Managing risk is the core job of the compliance team, but how do you elevate your risk management efforts to integrate with the rest of the organization? Risk cannot be managed in a silo, by a single team led by compliance experts outside the daily inter-workings of the organization. As we continue to evolve in the world of digital-first business, traditional risk management solutions are no longer appropriate to ensure a company remains safe.
What is Integrated Risk Management?
Integrated Risk Management, also known as IRM, is a set of practices and processes embedded in an organization’s culture to improve decision-making. Gartner further defines IRM with the following characteristics.
- Strategy: Enablement and implementation of a framework, including performance improvement through effective governance and risk ownership
- Assessment: Identification, evaluation, and prioritization of risks
- Response: Identification and implementation of mechanisms to mitigate risk
- Communication and reporting: Provision of the best or most appropriate means to track and inform stakeholders of an enterprise’s risk response
- Monitoring: Identification and implementation of processes that methodically track governance objectives, risk ownership/accountability, compliance with policies and decisions that are set through the governance process, risks to those objectives and the effectiveness of risk mitigation and controls
- Technology: Design and implementation of an IRM solution (IRMS) architecture
Risk management vs. Integrated Risk Management
Standalone risk management is the process for identifying and controlling threats (or risks) to a business’s profitability. Threats can take many forms, and understanding an organization’s risk and liability is an important first step towards managing and lowering risk business-wide.
Integrated risk management is a more dedicated approach using technology to identify, track and manage threats and provide better executive-level information to help manage decisions.
What is the difference between Integrated Risk Management and Governance, Risk and Compliance (GRC)?
Governance, Risk and Compliance, also known as GRC, is similar to Integrated Risk Management, but their origins are unique. GRC was coined by Michael Rasmussen in 2002. Integrated Risk Management was defined by Gartner in 2018. Both terms are used to explain how businesses manage risk, with some analysts insisting that IRM is a broader term that encompasses risk management’s ongoing evolution. However, many proponents of GRC, including Rasmussen, explain that GRC and the strategies behind it have continuously evolved over the past two decades.
As an industry analyst, Gartner published the Magic Quadrant for Integrated Risk Management for two years (2018 and 2019), providing a comparative analysis of IRM software solutions. However, the IRM Magic Quadrant was retired in 2020.
What are the benefits of Integrated Risk Management?
Integrated risk management provides an in-depth understanding of all aspects of risk throughout a business including within its third-party relationships, no matter the physical location. Fully connecting your risk management efforts through modern software empowers your compliance program owners, and executives, to understand the depth of the company’s compliance risks and take appropriate action when necessary to protect the business.
IRM is an important component of GRC, providing the tools to properly assess and manage compliance needs through modern software and documentation. In global organizations, risk looks different throughout the world and no one team can manage it alone. Establishing a globally integrated system for managing risk is not just possible—it’s necessary.
Are there limitations to IRM?
A comprehensive IRM solution uses large amounts of data to generate models or simulations. Compliance leaders must be able to trust this data to be able to create recommendations based on its outcomes. Without a full understanding of the entire compliance landscape, decisions may lead to poor outcomes, not factoring in the full complexity of the situation.
As businesses seek to launch IRM, selecting a solution that is built to handle the available data is key to choosing the appropriate partner for the compliance team.
What are some best practices I should know about IRM?
There is no one-size-fits-all approach to IRM. Understanding the unique needs of your organization and the severity of the risks the business is going to face is core to establishing an integrated risk management strategy.
Once you’ve established what you need to understand as part of your IRM strategy, the next step is to determine how you will quantify the success or failure of your program.
Comprehensive measurement is core to an impactful IRM solution. By using software that focuses on data in the context of risk and the rest of your program, you are able to verify and measure program impact while establishing benchmarks for continuous improvement.