracts and SLAs on a periodic basis

T4, T5 APO09 Manage service agreements, MEA01 Monitor, evaluateand assess performance and conformance– Enabler: Information

17. Conduct vendor risk management T4, T5 APO10 Manage suppliers, APO12 Manage risk– Enabler: Organisational Structures

Mitigation Strategy

Threat COBIT 5 Guidance

18. Perform an evaluation of compliance with enterprise policies

T4 APO10 Manage suppliers; MEA01 Monitor, evaluate and assessperformance and conformance; MEA03 Monitor, evaluate and assesscompliance with external requirements– Enablers: Principles, Policies and Frameworks; Information

19. Perform an evaluation of vendor internal controls

T4 APO10 Manage suppliers; APO12 Manage risk; MEA01Monitor, evaluate and assess performance and conformance– Enabler: Organisational Structures; Information

Mitigation Strategy

Threat COBIT 5 Guidance

20. Plan and manage the end of the relationship

T2, T4, T5

APO09 Manage service agreements; APO10 Manage suppliers;APO12 Manage risk– Enabler: Services, Infrastructure and Applications; People, Skills andCompetencies; Information

21. Use a vendor management system

T1, T2, T3, T4

APO08 Manage relationships; APO09 Manage serviceagreements; APO11 Manage quality; APO12 Manage risk– Enabler: Services, Infrastructure and Applications

22. Create data and hardware disposal stipulations

T2, T4 APO12 Manage risk– Enablers: Services, Infrastructure and Applications; Information; Principles,Policies and Frameworks

Q&A