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This past week has seen a global risk event in the Crowdstrike/Microsoft outage that illustrates the need for organizations to address risk and resilience management . . .

Risk management is often misunderstood, misapplied, and misinterpreted due to scattered and uncoordinated approaches that get in the way of sharing data. Various departments manage risk with different approaches, models, requirements, and perspectives on risk and how it should be measured and managed. Risk management silos — where distributed business units and processes maintain their own data, spreadsheets, analytics, modeling, frameworks, and assumptions — pose a significant challenge for enterprise risk visibility and fails to provide actual value to the business in pursuit of objectives. Documents and spreadsheets are not equipped to capture the complex interrelationships that span global operations, business relationships, lines of business, and processes. Individual business areas focus on their view of risk, not the aggregate picture, and cannot recognize substantial and preventable losses. When an organization approaches risk in scattered silos that do not collaborate, there is little opportunity to be intelligent about risk. 

A siloed approach to risk management fails to deliver insight and context and makes it nearly impossible to connect risk management and decision-making, business strategy, objectives, and performance. This is because risk intersects, compounds, and interrelates with other risk areas to create a more significant risk exposure than each silo is independently aware of. Today, it is critical that all these roles work off the same data and that this risk data is clean, reliable, timely, and thus actionable and meaningful.

Keeping risk, complexity, and change in sync is a challenge not only when risk management is buried in the depths of departments but also when risk management is approached as a compliance or audit function and not as an integrated discipline of decision-making that has a symbiotic relationship with performance and strategy. Unfortunately, risk management is only an expanded view of routine financial controls for some organizations, resulting in nothing more than a deeper look into internal controls with some heat maps thrown in. It does not truly provide an enterprise view of risk aligned with strategy and objectives. Completing a risk assessment process and ticking the box has gotten in the way of proper risk analysis and understanding. 

ISO 31000 defines risk as the effect of uncertainty on objectives. Risk management is about managing uncertainty. Organizations need to link and measure risk to strategic objectives. Good risk management results in improved decision-making and fewer surprises when achieving the organization’s objectives. 

Today’s organization needs to be agile in managing risk and its impact on the organization’s objectives from the moment it is developing on the horizon, as well as resilient in recovering from risk events when they materialize. Organizations need to understand how to monitor risk-taking, measure whether the associated risks are the right risks to achieve objectives, and review whether the risks are managed effectively to ensure the organization’s agility and resilience. Amidst this uncertainty, effectively managing risk and building resilience has become imperative for organizational success. 

To manage risk effectively, organizations must adopt a holistic approach encompassing a top-down strategic view aligned with objectives and a bottom-up operational perspective embedded within processes and activities. This aligns with the OCEG definition of GRC where “GRC is a capability to reliably achieve objectives [GOVERNANCE], address uncertainty [RISK MANAGEMENT], and act with integrity [COMPLIANCE].”

However, the modern organization faces many challenges in addressing an integrated risk and resilience management approach. These include:

• Lack of risk agility. Organizations often struggle to respond promptly to emerging risks due to rigid processes and hierarchies. Failure to adapt quickly to changing circumstances can lead to missed opportunities or unanticipated threats.
• Fragmented and inaccurate risk data. Siloed data across disparate systems makes obtaining a comprehensive view of risks challenging. Inaccurate or outdated data undermines the reliability of risk assessments and decision-making processes.
• Limited visibility. Limited visibility into interconnected risks and dependencies hampers the ability to anticipate and mitigate potential impacts. Organizations are vulnerable to cascading failures without a clear understanding of the entire risk landscape.
• Inefficient manual processes for risk management. Manual and disjointed risk management processes result in inefficiencies and delays. Hundreds or thousands of out-of-sync documents, spreadsheets, and emails encumber these. The lack of automation and standardized workflows impedes timely identification and response to risks.
• Inadequate risk reporting. Traditional risk reporting methods often fail to provide actionable insights or meaningful context. Poorly structured reports obscure critical risk information and hinder informed decision-making.
• Limited scalability. Scalability challenges arise when existing risk management practices cannot accommodate growth or organizational changes. Scaling risk management efforts across multiple business units or geographies becomes increasingly complex.
• Resource intensiveness. Resource constraints, both in terms of personnel and technology, hinder effective risk management efforts. Limited resources result in suboptimal risk mitigation strategies and increased vulnerability. Too often, GRC 20/20 hears that 80% of risk staff time is spent managing documents, spreadsheets, and emails rather than managing risk.
• Ineffective collaboration. Siloed organizational structures and cultural barriers inhibit collaboration and information sharing. Lack of cross-functional collaboration undermines the ability to identify and address systemic risks.
• Resilience planning gaps. Inadequate focus on resilience planning leaves organizations vulnerable to disruptions. Failure to anticipate and prepare for potential risk events can lead to significant operational disruptions and financial losses.
• Difficulties in business change management. Resistance to change and organizational inertia pose challenges to keeping risk current as the business continuously evolves.

The Bottom Line: The goal is comprehensive, straightforward insight into risk and resilience management to identify, analyze, manage, and monitor risk in the context of the organization’s objectives and how it impacts strategy, performance, operations, processes, and services. It requires the ability to continuously monitor changing contexts and capture changes in the organization’s risk profile from internal and external events as they occur that can impact objectives. This enables risk agility to forecast and plan what is coming at the organization to prepare and navigate it. It also gives a detailed understanding of how the organization operates and how it breaks to ensure resilience when risk becomes a reality. Successful risk and resilience management requires the organization to provide an integrated strategy, process, information, and technology architecture. 

This post is an excerpt from GRC 20/20’s latest research paper: Risk & Resilience Management by Design and Illustrated in Risk & Resilience Technology Illustrated.

Dynamic, Disrupted & Distributed Business is Difficult to Control

Organizations take risks but fail to monitor and manage these risks effectively in an environment that demands risk agility and resilience. Too often, risk management is seen as a compliance exercise and not truly integrated with the organization’s strategy, decision-making, and objectives. A cavalier approach to risk-taking results in the inevitable failure of risk management, providing case studies for future generations on how poor risk management leads to the demise of organizations – even those with strong brands. 

Gone are the years of simplicity in business operations. Exponential growth and change in risks, regulations, globalization, distributed operations, competitive velocity, technology, and business data encumber organizations of all sizes. Keeping these changes and their impact on business strategy, operations, and processes in sync is a significant challenge. Organizations must see the intricate relationships and impacts of risks on objectives and processes. They need full contextual awareness of risk and resilience.

The complexity of business—combined with the intricacy and interconnectedness of risk and business objectives—necessitates implementing a strategic and integrated approach to risk and resilience management. This includes a top-down enterprise view of risk aligned with objectives and a bottom-up operational understanding of risk within the organization’s processes and relationships.

Over the past few years, organizations have seen lots of disruption to objectives. It has been a risk and resilience rollercoaster. Some industries and organizations have failed, while others held firm and navigated risk events with agility. But there are lessons to be learned. These include:

• Interconnected risk. Organizations face an interconnected risk environment; risk and resilience cannot be managed in isolation. The organization needs to see across silos of risk management to see complex relationships of risk on objectives.
• Dynamic and agile business. The organization needs to be agile in a changing risk environment. It must adapt objectives and seize opportunities while ensuring risk is managed within limits to those objectives. The organization needs to react quickly to stay in business. Organizations are constantly in flux as distributed business operations and relationships grow and change. At the same time, the organization is trying to remain competitive with fluctuating strategies, technologies, and processes while keeping pace with change to risk. The multiplicity of risk environments that organizations must monitor spans strategic, regulatory, geopolitical, market, credit, and operational risks. Managing risk and business change on numerous fronts buries the organization when managed in silos.
• Operational intelligence. Risk and resilience management, done correctly, requires a detailed and intimate understanding of how the business operates and how it breaks. Only with this intelligence can the organization manage uncertainty in the context of the business achieving its objectives. This has taught organizations that risk management requires a 360° view of objectives, risks, processes, and services within the organization and the extended enterprise.
• Disruption. International and local events easily disrupt business. Organizations have had to respond to disruptions, geo-political risk, unrest, economic uncertainty, inflation, commodity availability, competitive shifts, changes in business models, shifting regulations, environmental disasters, cyber risk, and more. Organizations face a complex, chaotic, and even hostile risk environment while attempting to manage high volumes of structured and unstructured risk data across multiple systems, processes, and relationships to see the big picture of performance, risk, and resiliency. The velocity, variety, veracity, and volume of risk data is overwhelming, disrupting the organization and slowing it down at a time when it needs to be agile and fast.
• Dependency on others. No organization is an island; the modern organization is the extended enterprise. Even the smallest of organizations can have distributed operations complicated by a web of global relationships. The traditional brick-and-mortar business with physical buildings and conventional employees has been replaced with an interconnected mesh of relationships and interactions that now define the organization. Complexity grows as these interconnected relationships, processes, and systems nest themselves in intricacy. This requires the organization to manage and monitor risk and resilience in third-party relationships.
• Risk ownership and accountability. There is a growing awareness among executives and directors that risk management needs to be taken seriously. Oversighting risk management as an integrated part of business strategy and execution is part of their fiduciary obligations. 

The Bottom Line: The goal is comprehensive, straightforward insight into risk and resilience management to identify, analyze, manage, and monitor risk in the context of the organization’s objectives and how it impacts strategy, performance, operations, processes, and services. It requires the ability to continuously monitor changing contexts and capture changes in the organization’s risk profile from internal and external events as they occur that can impact objectives. This enables risk agility to forecast and plan what is coming at the organization to prepare and navigate it. It also gives a detailed understanding of how the organization operates and how it breaks to ensure resilience when risk becomes a reality. Successful risk and resilience management requires the organization to provide an integrated strategy, process, information, and technology architecture. 

This blog post is an excerpt from GRC 20/20’s latest research paper: Risk & Resilience Management by Design

Modern organizations are not defined by brick-and-mortar walls and traditional employees; they are extended enterprises comprising third-party relationships, which often nest themselves in layers and transactions of complexity. In today’s interconnected business landscape, the complexity and scope of supply chains are expanding, bringing significant third-party risks, especially related to bribery and corruption. Managing these corruption risks is crucial for maintaining compliance and upholding a company’s integrity.

Organizations need a clear understanding of corruption in the context of third-party risk in supplier and vendor relationships, particularly when faced with the U.S. Foreign Corrupt Practices Act (FCPA), U.K. Bribery Act, France’s Sapin II, and other notable enforcement actions.

Corruption within supply chains typically manifests . . .

[The rest of this blog can be read on the EthixBase360 blog, where GRC 20/20’s Michael Rasmussen is a guest author]

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.

Looking for a path to environmental, social and governance (ESG) insights in a forest of GRC data

The last few years have shined a light on GRC (governance, risk management, and compliance) processes and shifted many attitudes towards risk. Yet, many organizations are left with numerous questions: What are the best practices to identify, analyze, monitor, and manage risks specific to your organization? Do these risk activities support future business growth, and should you implement ESG controls or reporting?

2021 was a year of resiliency as we rode the waves of the pandemic while facing surmounting pressures to address ESG (environmental, social, governance) within organizations. 2022 continued these themes of resiliency and integrity as the escalation of military conflict between Russia and the Ukraine ushered in further uncertainty to the global landscape but brought in agility. Last year saw the emergence of genAI and brought the already present threat of cybercrime and the need for improved cybersecurity to the forefront of concerns for organizations. The end of 2023 saw conflict arise in Gaza which has carried over into this year bringing more uncertainty to the region and to the world. And over the course of these last few years, ESG regulations continue to be proposed and put into action across the globe.

Firms globally and across industries are focusing on . . .

[The rest of this article can be read on the GRC Report, where GRC 20/20’s Michael Rasmussen is the CEO]

In the evolving world of financial services, regulatory technology (RegTech) has emerged as a crucial player as part of the broad GRC market of governance, risk management, and compliance solutions. As regulatory environments become more complex, the demand for RegTech solutions has skyrocketed. However, while many RegTech solutions address specific elements of regulatory compliance, they often fail to provide a comprehensive approach that integrates these elements seamlessly. This fragmentation poses significant challenges, where regulations intersect and impact multiple aspects of business operations.

I am concluding week three of three weeks in London, and I have had a lot of interactions on RegTech as well as broader GRC within financial services (but also across industries).

If you look at a variety of the RegTech maps you will find hundreds of logos mapped into various categories. Part of the challenge in RegTech as there are great solutions but were built for a very specific challenge and not the broader process. Think of a financial services compliance process as a pie with a lot of pieces/wedges as the components of the process. Many RegTech solutions are built to address a piece/wedge and not the entire pie.

This requires a lot of firms implementing these solutions to try to put together an integrated architecture of components. Many of the private equity moves and investments we have seen the past six months are aiming to rollup these pieces/wedges to address the needs of a broader process holistically.

The Interconnected Challenges in RegTech

When it comes to regulations there are direct regulations but also many related and indirect regulations. All of which call for an integrated architecture and strategy of risks, regulations, controls, and technology. It takes a RegTech architecture.

In the UK, for example, the regulatory landscape is intricate, with various regulations influencing/impacting one another. Consider AI adoption and its impact as one example of multi-facted regulatory concern and impact . . .

1. AI Direct Regulation. There is direct regulation of AI such as the EU AI Act which impacts many UK firms with operations in the UK, as well as developing AI oversight requirements from the FCA/PRA/Bank of England.
2. Operational Resilience and AI. The integration of AI can enhance operational resilience but also introduce new risks that must be managed to prevent operational failures.
3. Consumer Duty. Ensuring AI and other technologies align with consumer protection standards and duties.
4. Senior Management Functions (SMCR). AI adoption requires careful oversight to ensure compliance with accountability and governance requirements.
5. ESG Implications. AI and technology investments need to align with ESG goals, ensuring sustainable and ethical practices, particularly under the S with social implications, and the G in the governance and control of AI.
6. Privacy. AI also has many privacy concerns in the use of personal information in models and outcomes.

This all requires a range of solutions to address regulatory processes. These interconnected and cascading challenges necessitate a holistic approach to RegTech architecture. There is no solution doing everything.

An Effective RegTech Architecture

An effective RegTech architecture must address the multifaceted nature of regulatory compliance through an integrated approach. Here are some critical RegTech solution areas that GRC 20/20 is covering in the market:

• Regulatory Change Management. Automated systems provide real-time updates to track and integrate regulatory changes, ensuring organizations stay current with new laws and guidelines. Impact analysis tools assess how these changes affect business operations, helping firms to adapt strategies and maintain compliance.
• Horizon Scanning of Risk and Regulations. Proactive monitoring systems identify and evaluate emerging risks and regulatory trends, allowing firms to stay ahead of potential challenges. Predictive analytics, powered by AI, forecast regulatory developments and their implications, enabling preemptive action and strategic planning. A lot has been put into horizon scanning of regulations, but firms need to invest more in horizon scanning of operational risks as well.
• Internal Control Management and Benchmarking. Robust internal control systems are essential for ensuring compliance with regulatory requirements. Benchmarking tools compare internal practices against industry standards and expectations, providing insights for improvement. Continuous improvement is driven by regularly updating and refining internal controls based on benchmarking results and best practices. Thorough audit trails and reporting mechanisms ensure organizational transparency and accountability.
• Culture and Employee Engagement on Policies/Training/Awareness. Interactive training modules offer engaging and regularly updated programs, keeping employees informed and compliant. Centralized policy management repositories provide easy access to policy documents with version control and track employee acknowledgment, ensuring everyone is aware of and adheres to company policies.
• Know Your Customer (KYC)/AML. AI-driven tools automate customer verification and due diligence processes, enhancing efficiency and accuracy. Continuous monitoring systems detect suspicious activities in real-time, helping to prevent money laundering and other financial crimes.
• Know Your Third-Party & Due Diligence. Comprehensive third-party risk assessment tools evaluate the risks associated with business partners and suppliers. These tools seamlessly integrate with procurement processes to ensure compliance and mitigate risks from external relationships.
• Surveillance and Communications. Communication monitoring tools archive and review client communications for compliance, ensuring adherence to regulatory requirements. Advanced surveillance systems detect insider trading, fraud, and other compliance breaches, safeguarding the organization from illicit activities.
• Fit and Proper/Accountability Regime. Certification tracking systems ensure that individuals in key roles meet regulatory standards and maintain required qualifications. Performance monitoring tools provide ongoing assessment and reporting on management performance and compliance, ensuring accountability and adherence to regulatory expectations.
• Conduct Risk/Conflict of Interest. Conflict management tools identify and manage conflicts of interest, protecting the organization from potential compliance breaches. Continuous monitoring of employee behavior helps detect and mitigate conduct risks, fostering a culture of integrity and ethical behavior. These can also be used more broadly for any type of compliance disclosure.
• Data Governance & Storage/Archive. Centralized data governance solution ensure data quality and compliance with regulatory standards. Robust privacy and security systems protect data from breaches and unauthorized access, ensuring the integrity and confidentiality of sensitive information.
• Issue Reporting & Incident Management. There is a new wave of AI-driven incident reporting systems that provide timely and efficient management of compliance incidents, enabling rapid response and resolution. Crisis management tools help organizations manage and mitigate the impact of compliance breaches, ensuring continuity and minimizing damage.

The complexity and interconnected nature of regulatory challenges require more than piecemeal solutions. Financial services organizations need a comprehensive RegTech architecture that integrates all aspects of regulatory compliance, from change management to incident response. However, this is not just for financial services, other regulated industries need these as well.

No single solution currently addresses all these needs comprehensively. Therefore, the financial industry must prioritize building an integrated RegTech architecture that can adapt to evolving regulations, manage risks proactively, and foster a culture of compliance. Only through such an architecture can organizations navigate the regulatory landscape effectively and sustainably.

The call to action is clear: Invest in a holistic RegTech architecture that brings together various compliance elements into a unified system that is part of your broader GRC architecture. This investment will not only enhance regulatory compliance but also drive operational efficiency and resilience in the face of an ever-evolving regulatory environment.

I am in London throughout June and interacting with various GRC RFPs in the United Kingdom; several are focused specifically on third-party risk management. Next week, many UK organizations will gather for my Third-Party Risk Management by Design workshop in London. Let’s explore the challenges these organizations and others around the world are facing in this context . .  .

In today’s interconnected business landscape, organizations are more reliant than ever on a complex web of third-party relationships. While this reliance is beneficial, it introduces significant risks that need to be managed effectively to ensure resilience, compliance, and integrity in and across these relationships. The governance, risk management, and compliance (3^rd Party GRC) of these third-party relationships are critical yet fraught with challenges that require a sophisticated and integrated approach. 

NOTE: I prefer third-party GRC over third-party risk management as, at the end of the day, it starts with governing relationships to achieve the objectives of the relationship and the business. Focusing on risk before governance is putting the cart before the horse. But I refer to third-party risk management as it is what is commonly used.

The Modern Organization’s Third-Party Landscape

Modern organizations operate in an environment that extends far beyond their physical and organizational boundaries. They depend on the extended enterprise of third parties, including suppliers, vendors, partners, and service providers, which collectively form an intricate web of interactions and dependencies that nest themselves in deep supply chains and subcontractors. This extended enterprise necessitates a robust mechanism for third-party risk management to navigate the inherent uncertainties and avoid disruptions that could impact business objectives.

The challenges organizations face in third-party risk management are:

• Fragmented Views and Siloed Oversight. One of the primary challenges in third-party risk management is the fragmented nature of oversight. Different business functions/departments often manage their third-party relationships independently, leading to silos that obscure the full spectrum of risk. This disjointed approach prevents organizations from seeing the cumulative risk exposure, which can be significant when aggregated across all functions.
• Limited Resources and Manual Processes. Organizations often struggle with limited resources to handle the growing risk and regulatory demands. Many still rely on manual processes such as spreadsheets, emails, and file shares to manage third-party risk, which is neither efficient nor scalable. This approach can lead to overlooked risks and delayed responses to emerging threats.
• Incomplete Risk Coverage. Another significant issue is the limited view of third-party risk vectors. Many organizations focus predominantly on financial and cyber risks, neglecting other critical areas such as compliance, operational risks, environmental, social, and governance (ESG) factors, and geopolitical risks. This narrow focus leaves the organization vulnerable to a broader range of risks.
• Overreliance on Periodic Assessments. Traditional risk management practices often involve periodic assessments at the onboarding stage and at set intervals thereafter. This sporadic monitoring fails to capture the dynamic nature of third-party risk, which can change rapidly between assessments. Continuous, real-time risk monitoring is essential to maintain an up-to-date understanding of third-party risks.
• Inadequate Incident Response & Issue Management. When incidents occur, the typical response involves sending surveys to third parties to assess the impact. This process is time-consuming and often yields low response rates. This reactive approach does not provide the real-time insights necessary to mitigate risks effectively as incidents unfold.
• Information Overload. Risk intelligence feeds can overwhelm organizations with vast amounts of data, much of which may be irrelevant or false positives. This deluge of information requires intelligent filtering to ensure that only actionable insights are highlighted, enabling risk teams to focus on critical issues.

The Need for an Integrated Third-Party GRC/Risk Management Approach

To address these challenges, organizations must adopt an integrated approach to third-party risk management that leverages both third-party risk intelligence content and robust risk management platforms. This approach should encompass the entire lifecycle of third-party relationships—from onboarding to ongoing monitoring and assessment to offboarding.

Some core elements of an integrated third-party risk management architecture

• Comprehensive Risk Framework. A hierarchical framework that categorizes third-party risk domains, ensuring all potential risk areas are covered.
• Intelligence Content Aggregation. Aggregating third-party risk intelligence from various sources, including regulators, law firms, feeds, and expert blogs, using automation and AI to filter out noise.
• Metrics, Dashboarding, and Reporting. Tools to monitor and report on third-party risk, providing visibility into current exposures and emerging risks.
• Defined Roles and Responsibilities. Clear assignment of third-party risk management responsibilities to subject matter experts (SMEs) within the organization.
• Workflow, Task & Process Management. Structured workflows to manage third-party governance, risk, and compliance across the onboarding, ongoing monitoring, issue resolution, and offboarding processes. This includes ongoing risk mitigation actions, ensuring accountability, and timely responses.
• Accountability Tracking. Ensuring that all third-party risk-related tasks are tracked and managed effectively.
• Business Impact Analysis. Assessing the impact of third-party risk changes on the organization and the supply chain, communicating these to relevant stakeholders.
• Mapping Risks to Policies and Controls. Linking third-party risks to organizational policies, controls, and processes to facilitate comprehensive risk management.
• Audit Trails and Reporting. Maintaining a detailed record of risk management activities and providing comprehensive reporting capabilities.

The Role of Artificial Intelligence in Enhancing Third-Party Risk Management

As organizations continue to grapple with the complexities of third-party risk management, artificial intelligence (AI) emerges as a powerful enabler, driving further efficiency and effectiveness in risk management processes. AI’s capabilities in aggregating risk intelligence content from diverse sources and automating assessments are particularly transformative.

AI can significantly enhance third-party risk intelligence content aggregation by leveraging advanced data processing and machine learning algorithms. Here’s how AI contributes to this critical aspect:

• Intelligent Data Aggregation. AI systems can scan and aggregate data from a vast array of sources, including regulatory updates, news feeds, legal documents, and social media. By processing this data in real-time, AI ensures that organizations have access to the most current risk information.

• Noise Reduction. One of the major challenges in risk intelligence is sifting through the sheer volume of data to identify relevant insights. AI algorithms can filter out noise and false positives, delivering only pertinent information to risk managers. This reduces the burden on human analysts and enhances the focus on critical risks.

• Contextual Analysis. AI can analyze data in context, understanding the nuances and implications of risk-related information. This capability allows AI to provide more accurate and actionable insights, tailored to the specific needs and risk profiles of the organization.

AI-driven automation of assessments and continuous monitoring is another area where AI proves invaluable. Here are the key benefits:

• Real-Time Risk Assessments. AI can automate the initial and ongoing risk assessments of third-party entities, continuously monitoring changes and providing real-time updates. This ensures that organizations are always aware of their current risk landscape and can respond promptly to emerging threats.

• Enhanced Predictive Capabilities. By analyzing historical data and identifying patterns, AI can predict potential risk events before they occur. This proactive approach allows organizations to implement preventative measures, reducing the likelihood of adverse incidents.

• Scalability and Efficiency. AI-driven automation can handle large volumes of assessments simultaneously, something that would be impractical with manual processes. This scalability ensures that even organizations with extensive third-party networks can maintain robust risk management practices without overburdening their resources.

• Consistent and Objective Evaluations. AI provides consistent and objective risk evaluations, eliminating human biases and errors. This consistency is crucial for maintaining the integrity and reliability of risk management processes across the organization.

• Dynamic Risk Scoring. AI systems can dynamically adjust risk scores based on real-time data, ensuring that risk ratings accurately reflect the current risk environment. This adaptive approach allows organizations to prioritize their risk mitigation efforts more effectively.

Incorporating AI into third-party risk management strategies empowers organizations to manage their extended enterprise with greater agility, accuracy, and efficiency. By automating data aggregation and assessments, AI enhances the quality of risk intelligence and frees up human resources to focus on strategic decision-making and critical risk mitigation efforts.

Integrating AI into third-party risk management processes marks a significant advancement, enabling organizations to navigate the complexities of their third-party relationships with confidence and foresight. As AI technology evolves, its role in enhancing third-party risk management will only grow, offering even more sophisticated tools and capabilities to safeguard the extended enterprise against an ever-changing risk landscape.

Adopting this approach will enable organizations to move beyond outdated, manual processes and towards a more agile, efficient, and effective system of managing third-party risks, ultimately securing their extended enterprise against potential disruptions and ensuring sustainable business operations.

Governance, Risk Management & Compliance (GRC) – along with all of its segments of ESG, third-party risk, audit, internal control and more – are hot topics globally, but particularly across Europe. The European market for GRC-related solutions, professional services, and intelligence/content is by far the busiest globally. The Middle East market for the same is the fastest-growing market.

I am headed right now to the United Kingdom for the next three weeks. I see a lot of activity across the UK, Nordics, DACH, and Benelux regions of Europe particularly. The United Kingdom is the busiest followed by these others. Currently, I am interacting on 14 RFPs at various stages in the UK, and there are more beyond that. The UK has its own regulatory and risk drivers, but many UK firms also have to respond to EU regulatory and risk drivers because of their presence in the EU as well. These interactions span from small organizations with 500 employees to the large global enterprises. They span industries from construction, life sciences, education, manufacturing, to financial services.

Over the next three weeks, the following are the hot topics I am interacting on in the United Kingdom in both speaking/event engagements as well as meetings with organizations looking for GRC solutions and professional services that seek my guidance on who to engage and why:

• Regtech/Fintech in Financal Services. I have four meetings set up with financial services firms looking for the latest in regtech solutions for regulatory change, monitoring/transactions/surveillance, consumer duty, SMCR, and KYC/AML. Even the leading USA financial services firms have their regtech experts operating out of London and not the USA. London is the regtech and fintech capital of the world. In addition to this, I am presenting my thoughts on RegTech at the following event:
  • June 26 @ 4:30 pm – 7:00 pm BST, RegTech Panel & Discussion
• Third-Party Risk Management. This is one of the hottest topics. There are three RFPs that I am interacting on specifically on third-party risk while there are several broader RFPs that include third-party risk in the breadth of functionality they are seeking. I will deliver my following workshop in London on this topic:
  • June 25 @ 10:00 am – 6:00 pm BST, Third-Party Risk Management by Design, LONDON
• I.T. Risk/CyberRisk Management. This is a particularly hot topic of interaction over the next three weeks. It is part of many of my meetings/interactions, and I already have over 60 that are registered and confirmed for my workshop in London this week on the topic:
  • June 12 @ 10:00 am – 4:00 pm BST, IT Risk/GRC Management by Design, LONDON
• Risk & Resilience Management. This is a huge subject of interaction over the next several weeks. While there are particular regulations in financial services, such as UK Operational Resilience and EU DORA, it is a topic of interest across industries in the UK and drives a lot of RFPs right now. There are two in financial services I am interacting with that are trying to harmonize a program that can address both UK Operational Resilience and EU DORA into one program. I will be presenting on Risk and Resilience at the following event in London:
  • June 19, Agility UK, LogicGate
• A.I. Governance/GRC. Every interaction and event I am part of over the next three weeks will include artificial intelligence. Whether it is the use of AI for GRC (what I call Cognitive GRC), but most often it is the governance of AI (what I call AI GRC). There are a lot of organizations responding to the EU AI Act particularly. I will be conducting a workshop on this topic:
  • June 21 @ 9:30 am – 1:30 pm BST, A.I. Governance & Risk Management Workshop, LONDON
• ESG – Environmental, Social, Governance. ESG is a very hot topic across Europe as 50,000 firms have to respond to the EU CSRD (and EU CSDDD in the context of third-party risk management). Of these firms, 12,500 have to start reporting in January 2025 (just 7 months away) and better be collecting data now. This is the topic in several of my RFP interactions for organizations building toward this now. Some of these are the focus of the RFP, others it is part of a broader GRC RFP.
• Internal Control & UK Corporate Governance Code. Another consistent topic across the range of the above interactions is the management and automation of internal controls. The UK Corporate Governance Code remains a big driver for RFPs in this area, even though it was scaled back when it was finalized in January. It is also a topic related to the ESG and other topics above in these conversations/interactions I am engaged in, including the RegTech panel above.

If you are in London over the next three weeks, reach out to me. If my schedule permits, I am always happy to stop by for an hour at your office or get a pint or coffee and discuss the breadth of GRC solutions, professional services, and intelligence/contet offerings in the market and my thoughts on particular ones. My job is research. I research what the challenges organizations face in context of governance, risk management, and compliance and how they go about solving those challenges with strategy, process, technology, and services.

Yesterday, I was in a hurry. I had a family medical appointment and needed to get back to the office. I got to our apartment, hopped on my bicycle, and took off for a five-block ride to the office. Intent on getting to my destination, I failed to be present where I was at the moment. My bike tire got caught in the light-rail tram tracks (The Hop in Milwaukee) and threw me. I skidded across the pavement and now have a bruised and banged-up body (but nothing broken or serious).

This is the second time those tram tracks have taken me for a spill, but have caused much greater hurt to others. My wife and I were walking and helped a young lady who needed to get to the emergency room as she was seriously injured a few years back. Two of my adult sons separately saw nasty bike accidents last week on those tracks. Even the lady at the bar in the public market shared her stories with me last night of people who have taken a spill on bikes from those train tracks.

Of course, this got me to thinking about the number of GRC-related RFPs I have interacted on that also have ended up in ‘crashes.’ Sometimes during the RFP, other times a year or two later. Too often from the same issues across RFPs that fail to pay attention to the details.

I work on A LOT of GRC-related RFPs. By related, I mean they are in a broad array of GRC domains and functionality. Some are for a broad enterprise GRC platform; others are focused on a specific aspect, like the array of third-party governance/risk management RFPs I am currently or regulatory change management RFPs I am currently interacting on. There are currently 14 RFPS of various GRC scopes with which I am interacting on in the United Kingdom (I am in the United Kingdom helping with several of these as well as other engagements from June 11th to 28th, if you are in the UK and want to get a pint, coffee, or have me stop by the office in London . . . let me know). Looking at my inquiries and engagements, there are 31 RFPs across Europe that I have interacted with recently (in addition to the UK ones). Two-thirds are in the DACH and Nordic regions, and then BENELUX is the next busiest. And 8 across North America. Several more in the Middle East and across Asia Pacific.

For some of these, my involvement is deep in establishing requirements and being an advisor throughout the process. For others, it is just a quick conversation where they want my perspective on who they are evaluating/considering. Sometimes, I get engaged at the beginning of the RFP in building a business case, and other times, I am asked for my perspective when they are down to the final 3.

I can point to highly successful GRC-related RFPs where the organization is extremely happy with the selection and implementation (I am happy to provide references and introductions where appropriate). Sadly, I can point to RFPs that have been wrecked and crashed, which have led to people losing their jobs and the projects failing (sometimes from not following my advice).

Like riding a bike, you need to know where you are starting from, what your destination is, and be present in evaluating what is around you as you progress through your GRC-related RFP.

GRC-related RFPs fail when:

• You blindly listen to analyst opinions. Yes, I am an analyst (and would think you should listen to my opinion). The analyst industry is a mess right now. Too often, some analyst firms have commoditized their research and fail to deliver objective value. In one firm’s last three reports comparing solutions, I have seen them rank one vendor as a leader in Enterprise GRC Platforms. This solution did not have a publicly available enterprise/operational risk management module at the release of these three reports. How can you be a leader in GRC without a risk management module? Too many analyst firms do not want to have live demos and do not want to work with the solution themselves in a sandbox. Instead, they want video demos submitted. Really??? That opens the doors to a lot of fiction. They also do not want to talk directly to client references but want to do web surveys. This is not market research where you can get into stories and ask hard questions (see below).
• You fail to test the product. I have seen people lose their jobs for choosing the wrong solution. They listen to the marketing and sales pitches, fail to dive deep into the product capabilities, and seek client references for similar implementations (size and industry). I remember one RFP where I advised them against the solution they chose. They were twitter-paited with the vision and story of marketing and sales. Additionally, the major analyst firms told them to select it. I told them NOT TO. I simply stated that there was no way that the solution they chose could support the complexity of their program. I was right. They came back less than two years later and said they wish they had listened to me and that they were back in RFP. The sad thing is that there are several that story fits.
• You blindly believe the RFP submissions. Solution providers realize that if they say yes to everything in an RFP, their chances of making the cut to the finalists and doing the live demos and POCs are much improved. Too often, the answers in RFPs are misleading and false. The functionality does not exist, or the solution provider believes they can build it on delivery. I have come into RFPs that have failed, and in reviewing them, I asked about the solutions I thought would be the ideal fit and found they were discredited as they did not answer the RFP as positively as the one that won the RFP (who misrepresented their capabilities in the RFP). I have even caught solution providers demoing competitor capabilities in RFPs; capabilities they did not have.
• You do not investigate what is meant by “no-code” solutions. Organizations want solutions that are easy to deploy and maintain and do not break on upgrades because of all the heavy customization. They desire agile solutions, what I call Agile GRC (GRC 4.0). So the world has moved to the marketing terms ‘low-code’ and ‘no-code,’ but these are not to be accepted blindly. Some low-code solutions are still very high-code solutions. And no-code means different things. I know no-code GRC solutions that are truly no-code but are also not agile or adaptable. They have a beautiful interface but can not be adapted to the organization’s GRC processes; the organization has to adjust its processes to how the solution was designed. However, there are no-code GRC solutions that are extremely agile and configurable to the organization’s needs. Careful understanding and inquiry are needed to determine the agility and configurability of so-called no-code GRC solutions.
• You fail to check client references adequately. Client references are challenging. Too often, the client reference is the decision maker that only has great things to say about how wise they were to choose this product over others. Those same decision-makers often speak on the solution’s webinars and conferences. They do not like to say negative things about the product. I ask them hard questions, like where the product has failed and where it has undelivered. They are hesitant to answer. I ask them the same question differently: what functionality/feature do they want to see delivered in the next release of the solution? They are more ready to answer this question, but what they are telling me is that it is not delivering today and is frustrating them. I then ask to speak to individuals on their team down in the weeds using the solution. I often get very different perspectives and views from those in the trenches when utilizing the solution. This is another example of why the client reference surveys of some analyst firms do not work; you cannot explore the truth and fiction.
• You fail to define strategy and process and think technology solves the problem. Technology is an enabler and delivers significant value, but only when there is a clear understanding of the strategy and process. I get frustrated when an organization calls me and says they just purchased GRC please come in and tell us how to do GRC. That is putting the cart before the horse. A clear understanding of strategy, process, and objectives should come before an RFP.
• You fail to understand your current and future state with a business case. To succeed in any GRC process (whether broad or focused), a clear and compelling business case is required. Organizations need to define their current state and process, what it is costing them, their ideal future state and the value/return it brings, and their roadmap to get to that future state involving strategy, process, information, and technology. Everything should be clearly documented and measured, empowering the RFP and selection process. When I work on business cases, I build them around the value angles of efficiency (time saved, money saved), effectiveness, resilience, and agility.
• You give preference to a solution already deployed or that one department wants. This happens time and time again. The organization has a broad vision of what it wants to achieve. Still, it either tries to do it with an existing solution being used that does not have the capabilities to deliver on the vision or goes with a solution that one department (such as IT with ITSM) desires that does not fit the broader vision. Too often, I see IT stepping in and saying it will only be this one solution they are using for other purposes when it is not always a good fit for the organization’s vision and requirements.
• You try to do everything in one GRC solution/platform. While I firmly believe there can be a core GRC platform to bring things together (as long as it is the right platform that meets the requirements), this does not mean this solution is the only solution. There is a place for best-of-breed GRC solutions that go deep in IT/cyber-risk, third-party risk, regulatory change, and other areas. A GRC strategy should be more about GRC architecture and not trying to force fit everything into one platform that does not do everything well but does do some things well.

Take heed of these cautions to maintain situational awareness and deliver on a successful GRC-related RFP. In other words, do not end up in a crash like I did on my bicycle.

I can go on and on, happy to chat about these and more on how to approach GRC-related RFPs. I have been in this space for 31 years, and 24 of those as an analyst. I was a top analyst and VP at Forrester Research for seven years and have been independent, competing against the big analyst firms for 17 years as a boutique. I can claim to have the longest history evaluating GRC-related solutions as I was the first to use the acronym GRC, model the GRC market, and compare solutions going back to February 2002.

Navigating the Shift from Manual to Automated Internal Control Management

The most recent Illustration in the GRC Technology Illustrated series has just been released! This is a collaboration between GRC 20/20 and our market research and segmentation on GRC technology segments with OCEG with a sponsor for each one.

This installment in the GRC Technology Illustrated Series outlines how Internal Control Management, Monitoring & Automation Solutions streamline an organization’s GRC management by automating the definition, documentation, and continuous monitoring of internal controls across processes and systems. These tools simplify assessments and reporting, and enable real-time enforcement and testing of controls, ensuring effectiveness and compliance.

Internal Control Management, Monitoring & Automation Solutions address the challenges presented by scattered silos of internal controls, manual methods of updating and testing controls, and the lack of enterprise-wide control visibility. Addressing these and other challenges from manual management of controls enables streamlined workflows and greater resilience and agility. 

Already Published Illustrations:

• Risk & Resilience Management Technology Illustrated

Upcoming Illustrations in Progress:

• Identity GRC Technology Illustrated
• ESG Management Technology Illustrated
• Third-Party Risk/GRC Technology Illustrated
• Compliance & Ethics Management Technology Illustrated
• IT GRC/Risk Management Technology Illustrated
• And many more . . .

In today’s fast-paced business environment, managing internal controls effectively is more crucial than ever. Companies face numerous challenges with manual processes and disparate systems, which can lead to inefficiencies, increased risk, and compliance issues. This blog explores the transition from manual to automated internal control management, highlighting the benefits of integrated systems and automation solutions.

Current State: Manual Processes and Disparate Systems

Organizations traditionally rely on manual processes to manage internal controls. This approach often results in scattered silos of internal control management, where information is fragmented across different documents, emails, and systems. Such fragmentation can hinder enterprise visibility, making it challenging to monitor and enforce controls effectively. Additionally, manual processes are prone to errors and inefficiencies, leading to compliance risks and increased operational costs.

Challenges with Manual Processes:

1. Scattered Silos of Internal Control Management: Lack of centralized control data hampers decision-making and risk management.
2. Manual Processes with Documents & Emails: Time-consuming and prone to human error.
3. Failure to Have Enterprise Visibility of Controls: Difficulty in getting a holistic view of control status and effectiveness.
4. Lack of Automated Control Monitoring & Enforcement: Inability to detect control failures in real-time.
5. Complexity of Regulatory Compliance: Ensuring compliance manually is labor-intensive and prone to errors.
6. Integration with Existing Systems: Manual processes do not integrate seamlessly with other business systems.
7. Data Quality & Accuracy: Manual data entry can lead to inaccuracies.
8. Change Management Impact on Controls: Updating controls to reflect changes in the business environment is cumbersome.
9. Limited Scalability: Manual processes cannot easily scale to meet growing business needs.
10. Evolving Technology: Keeping up with technological advancements is challenging with manual processes.

Future State: Automated Processes and Integrated Systems

Transitioning to automated internal control management solutions addresses these challenges by providing a unified view of controls and streamlining workflows. Automation solutions offer several critical capabilities that enhance the efficiency, effectiveness, resilience, and agility of internal control management.

Benefits of Automation Solutions:

1. Enterprise Visibility of Controls: Centralized control data provides a comprehensive view of the control environment.
2. Business Process and Service View of Controls: Controls are mapped to business processes and services, ensuring alignment with organizational objectives.
3. Real-Time Control Identification: Automation enables the continuous identification of controls in real-time.
4. Automated and Continuous Control Monitoring and Enforcement: Real-time monitoring and enforcement of controls reduce the risk of failures.
5. Advanced Control Data Analytics: Data analytics tools provide insights into control effectiveness and areas for improvement.
6. Seamless Business System Integration: Automation solutions integrate smoothly with existing business systems, enhancing operational efficiency.
7. Scalability and Flexibility: Automated systems can scale with the organization’s growth and adapt to changing needs.
8. Robust Audit Trail Creation: Automated systems maintain detailed audit trails for compliance and accountability.
9. Customizable Reporting and Dashboards: Tailored reports and dashboards provide actionable insights for management.
10. Control Issue/Incident Management: Automated issue detection and resolution ensure timely and effective responses to control failures.
11. Workflow and Task Management: Streamlined workflows enhance task management and accountability.
12. Predictive Control Modeling: Predictive analytics model potential control failures and mitigate risks proactively.
13. Control Effectiveness Testing: Automated testing ensures controls are effective and functioning as intended.

The transition from manual to automated internal control management is a strategic move that delivers significant benefits. By adopting integrated systems and automation solutions, organizations can achieve greater efficiency, effectiveness, resilience, and agility. This shift not only addresses the inherent challenges of manual processes but also positions companies to better manage risks, ensure compliance, and drive continuous improvement in their internal control environment.