What Is Integrated Risk Management?
Integrated risk management (IRM) is a more disciplined approach to risk management. It uses technology to identify threats and the steps you take to control those risks. It gives senior leaders at the organization better insight into which threats pose the greatest danger, so they can make better decisions about how to respond.
Integrating risk management activities into the rest of your business can generate better information for decision-making, helping you to meet your business objectives more effectively.
Benefits of Integrated Risk Management
Understanding integrated risk management and finding solutions brings several benefits.
- Allows for more agile, risk-based decision making, based on having one view of top risks;
- Bridges the strategy/execution gap, assuring that project delivery is tied to the business’s organizational needs and vision;
- Identifies risks at the strategic level can significantly affect the entire company;
- Empowers companies to manage these risks;
- Addressing risks across the business can drive cost savings, improved business processes, competitive advantages, and alignment, such as environmental, social, and government risks (ESG risks);
- Enables organizations to take the initiative with those opportunities, rather than just reacting to them;
- Minimizes cybersecurity threats and maximizes opportunities, boosting the chances of achieving strategic and operational objectives;
- Provides senior management with helpful information to aid the decision-making process;
- Helps companies create risk-aware cultures, so employees understand that risk exists at all levels of the enterprise and that they can (and should) manage that risk intelligently, reaping the most benefits;
- Improves operational efficiency by reducing the costs and cycle times of risk assessments.
An integrated risk management framework is the formal, structured approach to governing risk. Applying an integrated risk management framework allows organizations to evaluate their risks by connecting the organization’s objectives, functional departments, and components of a risk assessment.
Common industry standards that help to establish robust cybersecurity controls often refer to IRM frameworks. One of the most prevalent is the National Institute of Standards and Technology (NIST) framework for Improving Critical Infrastructure Cybersecurity. The NIST Cybersecurity Framework offers five core functions, helping organizations to streamline the integration of technology risk management throughout the business.
Integrated risk management, however, can be hard to distinguish from its close cousins, enterprise risk management (ERM) and governance, risk, and compliance (GRC).
IRM vs. ERM vs. GRC
According to Reciprocity consultant Gerard Scheitlin, founder and president of risk management company RISQ Management, theoretically there is little difference among IRM, ERM, and GRC. All three terms refer to enterprise-wide, integrated risk management, a program encompassing cybersecurity, finance, human resource, audit, privacy, compliance, and natural disasters.
ERM is centered around strategic planning, organizing, leading, and controlling a company’s risk activities. It works as an administrative review. An organization examines its strategic business objectives and then reviews the associated information technology risks to assure business continuity.
Meanwhile, IRM analyzes the risks inherent in an organization’s technologies. Integrated risk management incorporates many elements of enterprise risk management, but it’s typically more focused on IT functionality. For most companies, building an IRM program means replacing siloed risk areas with a single, holistic view of enterprise risk.
Business research company Gartner says IRM involves the hands-on work that makes ERM possible: the technical controls critical to effective cybersecurity, such as security monitoring, network monitoring, and perimeter protection.
IRM and ERM provide a holistic model of risk management, including IT risk and operational risk, and are integrally related. You can’t have one without the other: IRM feeds ERM, and ERM guides IRM.
GRC, which Schetlin calls “risk assurance,” implements this holistic approach; GRC is where risk-management magic happens.
Integrating Risk Management and Strategic Planning
According to research done as part of the Enterprise Risk Management Initiative of the Association of International Certified Professional Accountants and North Carolina State University for the 2017 Global Risk Oversight Report, companies find it challenging to integrate risk into strategy.
Fewer than 20 percent of the businesses polled in Europe, Britain, or the United States say their risk management procedures give them a distinct competitive edge. Furthermore, the statement, “Risk exposures are addressed when evaluating new strategic initiatives’ was accepted by only half of respondents.
Step 1: Deconstructing Strategic Objectives
It’s easy to get caught up with day-to-day operational risks. This is why management teams must distinguish strategic versus operational risks. Start by looking at your strategic objectives and discuss why they are essential to the business strategy and long-term success.
Breaking down your strategic objectives will help you identify key performance indicators (KPIs) and key risk indicators (KRIs). Follow the McKinsey MECE (ME: Mutually Exclusive, CE: Collectively Exhaustive) when defining goals to prevent needless duplication and overlaps.
This crucial phase assures that risk managers comprehend the business reasoning behind each target and aids in sharpening the focus of risk analysis.
Step 2: Finding Elements that Are Connected to Uncertainty
Risk managers must use the strategy document, financial model, business plan, and budgeting model to identify significant assumptions made by the management during the strategic planning process.
Most assumptions involve some level of uncertainty, necessitating a risk analysis. A SWOT analysis is a helpful tool for risk identification, guiding management teams through the listing of strengths, weaknesses, opportunities, and threats. This process will help scope the risk profile and determine which significant risks to prioritize for further risk analysis.
Step 3: Performing a Risk Analysis
This phase entails running a Monte-Carlo simulation or some other scenario analysis to see how uncertainty may affect the company’s strategic goals. A separate risk model or the current financial budget model may be used for risk modeling. Many software alternatives are available for risk modeling.
It’s crucial to consider the relationships between various assumptions while modeling risk. A bowtie diagram is helpful for thorough risk analysis and identifying interdependencies. Such an analysis aids in identifying the sources and effects of each risk and pinpoints the relationships between various management hypotheses and occurrences.
Risk analysis results help identify the critical risks that may help or harm the attainment of strategic objectives.
Step 4: Putting Risk Analysis into Practice
Risk managers should talk with the executive team about the conclusions of the risk analysis to see whether those findings are reasonable, practical, and actionable. If the risk analysis findings are substantial, management (with the risk managers’ help) may need to:
- Review the strategy’s underlying assumptions.
- Use hedging, outsourcing, or insurance strategies to consider sharing some risk with outside parties.
- Think about lowering risk by using different strategies to accomplish the same goal or using suitable strategic risk management techniques.
- Accept the risk, and if it does arise, build a business continuity and disaster recovery strategy to reduce its effects.
- Perhaps completely revisit the strategic planning process.
The management team will determine whether mitigation measures are sufficient or if the plan needs to be altered.
What Is the Link Between Strategy and Risk Management?
Organizations face strategic risks every time a new strategy is chosen, whether they’re aware of it or not. Companies may protect the value and have the flexibility to grab opportunities as they present themselves if strategic risks are adequately addressed. Strategic risks, however, are challenging to manage.
- It is challenging to evaluate and quantify strategic risks.
- Strategic risks frequently take longer to materialize than managers are used to considering.
- When assessing strategic risks, managers must consider the potential drawbacks of the company initiatives they want to be optimistic about.
- Strategic risks can be unprecedented and are frequently the result of great uncertainty. Leaders must work more to recognize and monitor potential strategic hazards.
How Can Integrated Risk Management Help My Business?
Companies need vital integrated risk management programs as existing risks become more complex and new risks emerge. Not having a clear understanding of risks and their potential effects can impede the efforts of decision-makers and harm business performance.
Organizations taking an integrated approach to managing risk will also achieve consistent risk management process outcomes.
Many companies are adopting an integrated approach to risk management, allowing executives to coordinate and unify risk management activities throughout the enterprise. Integrated risk management gives organizations a better understanding of their risks and helps support informed risk-based decision-making.
Let ZenRisk Help You Manage Risk
ZenRisk from Reciprocity has your IRM, ERM, and GRC solutions covered.
Identifying vulnerabilities, analyzing policies and procedures, and helping to assure monitoring and other controls work as they should, ZenRisk supports a wide variety of risk and compliance frameworks.
ZenRisk is the most comprehensive solution available for fully integrated, holistic, enterprise-wide management of your organization’s risks, including these features:
- Customizable risk calculations and multi-variable scoring. Gain a holistic view of risk across your organization to understand how multiple risks interact, how, if they come to pass, they could affect your business and the probability that they actually will become incidents.
- Real-time access to infosec posture. Automated evidence collection and simplified workflows help generate real-time reports, reducing manual effort and the length of audit cycles.
- Increased visibility and reporting with dashboards. Improve transparency and reporting of your metrics to stakeholders with up-to-date status reports that aren’t a burden.
- Industry-specific content developed by our experts. Access pre-built and preloaded templates for frameworks such as SOC 1 and SOC 2, Federal Risk and Authorization Management Program (FedRAMP), International Organization for Standardization (ISO), Payment Card Industry Data Security Standard (PCI DSS), Health Insurance Portability and Accountability Act (HIPAA), and Sarbanes-Oxley Act (SOX).
- Streamlined vendor and third-party risk management. Automate questionnaires and assessments, improve vendor relationships, and eliminate unnecessary manual work for your teams.
- Direct integrations with critical third-party apps. Select from our library of pre-built connectors via ZenConnect, integrating ZenRisk with business and infosec apps your company relies on, including Amazon Web Services (AWS), Qualys, Jira, Splunk, Slack, and Tableau.
Contact us today for your free consultation and start on the path to worry-free governance, risk management, and compliance, the Zen way.