Is Your Risk Management Program Driving with the Rearview Mirror?
Imagine driving a car while only looking in the rearview mirror, occasionally glancing at your dashboard. This is how many organizations approach risk management today—focused on past issues and compliance-driven metrics, with little attention paid to future objectives and the road ahead. Effective risk management requires not just a look back or a status check, but a clear view of where the organization is headed and the risks along the way.
In the landscape of governance, risk management, and compliance (GRC), there’s a prevalent but misguided approach that begins with compliance rather than governance. Logically, one might expect the acronym to be CRG, reflecting the common tendency where compliance takes precedence over governance and strategic performance considerations. This approach can lead to fragmented risk management efforts and overlooks the foundational role that governance plays in setting objectives and guiding risk mitigation strategies. Governance serves as the bedrock from which effective risk management can spring forth, adhering to ISO 31000’s view of risk as the effect of uncertainty on objectives.
The GRC Capability Model, as defined by OCEG (www.OCEG.org), offers a clear perspective: risk management is “a capability to reliably achieve objectives, address uncertainty, and act with integrity.” This definition underscores the proper sequence: governance first establishes clear objectives across various organizational levels—from overarching entity goals to specific project or process aims. Governance serves as the bedrock from which effective risk management can spring forth, adhering to ISO 31000’s view of risk as the effect of uncertainty on objectives.
Looking in the Rearview Mirror: Past Issues and Compliance
Many organizations focus heavily on past issues, akin to driving by looking only in the rearview mirror. They implement controls to ensure compliance with regulations and standards based on previous incidents and failures. While this historical perspective is crucial—it helps understand what went wrong and prevents recurrence—it should not dominate the risk management approach. For instance, a financial institution might focus extensively on compliance with anti-money laundering (AML) regulations after a past violation, ensuring all processes meet regulatory standards. However, if this focus on past issues blinds them to emerging risks in digital fraud or cybersecurity, they could miss significant threats on the horizon.
Glancing at the Dashboard: Current Operations
Paying attention to the dashboard represents the current state of operations—monitoring key metrics and ensuring everything is functioning properly. This is important as it provides real-time insights into the organization’s health and performance. For example, a manufacturing company might closely monitor its supply chain metrics, such as inventory levels and supplier performance, to ensure smooth operations. Yet, focusing solely on these indicators without looking ahead to potential supply chain disruptions or geopolitical risks can leave the company unprepared for future challenges.
The Road Ahead: Strategic Risk Management
Effective risk management is about knowing your objectives and where you are headed, and understanding the risks that lie ahead as you navigate the road of risk and objectives. It requires a forward-looking perspective that integrates past learnings and current operations with strategic foresight. This is akin to driving with a clear view of the road ahead, using navigation tools to anticipate turns, obstacles, and opportunities.
For instance, consider a tech company planning to expand into new markets. Strategic risk management would involve not only complying with current data privacy regulations (rearview mirror) and monitoring ongoing operations (dashboard) but also anticipating future regulatory changes in those new markets and potential competitive threats. This proactive approach allows the company to adapt its strategy, mitigate risks, and seize opportunities effectively to achieve its objectives in market expansion.
Achieving this forward-looking view of risk to objectives demands a holistic approach where risk management is fully embedded within the fabric of business and management practices. It requires robust modeling, definition, and ongoing monitoring of business objectives and processes to ensure that risk efforts are not isolated but intricately woven into the organization’s operational fabric. Effective risk management, therefore, manages uncertainty within the broader context of performance, objectives, and operational processes, thereby optimizing resilience and strategic alignment.
Organizations must ensure that their risk management systems are not just looking backward at past issues or glancing at the current status but are focused on future objectives and the road ahead. This forward-looking approach will empower organizations to achieve their strategic goals with greater confidence and resilience, ensuring they can navigate the complexities of today’s business landscape effectively.
In conclusion, elevating risk management from a compliance-centric to a performance-driven integration involves shifting focus from the rearview mirror to the road ahead. It requires a balanced view that incorporates past learnings, current operations, and future objectives, enabling organizations to manage risks proactively and strategically. By doing so, organizations can ensure that risk management becomes a driver of performance excellence and a cornerstone of sustainable success.
Checkout GRC 20/20’s latest published research:
- Risk & Resilience Management by Design: 360° Visibility Into Risk Resilience Management. The modern business environment’s complexity and interconnected risks necessitate an integrated approach to risk and resilience management, moving beyond compliance to strategic alignment with organizational objectives. Key challenges include managing interconnected risks, maintaining agility in a dynamic environment, and ensuring comprehensive operational intelligence. A robust strategy involves establishing a cross-functional risk management team, formalizing a risk charter, and defining clear policies. Effective risk management architecture integrates process, information, and technology to support decision-making and risk mitigation. Building a business case for investment in risk management requires assessing the current state, defining the future state, and developing a transition roadmap to enhance efficiency, effectiveness, resilience, and agility, ultimately supporting the organization’s strategic goals.