Lockpath’s Colby Smith discusses the reasons an integrated approach to risk management is an imperative – chief among them digital processes, global business and a reliance on third parties.
Digital transformation, globalization and outsourcing have given rise to unprecedented productivity, innovation, efficiency, collaboration and knowledge. However, with these business improvements come new risks.
Modern business risks are multifaceted: they impact operations and compliance simultaneously, morph from cyber to supply chain risk or any number of combinations. The interdependencies created by digital systems, third parties and automation can lead to a cascade of negative incidents if the interplay of risk factors is not carefully considered and managed. Enterprises can no longer afford to silo risk management efforts. Too many blind spots and hazards lie in the space between departmentalized programs.
Integrated risk management (IRM) practices and technology solutions are designed to address an enterprise’s particular ecosystem of risks. Gartner defines integrated risk management (IRM) as “a set of practices and processes supported by a risk-aware culture and enabling technologies that improve decision-making and performance through an integrated view of how well an organization manages its unique sets of risks.” Gartner recently introduced a new Magic Quadrant for IRM, confirming its growing importance as an advanced approach to dealing with ever-changing combinations of cyber, operational, geopolitical, regulatory, legal and financial risks.
The push toward IRM acknowledges that the nature of business has fundamentally changed in recent years. Complexity is a new reality for virtually all types and sizes of businesses that are no longer restricted to the physical walls of a business address. Traditional, manual approaches to identifying and tracking risks (e.g., email, spreadsheets and annual reviews) are woefully insufficient, to the point that they constitute a risk in and of themselves.
The phrase “integrated view” is particularly salient here. Large, distributed global enterprises and SMBs alike urgently need greater degrees of visibility — across departments, locations, supply chains and third parties. Successful IRM programs provide the framework for analyzing internal and external risks and connecting strategic, operational and technology perspectives into a bigger picture.
To better define the rationale for implementing IRM, let’s explore the changes that have made it imperative: digital processes, global business and reliance on third parties.
Digital Processes Connect Everything, But Usher in Digital Risk
In the business context, we think of big data, IoT and social media technologies as powerful ways to work faster and smarter, learn more about customers, lower costs, optimize marketing and introduce step changes in efficiency. We should also think of them as risk-makers. Cyberattacks, data theft, accidental data exposure, espionage, social engineering — all risks with a high probability of becoming reality; the fallout is so familiar by now, large companies accept it as a cost of doing business, but that’s not a sustainable solution, no matter your size.
In many sectors — hospitals, medical devices, energy and transportation, for example — cyberattacks increasingly threaten human lives and personal safety, not to mention elections and critical public-sector services. Our critical infrastructure is more vulnerable than ever and can be violated, exploited and compromised in ways that simply weren’t possible before connected networks and digital services became woven into the fabric of society.
Global Reach Means Global Risk
Globalized free trade promotes economic growth, lowers prices for consumers and creates a competitive market. While the whole world is your market, your business is also a mark for bad actors all over the globe. You can source materials and components from the best makers on earth — and you can lose control of those makers.
We’ve learned a lot about the downsides of not having an IRM plan in place in the last several years: natural disasters that disrupt supply chains, tariff and trade saber-rattling that creates uncertainty and upends direct materials costs and sourcing and far-reaching regulations like the GDPR that complicate compliance and carry big penalties.
Companies have little control over weather, geopolitics, economic trends and regulatory actions. Firms, however, can control how they identify, assess and mitigate the specific risks that potential events and outcomes create. For example, with IRM, U.S. hospitals could have predicted a shortage of IV fluid bags in the event of a major hurricane in Puerto Rico and made a contingency plan. IRM is needed now more than ever. Digital processes, global business, outsourcing to third parties and more have created a preponderance of new risks that impact organizations to the core.
Outsourcing is how we do business now. There’s no need to reinvent the wheel when specialist services and materials are accessible and affordable. The everything-as-a-service revolution powered by cloud technology innovation has deepened and widened the third-party trend. Because they are so critical to basic business operations — and so directly connected to the primary company’s systems and data — third party services are a central source of risk. Increasing visibility and control vis-à-vis third parties is an integral part of IRM. Through streamlined assessments, continuous monitoring and more, IRM platforms centralize metrics and indicators for a more detailed, encompassing, up-to-date view of risk across the enterprise.
Integrated Risk Management Fosters Agility
Indeed, managing risk is not just about playing defense, avoiding hazards and securing assets. Risk awareness empowered by more holistic assessments, better metrics and analysis and more integrated risk activities puts companies in the position to make smarter, faster decisions. When an organization has fine-tuned their risk profile and understands their risk appetite, they can jump on opportunities without hesitation. PwC’s 2018 Risk in Review Study highlights the ways leading companies leverage risk management to tackle innovation and growth.
In a world where anything that can go wrong will go wrong, companies have to be proactive about their exposure and how they will recover and remediate quickly when risks turn into real damage. IRM practices offer digitally transformed, global businesses a way to see the big picture, monitor all the moving parts and coordinate enterprise efforts to cover gaps and fortify weak spots. By developing critical awareness and risk management maturity, organizations can do more than navigate challenges — they can strategically build a thriving enterprise.
