In the modern business environment, managing risk is critical for both business continuity and achievement of financial and strategic goals.
A robust risk management program helps your organization do that, because it helps you to better predict and respond to risks before those risks cause any damage – and a cybersecurity incident (such as a data breach) can be extraordinarily damaging.
Some of the many repercussions associated with cybersecurity incidents include financial losses and reputational damage, regulatory sanctions, and costly civil litigation. In most cases, the fines and penalties associated with non-compliance dwarf the other costs resulting from an incident.
In fact, the global average cost of a data breach in 2022 was $4.35 million – a painful amount, especially when you consider that the majority goes directly toward paying the fines that come with regulatory and compliance violations.
For many organizations, implementing a compliance risk management program is crucial to keeping all those potential consequences in check.
What Is Compliance Risk Management?
Compliance risk management (CRM) is the process of assuring that your company complies with applicable laws, regulations, and standards. It involves identifying, evaluating, and monitoring current and potential risks to your enterprise’s compliance efforts, followed by implementing and monitoring internal controls to assure ongoing compliance effectiveness.
One important part of compliance risk management is having a compliance risk management program to:
- Document the potential losses and liabilities your enterprise is likely to face in the event of non-compliance, including legal penalties, business and operational laws, and fines
- Outline remediation steps to reduce these risks to acceptable levels, so that your business can continue to operate compliantly without any repercussions.
Compliance Risk Management Considerations
To establish an effective compliance risk management program, you’ll need to take an enterprise-wide approach that accounts for the following:
- Training and communication with relevant employees
- Risk appetite analysis to determine your organization’s acceptable level of risk
- Policies and procedures for managing compliance risk
- A risk assessment or risk analysis to identify potential risks and prioritize them:
- A qualitative risk assessment relies on subjective ranking, such as high-, medium-, or low-risk
- A quantitative risk assessment relies on data and mathematical probabilities to calculate risk
- Controls testing and monitoring
- Reporting test results and risk posture status
- Tools for risk management
- Governance and oversight
Ideally, your risk management, compliance, and internal audit functions should all participate in the CRM process. The most effective compliance risk management program documents the potential losses and liabilities your organization might face for non-compliance, including legal penalties, fines, business loss, and reputational loss; and then implements necessary remediation measures to keep those risks at acceptable levels.
Common Compliance Risk Management Standards, Frameworks, and Methodologies
While CRM has no specific risk assessment methodology or framework of its own, several risk management frameworks and methodologies exist that can be tailored to address compliance risk specifically, and therefore help your CRM decision-making.
ISO 27005 Information Technology – Security Techniques – Information Security Risk Management provides a framework and an approach for information security and cybersecurity risk management. This framework provides guidelines for what your risk assessment should include, but no specific steps. Nevertheless, most risk management methodologies are derived from this international standard.
OCTAVE (Operationally Critical Threat, Asset and Vulnerability Evaluation) Allegro Risk Method
Created by the Software Engineering Institute of Carnegie Mellon University, OCTAVE is a qualitative methodology that can be conducted in small groups without disrupting business operations. The steps are:
- Develop risk measurement criteria consistent with the organization’s mission, goal objectives, and critical success factors.
- Create a profile for each critical information asset that establishes clear boundaries for the asset and identifies its security requirements.
- Identify threats to each information asset.
- Identify and analyze risks to information assets and begin to develop mitigation approaches.
Microsoft Security Assessment Tool
Although not a methodology, the Microsoft Security Assessment and Planning Toolkit offers “Solution Accelerators” to help IT professionals using Microsoft products target enterprise needs in security and compliance, management and infrastructure, and communications and collaboration.
NIST SP 800-30 Revision 1 – Guide for Conducting Risk Assessments
This National Institute of Standards and Technology publication discusses risk assessment, analysis, and mitigation; and defines steps for the risk assessment process.
Information Risk Assessment Methodology 2 (IRAM2) and Risk Analysis Workbench Tool
The Information Security Forum provides a step-by-step guide for security risk assessment models. IRAM2 focuses on internal vulnerabilities and their potential impacts on those outside the organization.
What Are the Five Methods of Risk Management?
Here are five risk management techniques your business can use to identify and address risks quickly, and to prepare for unexpected threats. These techniques can work for any risks, compliance risks or otherwise.
1. Past and future risk identification
Do a historical analysis of past company projects and the risks that affected them; take note of the measures you took to address those issues. Then identify any risks that could potentially affect your new projects. Follow this up by checking each potential threat and the critical risks associated with each threat.
Once you’re done, create a risk register documenting the identified types of risks for future reference.
2. Direct and indirect risk result identification
Coordinate with relevant stakeholders to create a futures wheel diagram to identify every potential risk’s direct and indirect results, including its effect on your project’s timeline, quality, and cost.
Review all potentially positive and negative consequences for each specified risk, as well as subsequent repercussions. We also recommend discussing your findings with stakeholders and documenting possible actions to control, mitigate, or eliminate negative consequences.
3. Risk audits
We’re going to assume your enterprise has a risk response plan (if it doesn’t, prioritize making one now).
At this stage, you still need to examine and document the effectiveness of risk responses and controls as they apply to your new project. Conduct a risk audit to uncover any gaps in your risk management plan and take remedial measures to remove them.
4. Risk action planning
Every documented risk on your risk register should have a corresponding response strategy your project team members can follow.
Here are the four main risk management strategies:
- Risk avoidance: Eliminate uncertainties before they have any impact on your enterprise.
- Risk transfer: Pass risk liability forward to a third party, such as taking out an insurance policy to shoulder financial risks.
- Risk mitigation: Reduce the risk probability below a predetermined acceptable threshold.
- Risk acceptance: Control and monitor expected risks, but don’t avoid them.
By choosing the right response strategy, the project management risk owner and team members will know exactly what to do, responding to business risks quickly while actively controlling mitigation and remediation costs.
5. Contingency planning
Contingency planning is crucial for effective project risk management and mitigation.
Create a tree diagram of the project with all the determined objectives and activities. Then identify potential problems for each element, along with the preventive actions and countermeasures for each element.
Compliance Risk Management Best Practices
Whether you use an existing methodology or start from scratch, there are some best practices for creating a compliance risk management system that all organizations need to consider.
Start with a risk assessment
In any risk management program, one of the most important steps is to conduct a risk assessment. A thorough compliance risk assessment will inform all the other elements that comprise your compliance program: policies, controls, due diligence, and corporate culture.
Unfortunately, there’s no one-size-fits-all approach to conducting a risk assessment. Compliance leaders will need to work with others in the enterprise to understand what the organization’s operating processes are and how those processes might or might not violate regulatory compliance demands. When all is done, however, a risk assessment will help your organization prioritize risks, which will help you determine which risks to respond to first.
Prioritize third-party risk
Today almost every organization deals with a large number of third parties. Because some of the most prominent compliance risks are associated with third parties, it’s important that you perform at least some level of due diligence on all your vendors.
A strong due diligence process should be a central component of your compliance risk management program. And given the sheer volume of third parties most companies now have, make your organization’s due diligence process as streamlined, integrated, and automated as possible.
Stay current with regulations
It’s also important to be aware of any changes to regulations that affect your business. During the risk assessment phase, make sure you understand all the requirements imposed by all applicable laws and regulations, then stay up-to-date with the latest guidance and enforcement policies.
Risk assessments and internal audits can only do so much if you aren’t familiar with the rules your business needs to comply with or you aren’t aware that those requirements have changed.
Build a culture of ethics and compliance
Always remember that compliance programs are really about managing people. After all, security is a people problem, and humans tend to be the weakest link, especially in cybersecurity.
Start by setting the tone at the top. Your organization’s senior leadership should be able to communicate expectations clearly to middle managers and the rest of the organization about the ethical conduct you want to see from employees. It’s also important that your organization’s decision-makers don’t just set the expectations, but actually follow those standards themselves.
A great way to assure your organization is focused on building a culture of ethics and compliance is via security awareness training. Including compliance requirements and framework standards as part of your overall security awareness program can help employees better understand not only what your internal policies and processes are, but why those policies are critical for business operations, cybersecurity, and privacy.
Choose tools to help
Any risk management program will require considerable effort from the organization implementing it. With compliance risk management, there’s the extra burden of staying current with regulatory requirements and changes. That task can be overwhelming on its own, let alone in conjunction with all the other activities associated with the risk management process.
As your business grows, your compliance efforts will need to evolve alongside it. Risk management is a continuous process, as opposed to a one-time exercise. To determine whether your policies and procedures are effective, you’ll need to evaluate them on a regular basis. The best way to do this is by choosing a software solution that can help you continuously monitor your compliance efforts and any changes to the regulatory environment.
Using automation, these tools can also help your organization cut down on the number of mundane tasks associated with the risk management process – tasks that inevitably waste your organization’s time and money if they’re not automated. In addition to eliminating these frustrations, automation can also give you greater insight into, and control over, your data.
Choosing a scalable and flexible compliance management tool can often make the difference between enhancing and impeding your company’s compliance management program. Fortunately, there are solutions designed to help.
Mitigating Risk With ROAR
The RiskOptics ROAR Platform is an integrated cybersecurity risk management solution designed to keep you ahead of threats and mitigate cybersecurity risks.
It provides greater visibility and actionable insights into your business processes, helping you identify, assess, and mitigate cyber and IT risks in real-time. These contextual insights are also useful for making informed decisions and prioritizing investments regarding enterprise security.
Schedule a demo to learn more.