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What is Integrated Risk Management?

Integrated Risk Management (IRM) is a set of processes and practices backed by a risk-sensitive ethos and supporting technologies, that enhances performance and decision-making through a unified viewpoint of how well a firm handles its distinctive set of risks.  The requirements of firms today are no longer what it was a decade ago. As firms incorporate digital technology, such as digital payments systems, to empower their teams and enhance customer experience, they are also facing security risk, compliance risk, third-party risks, and operational risk. Earlier, the siloed approach of Governance Risk and Compliance (GRC) members working autonomously was adequate, this growth in technology adoption, and globalization of business operations have not only made the businesses extremely complex but also altered the way CROs look at and manage risks.

Here are some attributes of Integrated Risk Management:

Technology: Shaping and implementing an IRM solution architecture.

Monitoring: Recognizing and implementing processes that systematically follows governance goals, compliance requirements, risk accountability, conformity to guidelines and rulings set through the governance process, risks to those goals and the efficacy of risk alleviation and controls.

Communication and reporting: Establishment of suitable means to monitor and inform stakeholders of an organization's risk response.

Response: Identifying and implementing methods to abate risk.

Assessment: Identifying, evaluating, and prioritizing risks.

Strategy: Enabling and implementing a framework, comprising performance improvement through effective risk ownership and governance.

 

What Should be Included in an IRM Program?

According to experts, a constructive Integrated Risk Management framework must have the following key sections:

Goal setting: Firms must collectively set primary and secondary goals, and they must be quantifiable and portrayed in the circumstances’ context. 

Risk identification: Opportunities and risks must be recognized and incorporated in the framework with a monitoring plan. Images and patterns are useful tools to organize and present information. 

Risk assessment and evaluation: Risks must be studied separately and collectively. Firms must answer the following concerns:

1. How do the risks balance out when compared to the firm’s risk appetite and risk tolerance levels?

2. What are the chances/likelihood of a risk turning into an event?

3. What is the overall impact of risks to the firm?

4. How do risks influence the business individually?

5. How should the firm focus on each risk?

6. What are the material risks involved? How impactful and possible are they?

Risk Mitigation: The output of risk analysis should produce comprehensive controls to mitigate risks and define risk treatment plans for residual risks.  Qualitative and quantitative  assessments of metrics must be clearly defined, with an established plan of action. Caution is key, and execution of Integrated Risk Management software can help offer extensive viewpoints of actionable insights.

 
How Integrated Risk Management is Different from Governance Risk and Compliance 

An Integrated Risk Management approach differs from the traditional governance risk and compliance activity. IRM experts put more emphasis on facilitating a risk-aware ethos in their firm, incorporating easy-to-use and flexible solutions in their teams, and consolidating on outcome-based structures that could lead to possible risk in a business context. This in no way means GRC activities do not hold any value for organizations. Instead, GRC holds the foundational attributes of an Integrated Risk Management approach to information security program management.

The concept of GRC is not new. For years, GRC applications, methods, and solutions have allowed firms to operate teams to tackle enterprise level and operational risks, compliance requirements, governance activities including internal audit, and policy and document management etc. The trends that have instigated the shift away from an isolated approach have also led to risk leaders to seek out Integrated Risk Management as a way to support their entire information security business to deliver on these new prospects.

 

Steps Taken While Incorporating Integrated Risk Management Within a Business

Despite the large amount of money poured in to prepare a potent risk management strategy, many firms have only managed to tackle risks in siloes and have been utterly unprepared to combat fast-changing risks.  With a robust integrated risk management program, the unknown nature of risks can be appropriately identified through a process of building a nimble, consolidated, synchronized, and real-time risk mitigation policy across various risk groups and business functions through an integrated and proactive management strategy. In a bid to prepare a future-ready integrated risk management program, businesses can follow these eight best practices:

1.Develop an integrated risk framework in line with company goals

The first step in an integrated risk management scheme is to build a shared interpretation of possible outcomes across risk functions. It can be achieved through spelling out corporate goals followed by scrutinizing them within the limitations of regulatory needs and the company’s propensity for risk. The limitations and goals are recast into a set of guidelines and standards within which the company can operate. They also act as the foundation for risk management processes and policies that spill across the three lines of defense. These processes and policies help gauge and handle risks through proper controls and reformative measures.

2.Connect risk monitoring tools to the integrated risk framework

With an integrated risk framework, companies can pull out information from the collection of instruments used to supervise and manage risk. Different risk programs can now be connected with each other through a common set of goals. The framework leverages the network of risk monitoring instruments through action management capability and an integrated issue where identified risks and their remedial plans are aligned and aggregated. This issue handling proficiency is then linked to the risk domain to reveal common factors between the issues identified. The integration of actions and issues with the shared risk domain can be put to use to describe a risk remedial plan with synchronized effort from different risk groups. 

3.Ensure continuous risk and control monitoring to present real-time information and reduce risk response time

For integrated issue management to be more effective, companies must have the ability either to preempt or spot risk events in real-time. For instance, to combat negative rumor mongering on social media, a leading financial exchange firm calls out issues within the integrated risk program. Based on the relationships described in this program, responsibility is assigned to market surveillance teams and risk officers. Risk control actions are carried out and coordinated by consumer protection teams. The culprits are informed, and compliance teams take appropriate action.

4.Make identification of risk as the first line of defense

Those combating risk head on at the outset are more aware than others and they have a major role to play in an integrated risk management program. The action management capability and integrated issue should be presented to them such that all concerns identified at initially are gathered and consolidated with the concerns identified by the risk monitoring tools. This will enable the creation of a single repository of all risk related concerns from the various lines of defense. This will empower the first line of defense to assign resources to resolve all concerns based on the areas that help achieve company goals.

5.Empower the first line of defense through Robotic Process Automation and chatbots

As the number of participants are high, collecting risk events and issues from the first line of defense can be resource-intensive and take up time. However, with the help of chatbots and Robotic Process Automation (RPA) it has become a lot simpler to collect information from the first line of defense. For instance, mobile-device-based bots offer a simple and jargon-free approach to first-line participants at a mortgage finance firm for reporting risk events and issues.

6.Incorporate cyber, third-party, compliance risks within the framework of risk management

As firms across industries enhance process automation and cloud adoption, cyber, compliance and third-party risks are also on the rise. Such risks have an aggravating impact when examined in terms of their convergence with conventional risks. Well defined risk frameworks  have helped firms recognize and gauge various risks across information assets. Aggregating risk findings and mapping them to risk profiles, is vital to an integrated risk program. In the end, an integrated risk program enables firms to identify issues from several risk monitoring tools and programs that were earlier handled in siloes. Using this information on issues, firms can tie in different risks and, at their convergence, find “unknown-unknown” risks.

7.Build an environment of integrated risk taxonomies and methodologies

With an integrated risk program, firms obtain a single source of truth for risk. The next step is to build an industry-wide, systemic risk management dataset to help firms spot and prepare for risks that may not have taken shape yet within their business, but have done so in other similar businesses, functioning in the same markets. In the future, we could see industry-wide risk datasets being developed not only for risk taxonomies and operational losses, but also for risk treatment plans and issue aggregation.

8.Find Unknown-Unknown risks with AI and ML enabled risk intelligence

Integrated archives of issues and risks, together with innate risk datasets, will provide firms the ability to tie in issues and corrective actions. This potent source of information can be lined up to the risk universe, and then acted on by AI and ML analytics to spot both unknown relationships between issues and unknown risks. Based on these insights, firms can come up with an integrated risk response plan.  

 

Advantages of Integrated Risk Management

An Integrated Risk Management strategy links the operational aspects among businesses, strategic objectives, and culture. Adopting an IRM strategy is beneficial for companies as opposed to a limited-scope approach in the following ways:

1.Better risk identification and management. Integrated Risk Management offers a more accurate risk analysis, thereby helping business leaders enhance the decision-making process. Risks can be discovered and conveyed between IT teams and business productively. With suitable responses and resources in place, businesses with IRM-based policies will be better equipped to tackle unfavorable consequences and endure less financial loss. IRM enables organizations to take proactive measures in managing risks.

2.Better operational efficiency: IRM improves operational efficiency by providing a single source of risk repository at all levels and departments enabling risk owners to manage risks effectively while reducing costs and time to manage them.

3.Risk-mature company philosophy: By adopting a broader, interdepartmental approach to risk management and awareness, you get a more proactive philosophy. Companies will begin viewing risk as an integral part of business strategy.

4.Larger scope of opportunities: IRM strategies consider a broad range of possibilities associated with each aspect of business strategy, unlike concentrating on just controlling the pitfalls. Opportunities to benefit from potential upsides may occur by a more comprehensive assessment of each business outcome. With better insights on risks, IRM empowers organizations to create opportunities instead of reacting to them.

 

Frequently Asked Questions

Q. What are the five steps in the risk management process?

A. The five fundamental steps in risk management process are:

1. Identify the risk

2. Evaluate the risk

3. Prioritize the risk

4. Treat the risk

5. Monitor the risk

Q. What do you mean by risk management?

A. In terms of running a business, risk management refers to the practice of distinguishing possible risks in advance, evaluating them and taking preventive steps to curb the risk.

Efficient risk management involves endeavoring to control outcomes in the future, as much as possible, by proactively tackling all concerns and roadblocks. Active risk management presents the ability to curb both the chance of a risk taking place and its possible impact.

Q. What are the different types of risk that businesses often face?

A. Here are some of the of risks that every business owner often has to confront: Compliance Risk Economic Risk Security and Fraud Risk Financial Risk Operational Risk Third-party Risk Competition Risk  Reputation Risk Geopolitical Risk Climate Risk

Q. Why is risk management important?

A. Risks management is important as it equips a business with all the essential tools for it to recognize and confront possible risks. Once a risk is identified, appropriate controls can be defined to mitigate them. Additionally, risk management presents business with a foundation upon which it can embark on sensible decision-making. For any business, evaluating and controlling risks is the ideal way to be ready for outcomes that may prove to be a roadblock in the way of growth. When a business assesses its strategy to handle possible threats and then build structures to tackle them, it enhances its chances of becoming successful.

Q. What are emerging risks?

A.  Emerging risks are risks that are known to some degree but are not likely to materialize or have an impact for several years. It is very difficult  to quantify as it can have far reaching impacts on industry and society overall. It may not have an impact on business immediately but if unmanaged may pose a serious threat to business in the long run.

The International Risk Governance Council (IRGC) defines emerging risks as “new risks or familiar risks that become apparent in new or unfamiliar conditions.” Their sources can be natural or human, and often are both.  The journey of executing integrated risk management processes and practices has become imperative and one way or another, all companies will have to decide on incorporating some level of integrated risk management in today’s digital era. The modules and siloes of governance, risk and compliance age are quickly coming to an end.

Where once IT firms were able to cope with the trickle of new technologies, the recent onslaught of modern platforms and tools has permanently transformed that for all businesses. As a consequence, risk leaders need to adjust and welcome new frameworks and methodologies to support this concept and empower their organization to help in the development of risk posture.  

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