The next buzzword after GRC (Governance, Risk and Compliance) is now IRM (Integrated Risk Management). (Not to be confused with another acronym “IRM” which denotes “Information Rights Management” which is a form of IT security technology for protecting access to sensitive documents and emails.)
Why are we emphasizing so much on new acronyms and confuse practitioners of risk, control and compliance? Why debate on whether GRC is dead and IRM is the new norm? Would it not be better to get down to basics and understanding the importance of and concepts that each of those words denote? (People generally like to put old wine in new bottle to keep the interest going.)
Technology -when properly deployed – has and is always capable of giving an integrated view of things in an organization.
But jumping into a technology approach without proper understanding by all stakeholders concerned leads to quick disillusionment and project failure.
It is a fact that silos exist is several organizations. This is mainly because different departments (such as finance, internal audit, risk committee, operational heads) cocoon themselves into their own departmental priorities and have a short-sighted approach. Their reasons and defences are many – inertia to collaborate with other stakeholders, ego issues on whose approach is better, having a “get-it-done-with” approach, citing shortage of staff, insufficient budget that makes them adopt sub-optimal solutions, etc. The top reason could also be that the C-level is not apprised of the benefits or they do not consider these initiatives adding to their top line revenues!
Quoting Gartner’s definition – Integrated risk management (IRM) is a set of practices and processes supported by a risk-aware culture and enabling technologies, that improves decision making and performance through an integrated view of how well an organization manages its unique set of risks.
Since the summer of 2018, Gartner has been moving away from GRC (Governance, Risk and Compliance) towards IRM (Integrated Risk Management).
In my perspective, if one forgets the acronyms – GRC and IRM – and look at what are the concepts that are being espoused, one can very well see that the fundamentals have not changed, but the emphasis is on a holistic approach towards a better management of risks arising out of poor governance, failed business controls, non-compliance, weak IT security leading to data breaches, external threats, etc.
To elaborate further, what all of us (or most of us) understand / agree at a high level are the following points
- There is no “business” or “for-profit” organizations without taking calculated risks. Managing those risks intelligently and on time ensures business continuity and success. That is why “Risk Management” is ideal in all decision-making processes.
- In the long run, only integrity pays and ethical practices in business help its brand value and survival – others simply vanish. This is what we understand as the “Governance” standards set by the entrepreneurs, promoters and expected to be followed and communicated by the top management to the operational teams.
- The “Governance” has two aspects to it – one set of internal practices and policies set up by the management and the other set of operational, tax and statutory compliances set up with respect to any or specific industries, countries and communities. This broadly comes under the “Compliance” umbrella.
On a deeper level, one can see that all the above points are intertwined and one cannot exist without the other –
- Governance cannot be enforced without proper policy formulation and communication of the internal policies (corporate specific procedures and ethical practices) that the management envisions and laying emphasis on external compliances to ensure business continuity. It is a failure of governance if business risks are not identified, assessed and mitigated on time. Governance also implies that proper internal controls are in place and working effectively.
- Compliance does not stand alone – failure to comply – whether with internal policies (such as purchase or pricing policies) or with external statutes (such as taxation, etc.) – is a reflection of poor business controls.
- Risk awareness is the overarching umbrella that recognises threats to the business continuity – whether arising from poor governance, improper compliance, inadequate IT security measures to protect data and ineffective business controls in its processes that could lead to frauds.
The bottom line for all organizations wishing to set up a framework for Governance, Risk Management and Compliance may need to consider the following:
- have a holistic understanding and approach of the proposed integrated framework, include all functions and processes – not just finance or internal audit or SOX compliance. External threats such as legal risks, brand risks, cyber security, IT risks, conflict of interest that results in abuse and fraud, environment, health and safety risks deserve equal importance when we talk about a sustainable business in the long run.
- bring all stakeholders on one page – workshops, discussions, whitepapers, surveys, opinions, etc.,
- don’t jump into a technology solution without assessing preparedness and maturity of all functions,
- as far as possible avoid siloed programs (that are focussed only on a particular function or department),
- even if you have to start small (if there are budget or resource constraints), never compromise on the big picture of where you want to be at the end of the program,
- keep in mind an integrated approach that ties together all types of internal or external risks to the enterprise.