How to Create a Compliance Risk Assessment Template

Global regulations for data privacy and cybersecurity are quickly becoming more common and more stringent. That puts added pressure on organizations to manage their risks appropriately or face potentially painful consequences. In particular, organizations around the world and across industries are experiencing high demand from regulators to implement compliance risk management.

The most effective compliance risk management programs always begin with a compliance risk assessment. A compliance risk assessment can help organizations evaluate all the potential risks related to compliance, and then prioritize those risks based on the severity of the potential financial, legal, reputational, and operational consequences associated with each one.

The compliance risk assessment process itself needs to be repeatable for compliance officers to make comparisons among risks. To achieve that goal, many organizations create and use a compliance risk assessment template from scratch.

In this article, we’ll take a closer look at compliance risk management, and more specifically at compliance risk assessments. Then we’ll provide instructions for creating a compliance risk assessment template that organizations can use to get started on the path toward worry-free compliance risk management.

What Is a Compliance Risk Assessment?

Generally speaking, the risk assessment process is just one component of an organization’s overall risk management program. It typically includes activities such as risk identification, risk analysis, and risk evaluation.

Simply put, a compliance risk assessment is a holistic analysis of the ways in which your organization might fail to meet its regulatory compliance obligations. The assessment identifies all the compliance duties that laws, rules, and industry standards impose upon you, and how well your existing compliance program does or does not meet those expectations.

What Are the Components of Compliance Risk Management?

As mentioned above, a compliance risk assessment is just one process within the overall compliance risk management program. More generally, compliance risk management activities include identifying, assessing, mitigating and monitoring risks to your enterprise’s compliance with regulations and industry standards.

Remember, however, that compliance risk and regulatory risk are not the same thing. Compliance risk is the potential that your organization will be deemed to have violated a law or regulation; regulatory risk is the potential that changes to laws, regulations or interpretations will result in losses to your organization.

Although these two types of risk are different, you’ll need to take both into consideration as you conduct a compliance risk assessment. While focused on compliance risk, a holistic risk assessment should identify all business activities introducing high risk to your organization, and then correlate those areas with all the types of risk they introduce: compliance, regulatory, financial, reputational, and so forth.

Today, all standards and frameworks recommend a formal risk management program. (Some even require it.) To maintain compliance with a variety of requirements, most organizations must be able to conduct regular risk assessments and produce evidence of that process during a compliance audit.

To determine whether your organization is in compliance, many regulatory bodies conduct compliance audits to evaluate the strength and thoroughness of your compliance preparations, compliance policies, user access controls, and risk management procedures. To prepare for a compliance audit, organizations can first conduct an internal audit to identify compliance gaps that a regulatory body might flag as troubling. Then you can address those shortcomings first, rather than have a regulator impose its own remediation plan for you.

A comprehensive compliance risk management program will help your organization to document all the potential losses and liabilities your organization could face for noncompliance, so that those weaknesses can be remediated according to priority. Throughout the process, your organization will likely collect evidence that can demonstrate the validity of your risk management program as a whole.

How Do You Write a Compliance Risk Assessment?

According to Deloitte, an effective compliance program should help an organization and its board of directors to understand “the full range of its risk exposure, including the likelihood that a risk event may occur, the reasons it may occur, and the potential severity of its impact. An effectively designed compliance risk assessment also helps organizations prioritize risks, map those risks to the applicable risk owners, and effectively allocate resources to risk mitigation.”

So how do organizations get started? And how do they build a process that will need to be repeated regularly? Here’s where a compliance risk assessment template can make itself useful.

Steps to Create a Compliance Risk Assessment Template

Whether you’re overhauling an existing compliance risk management program, or implementing a new one, the steps involved in the creation of a compliance risk assessment template are essentially the same. As you think about your own compliance risk assessment process, keep these steps in mind, but also try to stay flexible.

Step 1: Set Objectives

As with any business endeavor, you should always begin by setting some objectives. Ask yourself: What is the purpose of our risk management program? How can our risk assessment help support those objectives? What must the assessment include to do so?

Ideally, your compliance risk assessment should aim to…

• summarize the risk profile of your organization;
• identify the gaps and opportunities for improvement;
• set the compliance strategy for a specific period of time;
• shape the direction of your compliance program and related operations;
• record how the assessment was conducted; and
• be used to create risk mitigation recommendations for addressing specific risks to senior management.

If your compliance risk assessment can do all or most of the above, then the success of your compliance management program is likely to follow suit. That said, as you’re creating your compliance risk assessment template, keep some other best practices in mind.

The best compliance risk assessment templates should be designed so that they can be treated as living documents; the first iteration will unlikely be the last, so keep this evolution in mind as you create your first draft. Do your best to use plain language that speaks to a general business audience so that stakeholders at all levels of expertise can refer to the assessment and understand what it is trying to communicate.

Some of the more obvious best practices include assuring that the risk assessment can be periodically repeated, and that the assessment leverages both existing and new data to provide decision-makers with all the information they need to make decisions about risk mitigation and corrective actions.

Step 2: Make Preparations

Once you’re clear on the objectives of your compliance risk assessment, the next step is to put everything else in place before you actually create and implement a template.

First, assemble a team that will be responsible for carrying out the rest of these steps. Then develop a framework and methodology, design a data repository, and decide on an implementation plan and timeline. With all these steps in place, you’ll be ready to conduct a compliance risk assessment using the template you create during this process.

Assemble a Team

If you want to, you can opt to involve your team in Step 1 (objective setting) so that they feel like they have a say in setting the goals that will be used to inform the rest of the process. If not, you can always assemble a team afterwards. Ideally, your team will be composed of individuals from different disciplines and across business lines, as well as individuals with influence and leadership capabilities.

As part of your team building exercise, you’ll also need to identify a risk assessment director who will work closely with the compliance officer to make sure that all the right risk scenarios are included. This person will need to be given the appropriate accountability and authority to lead the risk assessment efforts, and he or she will need to be allowed to delegate assignments and responsibilities – so choose wisely.

Develop a Framework and Methodology

With the right people in place, the next step is to develop a risk assessment framework and a risk assessment methodology. All risk assessments require a solid framework and methodology, and a compliance risk assessment is no exception. Ultimately, your framework should lay out the compliance risk landscape and organize it into risk domains, so that your organization can identify and assess all the applicable categories of compliance risk and create a risk mitigation strategy for the risks with the highest priority.

At first your risk assessments should be limited in scope. Subsequent risk assessments can be broader, after you’ve established some base findings with a prior risk assessment. Be deliberate about which compliance risks you inventory and assess: start with risks that have high probability and high frequency, as opposed to risks that are unlikely to occur or have much of an impact.

Risk assessment findings often trigger deeper assessments and audits, so focus on areas that already have strong ongoing auditing and monitoring activities in place. Each risk assessment you conduct will likely inform your future risk assessments as well, so it’s best to start somewhere you feel confident.

Once you have your framework nailed down, it’s time to select a methodology. Your methodology should consider both objective and subjective ways of assessing risk, and provide guidance for the following factors:

• how the information should be collected (surveys, interviews, assignments, and so forth);
• how the information should be organized once it is collected;
• where the information should be collected (a data repository tool or document);
• how to assess risks so that they can be compared; and
• whether you should incorporate a grading or scoring system to assist with risk prioritization.

How you determine the procedures for each of these elements will largely depend on whether you decide to select qualitative or quantitative methods for measuring risk. Qualitative methods are most commonly used in areas relating to risk management, although quantitative methods are gaining traction as a more scientific approach. In this article, for the sake of brevity, we will limit our recommendations to the qualitative methods most often preferred by compliance professionals.

For each identified risk, you’ll use qualitative measurements to determine the likelihood of occurrence and severity, so that you can prioritize risks on a chart or graph (also called a risk heat map or risk matrix). Qualitative methods are usually preferential for precisely this reason: the data they produce can be easily communicated and reported to stakeholders with little or no background in statistical analysis or mathematics.

Design a Data Repository

Once you start collecting data, where will it go? When you determine the answer to this question, make sure you include it in your methodology so that relevant stakeholders know where information about risk assessments should live.

Some organizations opt for the use of spreadsheets. That’s a convenient starting point, but ultimately it can create issues further down the road. Other organizations use specialized software that allows for the comparison of data and can incorporate whichever methodology you choose to implement.

As you design or choose your data repository, you should also take some time to examine any existing data related to compliance risk management. This includes internal documents (audits, survey findings, monitoring, internal compliance or violation trends, past risks and risk assessments, and any other problem areas that haven’t been addressed), available data (metrics and measures), and training and education materials.

After you decide where your data will be stored, the next step is to determine what information you need to include for each risk you identify. At the very least, your compliance risk assessment template should include the following components:

• a risk scenario, its inherent risk consequence and inherent risk likelihood, and an inherent risk rating (such as high-, medium-, or low-risk);
• existing internal controls and a control assessment that includes an efficacy rating for each;
• and residual risk, including residual risk likelihood and a residual risk rating (high, medium, or low).

Finally, include space to describe any further actions that might be necessary. Once a risk treatment has been applied (say, taking out an insurance policy), it can be added to the existing controls section of the template, which may result in a lower likelihood and possibly a lower residual risk rating.

Decide on an Implementation Plan and Timeline

It’s best to set small achievable steps and deadlines so that you can actually meet them. At this point in the process, you need to decide how the risk assessment will be completed, and what the timeline or target completion date should be.

Generally speaking, allow 30 to 60 days to conduct a risk assessment. To make this goal more attainable, consider dividing the risk assessment into more manageable segments. This will also allow you to conduct method testing and make any modifications you might need as the risk assessment progresses.

Step 3: Conduct the Risk Assessment

Now you’re ready to put the plan into action. Start by conducting interviews, distributing questionnaires and surveys, holding discussion forums, and so forth. Then gather your existing data and combine it with the information you gathered during the interview/survey process. Next, compile all this information in your data repository.

Using that data, you’ll be ready to move on to the next phase of risk assessment: risk evaluation, or the comparison of risks across domains and categories. If your risk assessment has done its job correctly, you should be able to prioritize risks individually or by category in a way that makes sense. Once prioritized, decide which risks need to be mitigated and to create action plans for each.

After a risk assessment, you’ll need to complete and submit a final risk report. This will include information about the risk assessment process, your framework and methodology, data sources and participants, opportunities for improvements, and an emphasis on high risk areas as well as recommendations for mitigation.

Now that you have your compliance risk assessment template in place, you’re ready to repeat the process again and again. With each risk assessment, you’re likely to generate an overwhelming amount of data that should be used to inform every risk assessment that comes afterward. Be warned: this much data can often be too much for traditional data repository solutions to handle.

While creating a template in Excel might be a good starting point, it can ultimately lead to a number of problems in the future, including the opportunity for information silos. Disparate data isn’t risk-management friendly, so you should try to find a platform that can help you perform the risk assessment process so that it’s replicable and accessible for the right people.

Fortunately, there are solutions designed to help.

Manage Compliance with Reciprocity ZenComply

Evaluating your risks, implementing the appropriate controls, and gathering documentation every step of the way can be exhausting, not to mention time-consuming – and especially so if you’re managing your ongoing compliance requirements with a spreadsheet.

Reciprocity ZenComply is a compliance and audit management solution that delivers a faster, easier, and smarter path to compliance by eliminating tedious manual processes, accelerating onboarding, and keeping you up-to-date on the progress and effectiveness of your programs. With Reciprocity ZenComply, your organization can get audit ready in less than 30 minutes – no coding or cumbersome imports required.

With expert-built preloaded content at your fingertips to make scoping, sending requests, and gathering evidence easier than ever, Reciprocity ZenComply can help you reach your goals faster and keep your teams connected. Streamlined collaboration capabilities and automated workflows minimize manual task tracking and eliminate audit fatigue.

But Reciprocity ZenComply doesn’t stop at maintaining compliance. It also helps you understand how your compliance activities affect your risk posture, so you can effectively prioritize your investments. Now you can easily handle your compliance needs and take managing your IT risks to the next level.

With seamless integrations with Reciprocity ZenRisk and the Reciprocity ROAR Platform, ZenComply gives you a unified, real-time view of risk and compliance, and the contextual insight needed to make smart, strategic business decisions that keep your organization secure and earn the trust of your customers, partners and employees.

Take your compliance to the next level with Reciprocity ZenRisk. Talk to an expert today to learn more about how the Reciprocity Product Suite can help your organization improve its risk and compliance posture.