By Computerworld Hong Kong staff
Computerworld Hong Kong
July 30, 2009

HONG KONG - The current economic crisis has pushed banks in Asia Pacific to strengthen their vendor risk management practices, said IDC Wednesday.

Other factors such as expanding regulation, a consolidating vendor landscape, and more stringent vendor selection guidelines are also driving banks to focus on vendor management, according to the research house.

Leading banks have generally followed a cohesive framework of vendor risk management which involves vendor inventory and segmentation; risk identification; due diligence; risk mitigation; monitoring and supervision; and reporting, IDC noted.

Banks are going beyond the cursory evaluation of annual reports, but are also looking more closely at other financial and performance metrics, said IDC, adding that evaluation of the vendor’s corporate governance structure is also being taken more seriously.

“The efforts of banks to look at operational risk practices, either on their own or as part of the broader Basel II program, have put IT risk high on the agenda,” said Michael Araneta, senior consulting and research manager at IDC Financial Insights Asia/Pacific. “Banks have recognized that technology failures, including the failure of technology vendors to deliver, can have dire implications for business continuity and their institution’s reputation. As such, they have raised the yardstick when assessing vendor risk.”

Araneta added that vendors have become more mindful of fee structures and engagement margins. Banks justifiably have to be on their guard for vendors drastically cutting staff levels as well as those showing declines in service-level agreement (SLA) compliance and performance, he noted.

As the IT department is pressed to justify technology spending, the vendor management office is compelled to spend more effort on vendor due diligence, monitoring, and scrutiny of SLAs, according to him.

“We applaud moves by several vendors to significantly improve corporate governance and transparency. Disclosures made by vendors to current and potential clients have become more detailed to include other client references, new wins, and other metrics for performance and delivery,” said Araneta. “Overall, the practice and standards of corporate governance have improved. It remains to be seen, however, whether changes are for the long-term or just coterminous with the weak economic climate.”

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