No one operates in the business environment with a wait-and-see attitude. Let’s wait for legal liabilities to come our way before we put measures to counteract such. Or, let’s ignore regulatory compliances as long as we can get away with it.
The impact of the organization not taking risk management and compliance measures can be huge. We are talking about threats to the financial, relational, and reputational standing. The implications can hinder business continuity and even result in closure.
We will uncover what it means and why it is important to take the necessary steps.
Uncovering the Meaning Behind Compliance and Risk Management
It would be easy to think that compliance and risk management are the same. After all, the organization uses the same tools to implement both. These include documentation, procedures, controls, and reporting.
And, they both aim at mitigating against any occurrence that could negatively impact business continuity. But the two have some distinct differences that you need to be aware of.
Corporate compliance is any measure the organization takes to adhere to relevant regulations, laws, and business applications. Think about it as doing good to avoid being on the wrong side of the law.
Compliance covers employees or any third party that transacts with the organization.
An example of internal compliance is the code of conduct. These are standard procedures or policies that everyone must follow. The documents outline any expectations in terms of behavior and processes.
General Data Protection Regulation (GDPR) would be an example of external compliance. It covers privacy and data protection.
Risk management is any step towards identifying and avoiding unnecessary risk. The risk does not necessarily have to violate any regulation or law. Let us take the example of investing in cybersecurity measures to safeguard data.
One cybersecurity measure that has a rising demand today are risk management software systems. These systems mitigate potential risk even before they can affect the company. It’s a proactive method undertaken by companies to safeguard data, without compromising anything along the way.
Organizations have more leeway in deciding the best type of risk management measures. But, compliance must follow what the regulatory authorities deem appropriate. It is critical to understand the types of risk that an organization faces.
- Preventable risks are controllable and avoidable. Take the example of instituting strict sexual harassment laws to prevent such lawsuits.
- Strategy risks are those the company takes on to get returns. Take the example of introducing new products or services.
- External risks are those the company cannot control. A good example would be natural disasters or market shifts.
Embracing a Modern Approach to Risk Management and Compliance
A modern approach lies in the adoption of new strategies. So what are they?
Embracing Technology in Compliance and Risk Management
The compliance team will find it easier to work with the right technologies. Take the example of the adoption of tools like risk management software. It allows the teams to cover a larger scope of work, thus helping the organization keep up.
The challenge with the siloed, traditional system is that every department generates its reports. Trying to put all this together is a tedious and time-consuming job. It requires going through tons of word documents, spreadsheets, emails, and other documented information.
Risk management software allows for the centralization of information. Those with user access can get quick information, thus higher efficiency.
The risk management software enhances monitoring and communication with partners and stakeholders. Employees can also stay up-to-date through training opportunities and so much more.
The Challenge of Reliance on Traditional Methods
Scalability comes with an associated increase in risks and compliance issues. Dependence on traditional systems or tools to manage such may no longer suffice.
Take the example of entrusting the entire process to a compliance team. They develop policies, evaluate performance, manage compliance budgets, and so on. And, the bigger the business grows, the larger the scope of work.
The organization could end up falling behind when it takes a reactive rather than proactive approach. That could place the organization on a direct collision path with regulatory authorities.
Further, the traditional, siloed risk and compliance management approach presents its challenges. In this case, the leaders are in charge of the risks specific to their unit. It tends to ignore how one department’s risks may affect the other.
Moreover, the approach does not take into account the cumulative effects of such risks on the entire business.
Implementing Proactive Rather Than Reactive Strategies
Organizations need to develop proactive strategies. That means keeping a closer eye on trends that may affect the business. And that includes future predictions in any areas that may interfere with normal operations.
This way, it becomes easier to develop risk and compliance strategies unique to the business. There is a real opportunity to gain a competitive edge with such programs in place.
Greater Collaboration in Risk Management and Compliance
Risk management and compliance should not be a job that is specific to one department. Everyone within should have a role to play. That is why training is critical in the modern approach.
Developing fantastic policies or procedures is all good. But, if it is only the management that knows what is in the documents, then it will be a waste of valuable company time and resources.
Training opportunities provide an important tool for communicating expectations. Employees also get to know the rules and regulations they must adhere to.
The company must also put in place performance checks. That is the only way to ensure that people stick to the rules. And, it can identify any areas that may need improving upon.
A modern approach to compliance and risk management is critical for those operating in a modern business environment. It is no longer a job that belongs to the compliance team only. Rather, one that includes everyone within the organization.
Adopting technology will increase efficiency and make the processes more effective. It may very well come down to one thing. If the company hopes for business continuity, it must leave legacy systems behind.