Friday, April 26, 2019

Completing a Vendor Evaluation: 10 Tips to Implement

By Branan Cooper
April 8, 2019

Branan Cooper
Third-Party Risk

BrananCooperBranan Cooper is Chief Risk Officer with Venminder, a third-party risk management solutions firm. He has more than 25 years of experience in the financial services industry with a focus on management of internal processes and controls, most notably in third-party risk and operational compliance.

Selecting a vendor is one of the first steps in the vendor lifecycle, which means the selection process must certainly be managed properly.

Due to this, vendor evaluations shouldn't be taken lightly or dismissed, as it's critical that a company has a strong vendor selection (vendor vetting) process solidified. If your company's vendor selection process seems subpar, now is the time to revisit and make some changes.

Per OCC Bulletin 2013-29, you should consider the following regarding the vendor during due diligence and third party vendor selection:

Strategies and Goals--Ensure they don't conflict with your company's or exceed your appetite for risk.

Legal and Regulatory Compliance--Are they compliant with laws and regulations?

Financial Condition--Perform a comprehensive review to verify it's satisfactory.

Business Experience and Reputation--One way to evaluate this is to take a deeper dive into the vendor's complaint history.

Fee Structure and Incentives--Understand any upfront fees right away.

Qualifications, Backgrounds and Reputations of Company Principles--Confirm they perform background checks on senior management and employees. Also, understand their processes for terminating employees.

Risk Management--How effective is their program? Does it meet your expectations?

Information Security--Ensure they have sufficient experience to protect your company should they become exposed to a threat or vulnerability.

Management of Information Systems--Understand the technology that will assist the vendor with facilitating services.

Resilience--How strong is their ability to respond to business disruptions such as a natural disaster or cyber-attacks?

Incident Reporting and Management Programs--Verify that the escalation and notification process meets your company's standards.

Physical Security--Verify the controls in place ensure safety and security of their facilities, technology systems and employees.

Human Resource Management--Review their employee and senior management training programs.

Reliance on Subcontractors--If you can, conduct due diligence on the subcontractors used (aka your fourth parties). Understand how often the vendor utilizes a subcontractor and why.

Insurance Coverage--Make sure it's adequate.

Conflicting Contractual Arrangements with Other Parties--Request information regarding legally binding arrangements with subcontractors or other parties in cases where risk may be posed to your mortgage company.

Here are 10 best practices to incorporate in order to effectively facilitate the vendor evaluation process:

1. Be specific in all requests for information from vendors.

2. Prioritize the requested information and indicate minimums and maximums for the length of response.

3. Consider using numerical scores based on quality ranking factors. By using consistent scoring systems or metrics, objective evaluation standards can be applied. Make sure the quality ranking factors are aimed at achieving your mortgage company's goal.

4. Determine minimum acceptable scores for the criteria used before rating the bids.

5. Narrow the list of proposals by eliminating bids that do not meet the required minimums.

6. Document the evaluation process and methodology used to score the respective proposals.

7. Document requirements and priorities before starting the evaluation stage of a project.

8. Consider conducting meetings and/or oral presentations where vendors can respond to questions and provide additional information.

9. Solicit best and final offers from vendors so that all requests can be compared equally.

10. Involve senior management in formally approving vendors, particularly high risk or critical vendors

Including these best practices into your procedures will greatly assist your mortgage company with new vendor relationships. Remember, you're not just selecting a vendor to simply provide you with a product or service. It's truly a new partnership--so you'll want to find the best fit and make it a lasting one. A well-developed vendor selection process is one of the most strategic methods you can implement into your vendor management program in order to secure a successful vendor partnership.

For more tips on vendor selection, download one of Venminder's resources here (

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at; or Michael Tucker, editorial manager, at

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