What is Integrated Risk Management?

What is Integrated Risk Management?

Integrated risk management (IRM) is a comprehensive and unified approach that organizations adopt to identify, assess, prioritize, and manage all potential risks they face.

Failure of risk management processes across organizations has caused some of the worst economic and financial crises in the world. It is hard to be responsible for a domain as vast and complex as risk management, but lack of visibility into critical risks, coupled with tardiness in action to avoid potential losses has brought down organizations worth hundreds of billions of dollars just in a matter of a few weeks. Each organization has its programs for risk management and has separate risk teams assigned to take care of each major risk category.

What is an Integrated Risk Management Plan?

An integrated risk management plan (IRMP) is a comprehensive strategy that combines different risk management approaches across an organization. It aims to create a holistic view of all potential risks and opportunities, ensuring they are managed effectively and consistently throughout various departments and functions.

Why Do Organizations Need Integrated Risk Management?

Today, the sheer complexity and volume of the risk landscape has made it difficult for organizations to see the connection between various risks, to make the right risk management decisions. And as a result, organizations fail to meet the set objectives and milestones for success. Risk management activities can be futile and expensive as efforts are primarily directed towards risk mitigation without adding any value to the organization.

Therefore, it’s critical to integrate risk management activities throughout the organizational structure. An Integrated Risk Management Approach (IRMA) is a comprehensive, enterprise-wide strategy that organizations use to unify and manage their various risk management efforts, such as cyber/ IT risks, operational risks, and enterprise or strategic risks.

The Integrated Risk Management approach helps to address questions such as

• How do we coordinate decisions to mitigate risks? 
• What are the drivers of value for Integrated Risk Management? 
• What are the potential outcomes of not managing the risk? 
• How can an integrated approach to risk mitigation help avoid losses and maximize success?

What are the Benefits of Integrated Risk Management?

There are many advantages when organizations establish a robust IRM process. A few of the business values offered by a well-coordinated IRM program are listed below :  

• Integrated Risk Management provides accurate, verifiable, and consistent information to users and application systems. 
• It offers businesses the ability to fulfill compliance requirements using reliable and secure data at hand. 
• It provides the ability to mitigate risks associated with data issues and the flexibility to implement and manage new organizational structures and inter-organizational relationships that can result from mergers and acquisitions. 
• Integrated Risk Management facilitates methods to define, implement, and measure organizational data quality strategy and metrics and avoid potential delays related to data issues in delivering services or products to the customers. 
• Integrated Risk Management provides mechanisms to help the organization recover from issues like work stoppage, major disasters, etc. by maintaining minimum levels of business-critical functions. 
• It helps the management identify the best possible option to mitigate identified risks in line with the organization’s strategy, objectives and risk appetite. 
• It helps leadership teams hold a clear view of how risks can have an impact on the strategic and operational objectives of the organization. 
• It allows a single monitoring and management system to handle one or more risks, providing greater clarity to assess risks at the organizational level, manage risks and understand interactions between different types of risks. 
• As IRM also takes into account the events that take place outside the studied risks alone, it contributes to a more realistic analysis and judgment of managerial decisions taken to reduce risks. 
• The eight components of Integrated Risk Management, namely internal environment, identification, analysis and risk assessment, risk treatment, risk control, information, communication, and monitoring of risks give detailed insights into the risks assessed. 
• The IRM process helps to identify opportunities to increase efficiency during the process of identification, analysis, and risk assessment. 
• It helps to ensure better use of available resources by allowing guided decision-making by management teams in activities where the risks are well managed.

What are the Challenges of Implementing an Integrated Risk Management Approach?

Organizations face constant challenges in moving towards implementing an Integrated Risk Management process. These can broadly be classified into business and technical challenges. 

Business Challenges

•  An Integrated Risk Management strategy can demand ongoing executive-level sponsorship as it may have a profound impact on the organization at large. 
• Arriving at real costs and key business metrics in an organization is extremely difficult as these could be based on unrealistic assumptions and inaccurate outputs, thereby leading to budgetary challenges. 
• Data ownership is often a challenge as it has organizational-level implications and therefore, needs to be addressed prior to implementing an Integrated Risk Management solution. 
• New regulatory compliance requirements have added complexity to the process of defining and understanding inter-organizational relationships. 
• As the product market expands, the level of uncertainty around new solutions increases proportionately. This, in turn, increases the risk of not being able to deliver on time and within the budget. 
• As organizations continue to expand globally, they face conflicting regulations, data transfer restrictions, and local regulatory requirements to access, store, and transfer data. 

Technical Challenges 

• Risk-related data is maintained in repositories internal to the organization but the quality and consistency of data might not be appropriate for processing or reporting. 
• The identified risk management solution should be reliable, scalable, flexible, and manageable. 
• The risk strategy is complex and subject to newly introduced regulatory requirements and relationships that often change between organizations and their customers. 
• Risk data is dependent on internal and external data sources that often contain data that is inconsistent or outdated. 
• Risks specific to a business unit can impact other units within the organization and can affect the brand reputation in the industry. Hence, Integrated Risk Management solutions should easily adapt to changes in the risk impact.

How to Build an Effective IRM Framework?

Listed below are a few guidelines to improve the Integrated Risk Management process in an organization. 

• Take a Holistic Approach to Risk Management The most painful and expensive approach towards establishing an Integrated Risk Management process in an organization is to combine the individual, unrelated mitigation tasks with duplicate information making the process repetitive and time-consuming. The ideal way to approach risk management is to identify it as a strategic initiative that is key to the growth and success of the organization. This involves setting an example at the top level of the organization and then cascading it to the managers in the hierarchy to take responsibility for the risk management process. Once this pattern is established, the lower-level processes of risk management and adherence to regulatory standards will fall into place. Improving the internal controls will encourage the members to work in unison making the organization more efficient and profitable over time. 
• Map Processes to Controls and Audit Regulation It is important to avoid redundant risk information to maximize benefits. A matrix should be created within the organization to identify the relationships among the various business processes, risks associated with the processes, the internal controls for mitigating the risks, tests to be conducted to validate the effectiveness of the controls, and the regulations to which the controls apply. By mapping all the risks, control, regulations, and audit tests, an organization can deploy a single control and audit test for multiple regulations thereby avoiding redundant compliance costs. This process will help the organization create a standard and automated control-and-testing process. 
• Rationalize and Prioritize Risks Organizations of all scales and sizes can implement an IRM process to quantify and prioritize risks based on severity, frequency of occurrence, and the ability to detect on time. The process should be mutually agreed upon by all business owners and the audit committee. The risks with the highest scores will be dealt with increased effort and checked against process and technology improvements.
• Increase standardization and Automation of Controls The existing manual controls have proven to be ineffective and expensive for risk mitigation. Switching to automated controls can save time, lower costs, and mitigate risks better. It is equally important to work on process improvement while you switch towards automating controls. Auditing automated controls is much easier than auditing manual controls as the latter requires significant effort and has proven to be ineffective in the past. Gradually shifting to automated controls for key business processes can have the greatest impact on the organization towards achieving success through better risk management.
• Hire and Retain Better Talent Well-governed organizations have a competitive advantage over their peers and attract and retain higher-level talent in the industry. The employees feel proud about working for their employers and their achievements. The job satisfaction of the employees can be a great contributing factor to the success of the organization in the marketplace. 

An organization that follows a robust Integrated Risk Management process can: 

• Have greater access to capital markets
•  Demonstrate an increased ability to respond to crises on time and recover fast from the impact 
• Have improved operational efficiency and lower operating costs Improved community and industry reputation as a brand 
• Fewer conflicts in the organization and lower stress levels 
• Have the ability to attract and retain top-level talent in the industry 
• Achieve greater employee satisfaction
•  Lead to high-quality and timely decision-making 
• Lower the cost of capital

How Can Integrated Risk Management Shape Organizational Success? The traditional approach to risk management includes identifying different risks and delegating those risks to different risk experts who resolve them using different tools. However, this approach fails in adding value to organizations as the risk management process operates in silos, resulting in a narrowed vision of risk mitigation.

Implementing a comprehensive approach to risk management - Integrated Risk Management or IRM - helps align risk management across different functions and maximizes the value of this approach by considering all risks and methods deployed.  

By integrating different risk management functions into an operating risk framework, organizations can now shift the focus of risk management from considering each risk in isolation to assessing the organizations’ collective exposure to risks.  

An integrated approach to risk management is therefore essential to identify how the risks interact with each other. This way, expert teams can develop processes for risk mitigation after assessing how the organizational structure will be affected by these risks and associated changes, as a whole.  

Integrating the risk management processes will open up new markets for growth and increase the opportunities for success. An Integrated Risk Management program is also necessary for an organization to perform well in a global marketplace.

How Do I Pick the Right IRM Solution for My Business?

A few points are to be considered before selecting the right platform and tools to implement an effective Integrated Risk Management solution:

• Is the tool easy to adapt to the existing system? Can users learn the tool easily? Does the business extend technical support, training, and tutorials to the users? 
• Are the following functionalities and features supported? 
  • Risk analysis – Does the tool evaluate risks and offer ideas for risk mitigation? 
  • Compliance database – Does the tool teach compliance initiatives to keep the teams informed of the process? 
  • Auditing tools – Is the tool created for proper resourcing, procedures, and financial audits as required? 
  • Reporting and Analytics – Are the tools easy to customize, robust, flexible, and appealing? 
• Can the tool be integrated easily into the existing system? 
• Is the price economic for the features and competencies offered? 

Organizations continue to grow in size, revenues, and geographic coverage. Creating and maintaining an effective risk management culture in a growing organization can be quite challenging. 

Knowledge about risks, how they are managed and experiences from individual business units should be captured and shared across the organization. With regulatory requirements changing over time, it is essential to accurately collect metrics on time to ensure the success of the risk management process. Training programs can be conducted to effectively integrate the risk management processes into the existing business processes. 

Communication protocols should be established for frequent and consistent communications with the management regarding the objective, success, and cost of the risk management process. This will facilitate maintaining management support and encourage continued participation of managers and invested stakeholders in the ongoing risk management process. 

Adequate software tools and methods should be developed and deployed to enhance the effectiveness of the risk management process. The tools identified should facilitate the sharing of risk data across other programs to increase their utility across a range of business management processes. 

The IRM solution of choice should help you effectively collaborate across the organization and directly connect to the strategic planning process, business objectives, business units, and various functions within these units.

What is the Difference Between ERM and IRM?

Practically speaking, there are no major differences between enterprise risk management (ERM) and integrated risk management (IRM). Both terms refer to an initiative that encompasses all aspects such as finance, human resources, cybersecurity, audit, compliance, privacy, natural disasters, and more. 

ERM comprises strategic, high-level risk management that includes several functions and involves the board and the executives. IRM entails the hands-on work that makes ERM possible, such as technical controls crucial to robust cybersecurity such as network monitoring, perimeter protection, and security monitoring.  

System management is located somewhere in the middle that includes risk management procedures and policies, which is placed in the ERM camp. Certifications and accreditations, which is compliance, fall on the ERM side while others that are more technically oriented are classified under IRM.  

Both IRM and ERM offer a thorough model of risk management, IT and operational risk, and are related integrally and you cannot have one without the other. IRM feeds ERM, and ERM guides IRM. 

 As opinions on risk management expand to include both a vertically integrated view through business and IT, and a horizontally integrated view across risk areas, companies will find it easier to adapt their risk management policies to tackle the complexity and scope of risk today. When compliance was the key driver of risk management, and when it was largely the area of IT, there was no need for a unified approach to risk management. But today, the integration exemplified by the original GRC vision is no longer sufficient.

What is an Integrated Risk Management Framework?

An Integrated Risk Management framework is a strategic combination of risk management techniques to manage current and future risks faced by an organization. It defines the specific set of functional activities and processes used to manage risks and describes the accountability and reporting methods that will support the risk management process.

How Can the Integrated Risk Management Process Be Successfully Implemented?

A successful IRM implementation broadly covers the following steps: 

• Establish and document clear roles and responsibilities for everyone involved in mitigating risks, including the risk officer. 
• Develop guidelines for managing risk effectively through risk policies. 
• Set up the scope and outcomes for various risk management committees that will oversee the work of risk teams. 
• Identify and evaluate risks in products and portfolios across the organization. Review and set appropriate limits for each portfolio. 
• Monitor the framework by conducting frequent reviews of the outcomes, achievements, and weaknesses, over set time periods. 

In order to successfully implement an Integrated Risk Management program and achieve organizational success, one must conduct thorough research, identify pain points, put together control activities to mitigate risks, work together as a team, receive oversight and support from the management, and communicate appropriately.

What are the Top-listed Risk Management Certifications Available?

The top-listed risk management certifications are: 

• GRCP (Governance, Risk and Compliance Professional) 
• CRISC (Certified in Risk and Information Systems Control) 
• CRMA (Certification in Risk Management Assurance) 
• Risk Management Professional (RMP) from Project Management Institute (PMI) 
• Managing Risk for Competitive Advantage from JBS (The University of Cambridge’s Judge Business School) 
• CGRC (Certification in Governance, Risk, and Compliance) from the GRC Group