Risk Management

Global data privacy and cybersecurity regulations are becoming more common and stringent. That puts added pressure on organizations to manage their risks appropriately or face potentially painful consequences. In particular, organizations worldwide and across industries are experiencing high demand from regulators to implement different types of risk assessment methodologies.

The most effective compliance risk management programs begin with a compliance risk assessment. A compliance risk assessment can help organizations evaluate all the potential risks related to compliance and then prioritize those risks based on the severity of the possible financial, legal, reputational, and operational consequences associated with each one.

The compliance risk assessment process must be repeatable for compliance officers to compare risks. Many organizations create and use a compliance risk assessment template from scratch to achieve that goal.

This article will look at compliance risk management, specifically compliance risk assessments. Then, we’ll provide instructions for creating a compliance risk assessment template that organizations can use to get started toward worry-free compliance risk management.

What Is a Compliance Risk Assessment?

Generally speaking, the risk assessment process is just one component of an organization’s overall risk management program. It typically includes activities such as risk identification, risk analysis, and risk evaluation.

A compliance risk assessment is a holistic analysis of how your organization might fail to meet its regulatory compliance obligations. The evaluation identifies all the compliance duties that laws, rules, and industry standards impose upon you and how well your existing compliance program does or does not meet those expectations.

What Are the Components of Compliance Risk Management?

As mentioned, a compliance risk assessment is just one process within the overall compliance risk management program. More generally, compliance risk management activities include identifying, assessing, mitigating, and monitoring risks to your enterprise’s compliance with regulations and industry standards.

Remember, however, that compliance and regulatory risks are not the same. Compliance risk is the potential that your organization will be deemed to have violated a law or regulation; regulatory risk is the potential that changes to laws, regulations, or interpretations will result in losses to your organization.

Although these two types of risk are different, you’ll need to consider both as you conduct a compliance risk assessment. While focused on compliance risk, a holistic risk assessment should identify all business activities introducing high risk to your organization and then correlate those areas with all the types of risk they present: compliance, regulatory, financial, reputational, and so forth.

Today, all standards and frameworks recommend a formal risk management program. (Some even require it.) To maintain compliance with a variety of requirements, most organizations must be able to conduct regular risk assessments and produce evidence of that process during a compliance audit.

Many regulatory bodies conduct compliance audits to evaluate the strength and thoroughness of your compliance preparations, policies, user access controls, and risk management procedures to determine whether your organization complies. To prepare for a compliance audit, organizations can first conduct an internal audit to identify compliance gaps that a regulatory body might flag as troubling. Then, you can address those shortcomings first rather than have a regulator impose its remediation plan for you.

A comprehensive compliance risk management program will help your organization document all the potential losses and liabilities your organization could face for noncompliance so that those weaknesses can be remediated according to priority. Throughout the process, your organization will likely collect evidence demonstrating the validity of your risk management program.

Should I Use a Free or Downloadable Compliance Risk Assessment Form?

Compliance with regulations and risk management is paramount in the ever-evolving business and industry landscape. The Compliance Risk Assessment (CRA) is a crucial tool that helps organizations identify, assess, and mitigate potential risks. When creating a CRA, one critical decision is whether to use a free or downloadable premade form or design a custom template tailored to your unique needs.

The Benefits of Using a Premade Compliance Risk Assessment Form:

• Time and Convenience: Free or downloadable CRA forms can be a quick and convenient solution, ideal for smaller businesses or those with limited resources. They are readily available, requiring minimal effort in terms of design and layout. These forms often come with built-in risk assessment tools and apps, simplifying the business process.
• Cost-Efficiency: Utilizing a premade form can save your organization money, as you won’t need to invest in the services of a professional designer or risk management consultant to create a custom template from scratch. Many free templates are available in Excel, making it easy for businesses to input their data and assess the risk rating quickly.
• Established Framework: Many premade CRA forms follow recognized industry standards and best practices. This ensures you have tried-and-true risk assessment methodologies, reducing the chance of overlooking critical compliance aspects. These templates often include predefined hazard identification categories, helping businesses efficiently identify hazards and potential risks.
• Regulatory Alignment: Some premade forms are specifically tailored to meet the requirements of certain regulatory bodies or industries, making them a suitable choice if your business operates within a highly regulated sector. These templates may also include sections for health and safety compliance, addressing concerns related to first aid, Personal Protective Equipment (PPE), and hazardous substances.

Choosing between using a premade compliance risk assessment form and crafting a custom template depends on your business’s size, resources, and unique circumstances. Smaller companies or those looking for a quick and cost-effective solution may benefit from premade forms, especially those available as free templates in Excel format with integrated risk assessment tools and apps. 

On the other hand, larger or more specialized organizations may find the advantages of custom templates, such as tailor-made precision and long-term adaptability, to be the better choice. Ultimately, the decision should align with your organization’s goals and requirements for effective compliance risk management.

How Do You Write a Compliance Risk Assessment?

According to Deloitte, an effective compliance program should help an organization and its board of directors to understand “the full range of its risk exposure, including the likelihood that a risk event may occur, the reasons it may occur, and the potential severity of its impact. An effectively designed compliance risk assessment also helps organizations prioritize risks, map those risks to the applicable risk owners, and effectively allocate resources to risk mitigation.”

So, how do organizations get started? And how do they build a process that must be repeated regularly? Here’s where a compliance risk assessment template can make itself useful.

Steps to Create a Compliance Risk Assessment Template

Whether you’re overhauling an existing compliance risk management program or implementing a new one, the steps involved in creating a compliance risk assessment template are essentially the same. As you think about your compliance risk assessment process, keep these steps in mind and stay flexible.

Step 1: Set Clear Objectives and Planning

Before diving into the risk assessment process, define the objectives. Consider the overall risk you aim to address: health and safety, gov mandates, or general compliance. Your risk assessment template, a free template, or a risk assessment tool like Excel should encompass these objectives. This helps identify risks and potential hazards in your work environment, shape your safety policy, and decide the risk level to address.

Step 2: Risk Identification and Analysis

Start by identifying risks and hazards in the workspace. A team that includes a risk assessor should be involved in hazard identification, listing potential vulnerabilities and third-party risks, and understanding safety hazards. Use tools like apps, Excel, or a risk assessment matrix template to organize the data. This step is crucial for assessing risks and determining their potential impact.

Step 3: Risk Evaluation and Control

After assessing risks, classify them by their severity using a risk rating system. Here, control measures like PPE come into play. For safety hazards, ensure measures like first aid and other prevention measures are in place. The risk control process also considers potential risks like hazardous substances. The risk management team can then suggest further action to control these risks.

Step 4: Mitigation and Action Plans

Based on the risk rating, decide on mitigation strategies for high-priority risks. Consider integrating a sample risk assessment or even creating a risk assessment form for consistent data collection. This form can be part of a broader risk assessment template available on your company’s internal apps. The mitigation process might include prevention measures, updating the safety policy, or adding specific control measures like PPE against potential hazards.

Step 5: Review and Iteration

Lastly, regularly review your risk assessment process and check for new hazards or changes in the work environment. Utilize feedback mechanisms, such as a government-approved risk assessment tool, to refine your strategies. Whether adapting to new health and safety mandates or updating your Excel risk assessment matrix template, keeping your process current is crucial. Always be ready for further action based on evolving insights.

Manage Compliance with ZenGRC

Evaluating your risks, implementing the appropriate controls, and gathering documentation every step of the way can be exhausting, not to mention time-consuming – especially if you’re managing your ongoing compliance requirements with a spreadsheet.

ZenGRC is a compliance and audit management solution that delivers a faster, easier, and brighter path to compliance by eliminating tedious manual processes, accelerating onboarding, and keeping you up-to-date on the progress and effectiveness of your programs. With ZenGRC, your organization can get audit-ready in less than 30 minutes – no coding or cumbersome imports required.

With expert-built preloaded content at your fingertips to make scoping, sending requests, and gathering evidence easier, ZenGRC can help you reach your goals faster and keep your teams connected. Streamlined collaboration capabilities and automated workflows minimize manual task tracking and eliminate audit fatigue.

Take your compliance to the next level with ZenGRC. Talk to an expert today to learn more about how ZenGRC can help your organization improve its risk and compliance posture.

The total global value of corporate mergers and acquisitions (M&A) reached $5.9 trillion in 2021. For 2022, the figure is expected to reach $4.7 trillion. This would make 2022 the second-best year on record for the M&A market after 2021.

Clearly, robust M&A opportunities exist for companies looking to stimulate growth, increase market share, and influence supply chains. Despite those potential benefits, however, M&A deals are also fraught with serious risks.

Below, we explore five risks that can jeopardize the outcome of an M&A deal or prevent a company from capturing the expected benefits.

1. Poor Due Diligence

What it Means

Due diligence is essential for all mergers & acquisitions. It allows the acquiring company to discover important facts about the seller, such as:

• Contracts
• Financial stability
• Insurance
• Customer agreements
• Distribution agreements
• Compensation agreements
• Employment contracts
• Liabilities, such as debts

These details may affect the buyer’s decision to merge with or acquire the company. Such insights also allow the acquirer to adjust its expectations, inform negotiations, and reduce the risk of legal or financial problems. With proper due diligence, the buyer can avoid entering risky and potentially catastrophic business deals.

Risks

Inadequate due diligence can cause serious problems. For one, it can result in poor valuation. The valuation process guides the buyer and seller to agree on a mutually acceptable purchase price, which is why it requires thorough due diligence.

Poor due diligence also increases the buyer’s risk of unexpected litigation or tax issues. Ultimately, the buyer may make a poor decision that could damage its financial position or reputation.

Risk Mitigation Strategies

Proper due diligence is crucial for any M&A deal. The buyer must start the process early with an experienced team that has business, legal, and financial expertise, as well as industry knowledge. That team must create a master due diligence request list so the acquirer can ask the right questions during the process.

2. Overpaying for the Target Company

What it Means

In M&A transactions, buyers are frequently under a lot of pressure to close the deal. In their rush to complete the transaction, they may end up overpaying for the target company rather than negotiating a fair price that could create market value and provide a satisfactory investment return.

Buyers may also use overly optimistic assumptions to justify the transaction or follow poor valuation practices, resulting in overpayment.

Risks

Overpayment is a common M&A risk. Even if the deal is well-conceived and well-implemented, overpayment increases the cost and risk for the buyer. It also increases the probability that the buyer may be surprised by unforeseen circumstances that compound the pain of overpayment.

Risk Mitigation Strategies

The buyer must understand the issues that often lead to overpayment. For example, intermediaries such as investment bankers focus on providing the seller with a negotiating edge. They don’t act in the buyer’s interest, so an ignorant buyer risks falling into the overpayment trap.

The tendency to overpay also increases when:

• A buyer is concerned that a competitor might buy the target first and get a market advantage.
• The normalized and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is made to look especially rosy.
• The selling company’s stock includes a built-in premium in anticipation of the company being acquired by a company with deep pockets.

In addition to recognizing these overpayment “levers,” acquirers must also produce a comprehensive valuation report. It’s essential to collect crucial data about the target, including stock premiums, tax returns, organizational structure, and shareholder agreements to inform the report and guide their negotiations.

3. Overestimating Possible Synergies

What it Means

One goal of an M&A activity is to leverage the synergies of the two companies to boost growth and competitiveness. Synergy can be either intangible, such as “becoming a key player in the market,” or tangible such as “increase cost efficiencies by X percent.”

Risks

Tangible synergy is rooted in economic reality, so it’s easier to put a price on it. On the other hand, if the buyer is willing to pay for intangible synergies that are not rooted in economic reality, and therefore can’t be measured easily, then the buyer ends up overpaying for the deal.

Buyers often overestimate synergies, too. According to McKinsey, this optimism strikes at least 25 percent of mergers and results in a 5 to 10 percent valuation error.

Additionally, buyers often underestimate how long it will take to achieve the synergies, resulting in unrealistic expectations. In real life, it’s not always easy to integrate companies, people, and processes.

Risk Mitigation Strategies

Buyers must remain conservative when estimating synergies. They must reduce top-line synergy estimates, especially around revenues and access to a target’s customers. They should also think about possible post-deal problems, such as losing the target company’s customers and difficulties with reconciling teams between the two organizations.

4. Integration Challenges

What it Means

Integrating processes, systems, and workforces after an M&A is one of the most complex aspects of the deal. A robust post-merger integration (PMI) process is vital to reduce the complexity. This process brings the merged companies together to maximize synergies and ensure that the deal generates its expected value as soon as possible.

Risks

A poor PMI process can reduce employee engagement, increase turnover, affect customer engagement, and erode sales and profitability. In the meantime, the buyer may miss its growth and cost targets as the two business units struggle with these growing pains.

Processes and systems can also affect the transition if they are not properly integrated. Communication challenges and problems merging two different corporate cultures may also hinder the success of the deal.

Risk Mitigation Strategies

Companies that efficiently achieve integration post-merger can deliver 6 to 12 percent higher total returns to shareholders compared with those that fail to achieve integration. That’s why it’s important to implement an integration plan and process as early as possible. The acquiring company should also:

• Establish best practices to streamline new processes and workflows
• Create a roadmap for cost and growth synergies
• Define the target organization’s structure
• Map system and process interdependencies
• Identify critical employees for retention and create a team to stabilize the business and culture post-integration
  
  

5. Unexpected Problems Related to Costs, Communications, or Security

What it Means

The purpose of due diligence and a PMI plan is to control as much as possible. Inevitably, however, surprises will happen when integrating two companies. Consolidating teams takes time, and an organization may experience increased costs in the short term prior to getting the expected cost savings from the merger.

Risks

Legal fees, investment banking fees, advisor fees, and the like all add to the costs of an M&A deal and can overwhelm a buyer. The cost of due diligence and post-merger integration can also be substantial and affect the deal’s value creation capability.

Poor communication reduces transparency during a deal and causes integration problems later. It leads to cultural issues where teams work in silos, don’t share important information, and struggle to engage during the integration.

Finally, the large volumes of data collected during the mergers and acquisitions process are attractive to cyber attackers. Enterprise cybersecurity gaps increase the risk of data breaches and reduce the overall deal value for both the buyer and seller.

Risk Mitigation Strategies

Planning can help the buyer avoid many surprises around costs, communications, and security. Buyers should adopt a flat rate pricing model with due diligence specialists and use M&A project management platforms to avoid wasted time and redundant work.

An M&A communication plan can prevent confusion during a deal and cultural issues during integration. Technology can also assure robust communication during negotiations and PMI. Technology solutions minimize security-related issues. For example, virtual data rooms (VDR) provide a secure online repository to share and review confidential deal information.

Best Practices for Successfully Navigating Mergers and Acquisitions

Besides all the risk mitigation strategies discussed above, organizations should follow several best practices to navigate an M&A deal successfully. For instance, buyers should implement a change management program to address problems related to employees, cultural shifts, intellectual property, and new processes and systems.

They should also implement these strategies to assure that synergies provide the expected value:

• Capture the synergies that are likely to yield the highest returns in the fastest possible time;
• Align stakeholders on the overarching M&A goal, so everyone works towards it from the get-go;
• Adopt agile practices to maintain focus on synergy capture.

Firms must also strengthen their security infrastructure with strong encryption and multi-factor authentication. Finally, they should analyze past market disruptions to glean insights that can be applied to mitigate future M&A challenges and integration risk.

ZenGRC is Designed for Risk Mitigation

Easily manage M&A and other risks with ZenGRC. ZenGRC provides visibility across your entire organization so you can better manage risks and mitigate business exposure.

What is your biggest challenge currently?

• Addressing enterprise risk management (ERM) across threats and vulnerabilities?
• Evaluating potential risks across systems and business divisions?
• Catching and remediating risks in real time?

Eliminate all these challenges with ZenGRC, an all-in-one platform to set up a successful risk management process. Workflows, assessment templates, dashboards, heat maps, and the document repository will ensure everyone is on the same page.

Schedule a demo to learn how ZenGRC can fit seamlessly into your organization.

A risk assessment is a crucial first step to develop your company’s risk management program. The assessment process itself begins with identifying all potential risks; determining your “risk universe” is a simple and effective way of defining and categorizing these key risks.

A risk universe consists of every risk that could affect your organization, on every level. Anything that could harm your company’s ability to function is a part of your risk universe. While defining your risk universe is an involved process, it comes with a number of benefits. It ensures that no risks are overlooked, allows you to design appropriate budgets, and gives you a language to use when discussing risk with your stakeholders.

Creating Your List of Risks

Your risk universe will be unique to your organization, and you must also determine your risk appetite and what constitutes a tolerable level of risk for your company. There is no one correct methodology used to define a risk universe; on the contrary, you can use a variety of tactics and initiatives to engage in strategic planning.

Start With The Big Picture

A risk universe can seem overwhelming, but there are ways to break down your threats into smaller groups so you can organize them efficiently. Start with broad, large-scale risks, and move toward more specific threats as your list progresses. Consider your industry, location, and size, and compile a list of risk factors inherent to those demographics.

For example, an e-commerce company may be more susceptible to credit card fraud, while a healthcare provider will be at higher risk for HIPAA violations and other regulatory requirements. This top-down approach can give you a starting place for the rest of your list.

Examine Past Issues

Problems you’ve encountered in the past can be indicative of issues you might face in the future. If you’re based in an area where inclement weather or power grid issues have caused business interruptions, that should be a part of your risk universe. If a lack of staff training has resulted in security breaches or miscommunication, include that as well. These past concerns can also be good starting places for conversations about issues you might face down the line.

Establish a Team

Modern organizations are increasingly turning away from traditional risk management in favor of an enterprise risk management (ERM) approach. ERM seeks to look at your company as one cohesive entity rather than individual departments, and can help keep risks from slipping through the cracks.

This requires your teams to work together to account for all risks fully; a risk that is not threatening to one department could be devastating for another. Performing an internal audit that gathers information from all areas of your company will serve you better in the long run than creating a separate risk management department.

Think Creatively

Finally, it’s important to use a certain amount of imagination when examining your risk universe. It encompasses not only the risks you currently face, but also any risks you may face moving forward. This will require considering your company from a worst-case scenario perspective. As disheartening as this may seem, it will help you prevent the worst from happening if you consider these possibilities in advance.

Classifying Risks Within Your Universe

Once you’ve listed your risks, you should then determine where all of them fall within the following risk areas. Classifying according to these risk categories can help you better develop a more effective risk prevention strategy and prioritize the business risks that require the most attention.

Strategic Risk

Strategic risk specifically refers to risks that occur when your plans do not go as expected; essentially, an error in your strategy. This could involve shifts in demand or public opinion, an unforeseen competitor, or a change in how your product or service is valued or used.

Operational Risk

Operational risk refers to risks that affect your day-to-day procedures. It differs from strategic risk in that it involves internal rather than external factors. Examples include human error, failed internal controls, or miscommunications among your staff and senior management.

Tactical Risk

Tactical risks are real-time issues that affect your company’s goals and future endeavors. These are threats that are more pressing and urgent than operational or strategic risks. Drastic changes in the stock market, natural disasters, and large-scale information security breaches would fall into this category.

Emerging Risk

Emerging risk refers to risks that are approaching, but may not yet be on your radar. New technologies, climate change, and shifts in government policy are all possibilities to consider.

Make ZenGRC Part of Your Risk Mitigation Plans

Risk mitigation is a challenging but necessary step in your organization’s growth. Planning for your future and creating a strategy for specific risks can save you money and ensure that your company can survive and expand, regardless of future challenges. If you need a risk management solution that will help you track risk throughout your organization, ZenGRC can help.

ZenGRC is an integrated software solution that gives you a real-time view of your company’s risk and compliance landscape. By providing you with a central database of your risk management efforts, ZenGRC helps you streamline your decision-making, avoid redundancies, and protect yourself and your clients. Schedule a demo today to learn how ZenGRC can help you organize your risk universe.