Amidst today’s ever-changing threat landscape, business leaders are also facing an equally evolving and increasing range of uncertainty. Managing this uncertainty and its effects on your organization is called enterprise risk management (ERM) – an invaluable process, to which more businesses are starting to pay well-deserved attention.
Enterprise risk management is an umbrella program that includes all of the methods and processes your organization uses to manage various risks. ERM is typically designed to provide your board, senior leaders, and other decision-makers with a top-down, strategic view of risks. The goal is to enable your organization to continue to meet its core objectives.
The most successful ERM programs are systematic and repeatable processes and policies that are well documented in a risk management framework. Generally, the risk management process involves identifying, monitoring, and managing potential risks and the positive or negative impacts they could have on your business – including disruptions to your business continuity.
The first step to any effective risk management program is to assemble a team of stakeholders from relevant departments across your organization. This team should include senior management, your compliance officer, and any other department managers you want to involve. They’ll be responsible for creating and executing each stage in the risk management process: risk identification, risk assessment, risk analysis, risk mitigation, and risk monitoring.
Risk management practices are cyclical, and will need to be repeated often. Risk management planning is an important element of project management, as each new project introduces new risk to your organization. An effective risk management strategy will help you take the appropriate steps to prevent potential risks from actually happening.
While all of this may sound easy enough, an enterprise risk management program is actually a complex (and often costly) investment that many businesses can’t – or won’t – rationalize. Effective risk management is challenging, and overcoming the barriers to it is something that many organizations struggle to do, even when decision-makers are able to recognize just how important effective risk management is for success.
According to the 2020 State of Risk Oversight report from the Association of International Certified Professional Accountants (AICPA) and the Poole College of Management at North Carolina State University, 59 percent of the 563 respondents believe the volume and complexity of risks is increasing rapidly – but only 24 percent describe their risk management program as “mature” or “robust.”
In fact, only 30 percent of the respondents said they have complete ERM processes in place, and less than 20 percent reported that they view their risk management process as providing important strategic advantages.
This research tells us that although organizations recognize that risks are becoming more critical, the management systems they use to respond to those risks aren’t as effective as they should be.
What are these barriers to effective risk management, and how can organizations overcome them?
Common Barriers to Effective Risk Management
Developing an efficient risk management process takes time, money, and support to be effective, and many organizations are simply stretched too thin to give a risk management program the attention it deserves.
As threats become more sophisticated and dangerous, however, it’s only going to become more important that your organization can identify and mitigate those risks – in a disciplined, repeatable manner – before they do harm.
If left unmanaged, risks can lead to a variety of lost opportunities that could cripple or even destroy your organization’s business model and your brand. For this reason, many businesses and stakeholders have begun to realize that the time to invest in risk management is now.
Wherever your organization stands in its risk management maturity, the barriers affecting ERM success are likely the same or similar. We’ve selected three of the most common barriers to effective risk management to examine, before we offer some advice about how your organization can overcome them.
From the 2020 AICPA research mentioned above, it’s clear that many businesses that have not yet implemented an enterprise-wide risk management process believe that there are too many other pressing needs. This isn’t surprising considering the range of internal factors influencing organizations today, from regulators to the market, politics and society.
Which of these factors is considered to be the most significant by senior executives will ultimately influence senior management, other managers, and employees. If risk isn’t a high priority at the top, it’s likely to be just as unimportant at all levels of the organizational structure.
With only 24 percent of respondents reporting that their organizations’ board of directors substantively discuss top risk exposures in a formal manner, it seems that risk isn’t a high priority at the top of many organizations’ minds.
The problem of competing priorities is part of a larger underlying issue surrounding cultural barriers preventing progress in risk management. This is a topic we’ll explore more deeply later, when we give you suggestions about how to overcome barriers to risk management.
Although cultural barriers may influence organizations to prioritize other factors over risk, research from Deloitte’s 2019 Survey of Risk Management confirms that organizations that invest in risk management typically achieve higher relative growth.
It’s also clear from the 2020 AICPA research that many organizations simply don’t have the financial means necessary to implement a risk management program, or that leadership in the organization believes that the benefits of risk management do not exceed the costs.
This is another example of how cultural barriers to risk management might affect the success of the program. If senior executives will not allow for the allocation of sufficient resources for developing processes for identifying risks without more information, it will be more difficult to rationalize the funding you do receive. A fully functional risk management plan is an investment that will pay for itself in the long run, but if it’s poorly funded from the start, it’s not likely to succeed.
Winning over senior management on risk can be hard for a variety of reasons. First, it can be difficult to obtain hard data to show management that ERM is helping your organization achieve its goals. Second, ERM doesn’t come with a single roadmap for implementation. Standards such as ISO 31000 and COSO provide some general guidance on the elements of ERM, but a universal standard guide for ERM isn’t possible for a number of reasons, including the unique cultures and needs of each organization.
Third, ERM takes time. Unlike project management or other common management tools, it’s almost impossible to implement all the elements of an effective risk management program within six months, or even a year.
Lack of Perceived Value
Because risk management programs are often expensive and time-consuming to deploy, and difficult to rationalize and demonstrate to senior executives, there’s a perception that risk management doesn’t hold much value for organizations.
Risk management, like most processes, takes a while to yield tangible results. For this reason, senior executives and senior managers who are focused on more immediate achievements might not be able to see the long-term benefits of investing in risk management now.
Oftentimes organizations avoid giving risk the priority it deserves because risk management requires them to acknowledge that there are potential problems. Organizations that put emphasis on prioritizing information that sheds a positive light on their enterprise, rather than information that causes concern, are not likely to have a critical eye when assessing their own shortcomings.
In these environments, the people who raise these concerns are often viewed as disruptive. That can lead to employees staying silent in fear of ostracization, and key risks then go ignored.
Overcoming Challenges to Your Risk Management
Now that we have a better idea of the types of barriers organizations face for effective risk management, we can examine some of the ways you can overcome these challenges.
Build a Risk-Aware Corporate Culture
First, strive to build a risk-aware culture that encourages smart risk-taking. Clearly, there is a co-dependent relationship between risk awareness not being emphasized as a part of the corporate culture and a high priority being placed on other business initiatives. If your corporate culture doesn’t support risk taking, then risk taking will continue to be a lower priority, and vice-versa.
Overcoming these barriers means that risk managers need to help transform your company culture to one that focuses on (and rewards) making decisions that create sustainable and profitable growth, rather than simply protecting against loss or operational risk.
To help build such a culture, your risk managers should start by working to gain the support of C-suite peers and the board. From there, they should emphasize the value of viewing your company’s risks holistically and managing those risks with a dedicated team that follows a consistent approach across your enterprise.
Finally, risk managers should also encourage collaboration across your organization – including legal, IT, human resources, and operations teams – to identify, quantify, prioritize, mitigate, manage, and monitor the risks that come with strategic decisions.
Encourage Forward-Thinking Risk Analysis
Ultimately, proper due diligence is the driving force behind effective risk management. Taking risks is easier when you’ve identified the full range of possible outcomes, including examining how each risk might affect the organization and developing a contingency plan to minimize potential impacts. Only after you’ve done so will it be possible to develop a cost-benefit analysis that helps senior management make strategic risk decisions.
Ultimately, failing to integrate outcome analysis and risk management has the potential to limit your organization to identifying risks only after they have already harmed your operation. This type of thinking forces your organization to operate defensively, rather than actively.
Integrating outcome analysis and risk management is best done collaboratively so that employees buy-in across your organization and at all levels of your company. However, it must start at the top. Your C-suite needs to set the expectation and an incentive for all areas of the company to follow such a risk-versus-reward approach and cooperate on strategic decision making.
Stay Current With Technology
Risk managers in today’s fast changing risk environment need to stay current with the latest technologies for managing risk. That said, the introduction and adoption of new technology-based products and services comes along with potential exposures that must be fully understood, appreciated, and mitigated to be managed effectively.
Risk managers need to understand the intersection between emerging technologies and a company’s operations to help strategically manage risk. While technological advances mean that the number and variety of risks is always increasing, those advances also mean that the tools developed to combat those risks are getting smarter too.
Choosing the right tool to help you effectively manage risk can be the make-it-or-break-it decision for your organization. You need a solution that can help your organization overcome the barriers to effective risk management.
Manage Business Risks With Reciprocity ZenRisk
The right software solution can help your organization stay ahead of ever-evolving security threats while providing greater visibility across your organization to better manage risks and mitigate business exposure.
Reciprocity ZenRisk is an integrated cybersecurity risk management solution designed to provide you with actionable insights to gain the visibility you need to stay ahead of threats and clearly communicate the impact of risk on high-priority business initiatives. Turn the unknown into quantifiable and actionable risk insights with built-in expertise that identifies and maps risks, threats and controls for you, so you can spend less time setting up the application and more time using it.
A single, real-time view of risk and business context allows you to communicate to the board and key stakeholders in a way that’s framed around their priorities, keeping your risk posture in sync with the direction your business is moving.
Reciprocity ZenRisk will even notify you automatically of any changes or required actions, so you can be on top of your risk posture like never before. Eliminate time-consuming, manual work and streamline collaboration by automating workflows and integrating with your most critical systems.
Plus, Reciprocity ZenRisk is seamlessly integrated with Reciprocity ZenComply so you can leverage your compliance activities to improve your risk posture with the use of AI. Built on the Reciprocity ROAR Platform, the Reciprocity product suite gives you the ability to see, understand and take action on your IT and cyber risks.
Now, through a more active approach, you can give time back to your team with Reciprocity ZenRisk. Talk to an expert today to learn more about how the Reciprocity Product Suite can help your organization mitigate cybersecurity risk and stay ahead of threats.