Demystifying RCSA: 6 Critical Factors to Modernize Your Risk and Control Self-Assessment Program

Critical Factors to Modernize Your Risk And Control Self-assessment

Here’s a look at six critical factors that can help you transform and modernize your RCSA program to make it forward-looking and future-ready.

1. Align RCSA with Business Strategy

More often than not RCSAs become a periodic box-ticking exercise. However, for organizations to derive maximum value from their RCSA program, it is important to align it with strategic business goals and embed into the overarching business strategy. This will enable risk managers to analyze RCSA results through the lens of organizational risk appetite and focus on material risks and key controls, driving optimum utilization of resources. To align the RCSA program with business goals, the first step is to get the buy-in from the top management that will help to set the tone across the enterprise. It is important to note here that organizations must have a standardized risk and control taxonomy to efficiently document all key elements.

2. Establish a Dynamic, Iterative Process

In today’s hyper-digitized and connected business environment, organizations face high-velocity risks. Performing RCSAs in a sporadic fashion will result in blind spots, hampering an organization’s visibility into risks and controls and its ability to manage risks proactively. Also, with the evolving risk and regulatory landscape, the controls that are effective today might not remain effective tomorrow.

A continuous or regular approach to conducting RCSAs, enabled through a software solution, will provide organizations with a real-time view of their risks and effectiveness of associated controls as well as help them save time and effort. This will also enable risk managers to verify if the corrective actions have been implemented to rectify any identified control weakness and if the controls are working as intended. With information on risks and controls more readily available, the board and executive management will be able to make more agile and better-informed business decisions.

3. Enable an Integrated Approach

In a recent Accenture survey, 77% of risk leaders said that complex, interconnected new risks are emerging faster than ever before. To effectively navigate today’s ever-evolving risk landscape, organizations must understand the interconnected of risks and risk relationships; not look at risks in isolation. It is critical to implement an integrated approach to RCSA that helps to map risks, business processes, assets, controls, objectives, etc. so that organizations get a 360-degree view of their risk posture and understand the risk impact. It will help them to efficiently manage the complex risks of today and their domino effect.

Organizations can use software solutions that simplify the process by allowing them to capture the key processes, risks, and controls and establish links between them on a many-to-many basis that helps eliminate redundancies. It also provides a quick snapshot of how a particular risk is mapped various processes, assets, controls, and other organizational functions.

4. Quantify Risk in Monetary Terms

Risk assessment and analysis is a critical step in RCSA. Risk managers are often faced with a difficult choice: Which type of risk assessment should they go with – qualitative or quantitative? Today, qualitative risk assessments, such as red, yellow, green heatmaps, high, med, low ratings, etc., are being widely used by organizations. However, these assessments, though important to understand the severity and likelihood of risks, are greatly influenced by the bias and the perception of the risk assessor and often left to interpretation – Why is a particular risk in the red/high category? If two different risks have been identified as red, how do we prioritize them?

Such ambiguity can be addressed with quantitative risk assessments. Associating a monetary or financial value to risk will enable chief risk officers to communicate the risk exposure to the executive management in a language that is easy to interpret and act upon. It will also help prioritize risks and associated mitigation actions. That said, the decision of whether to go with qualitative or quantitative assessment also depends on what the risk managers are trying to assess. The best approach would be to use a combination of both the approaches to better suit assessment objectives.

5. Increase Frontline Engagement

Traditionally, the ownership and accountability of RCSAs have been with the second line. A major requirement for this model to work is ensuring regular communication between the first two lines as it is the first line that is more likely to “self” identify and assess risks and controls being closely engaged in daily business activities. It is the first line that knows where the lurking risks are. So, it is not surprising when industry experts recommend entrusting RCSA to the first line. That, however, is easier said than done. Ensuring that the first line has the knowledge and the expertise to perform RCSA remains a challenge. Organizations must focus on improving the skills and capabilities of the first line, equip them with user-friendly tools to effectively conduct RCSAs, and establish well-defined workflows for routing issues to higher levels for quick remediation.

6. Leverage Advanced Technologies and Automation

With the amplified pace of digital transformation in organizations, agility and speed of execution have become business imperatives. Moreover, to manage today’s high-velocity, high-impact risks, organizations need real-time risk insights. Leveraging advanced technologies and automating workflows can empower risk professionals to spot any control gaps, risks, and areas in a proactive manner. Data analytics along with visualization tools further enhance the ability of risk managers to quickly understand the organizational risk posture and perform trend analysis.

It is also important to note that while quantifying risks is crucial, it greatly depends on availability of reliable data and the scale and maturity level of risk function. To truly understand and assess risks, organizations must employ both qualitative and quantitative risk assessment methodologies

 - Qualitative or Quantitative? A Practical Guide to Assessing Non-Financial Risks