Risk Management

Risk management techniques help businesses identify and address risks, create baselines for acceptable risks, and prepare for unexpected threats. Thorough risk identification, risk assessment, risk analysis, and risk control also help to improve enterprise-wide communication, collaboration, and decision-making.

A robust risk management process benefits every function, including sales, marketing, procurement, project management, and accounting.

Risk management specifically within project management is the process of recognizing, assessing, and responding to any risks that may develop throughout a project, to keep that project on schedule and achieving its objectives. Risk management shouldn’t be reactive; it must be a part of the project planning process to identify potential risks and determine how to manage them if they arise.

This post discusses the importance of project risk management in organizations. Combined with effective traditional risk management strategies, it can help safeguard your business, drive your projects on time, and assure competitiveness.

What Is the Importance of Project Risk Management?

By recognizing, analyzing, and responding to risks that threaten a project’s objectives throughout its existence, project risk management is essential to accomplishing the goals set out in the project charter. To succeed, it’s crucial to select quality projects, define project scope, and create accurate estimates, all of which contribute to a successful project conclusion.

Insight on the feasibility of project objectives arises by identifying and analyzing project risks, which aid in project planning. Project risk management aims to identify potential risk events and keep stakeholders fully informed. The primary benefit of project risk management is an increased chance of a successful project.

The consequences of poor project risk management can be dire. A lack of planning and risk identification can give the false impression that all hazards have been considered and that there are no issues threatening success. Alternatively, the initiative could be abandoned prematurely, missing out on potential benefits.

The organization must understand that risk management is not free. But if done correctly, the extra costs and time spent during the project planning process will save you from headaches, missed deliverables, and potential failures throughout the rest of the project lifecycle.

How to Identify, Analyze, and Prioritize Project Risks

Risk management starts with risk identification, analysis, and prioritization. Documenting and communicating all identified risks to relevant stakeholders is essential.

How to Identify Key Stakeholders

Stakeholder involvement is crucial to the long-term success of a business. Stakeholders provide valuable perspectives and help with decision-making. Some stakeholders are affected by the project directly, others indirectly. So identifying stakeholders is critical if you are working to advance your organization’s objectives.

Here are four steps to help identify your company’s stakeholders:

1. Make a list of stakeholders. Who are the people or groups affected by your project? This may include functional groups, company leaders, customers, suppliers, government agencies, and labor unions. Be specific and comprehensive.
2. Recognize the rationale behind each stakeholder or stakeholder group. Why is the stakeholder on your list? How will that group be affected by the project? Do they provide funding and resources? Does the project affect them directly or indirectly?
3. Stakeholder analysis. Determine involvement and communication requirements for each project stakeholder. Do they need to be involved in your project closely, or will quarterly updates suffice? Who will be your biggest critics, and who will be your biggest advocates?
4. Managing your stakeholders. Present the project charter, schedule, and communication cadence to stakeholders to assure they support the project. This gives you an opportunity to explain what you need from them, such as resources, funding, and support. Likewise, they can share their expectations, such as communication and specific deliverables.
   
   

Risk Identification Techniques

When developing your risk management plan, it’s vital to identify all the risks that may affect the operation of your company.

Decision Tree Diagram

A decision tree diagram helps project teams and enterprise risk managers to assess each decision’s potential impact and then choose the best option to minimize risk.

SWOT Analysis

SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) is a method for evaluating these four components of your project and the environment that may affect your project. With the aid of a SWOT analysis, you can determine where your business performs well right now and where to be wary of potential risks to create a winning plan.

Fishbone Diagram

A fishbone is also known as a “cause-and-effect diagram.” It is an effective tool for identifying the root causes of a particular problem and factors influencing specific effects.

Additional business risk identification techniques include:

• Brainstorming
• Risk surveys
• Root cause and checklist analyses
• Assumption analyses
  
  

Risk Analysis and Prioritization

When analyzing identified risks, you will estimate the probability of occurrence, impact of the risk, and urgency. This information will help you categorize risks, determine which threats pose the most significant potential harm, and prioritize your mitigation strategies accordingly.

You may also find your organization is exposed to risks from vendors, agents, contractors, and service providers. Third-party risk management is valuable to strengthen trust and streamline processes with business partners while protecting your business.

To analyze and prioritize risks, you can use any of these tools:

• Risk probability and impact matrix: rate and prioritize potential risks based on probability and impact.
• Pareto chart: identify risks based on the cumulative effects.
• Fault tree analysis: identify the probabilities of various potential outcomes from given faults.
  
  

5 Effective Project Risk Management Techniques

Here are some effective risk management techniques to control project risks:

Identify Past and Future Risks

Perform a historical analysis of past projects and the risks that affected them. How did you address them? Then identify any new risks that could affect this project. Next, check each potential threat and the critical risks associated with each. Finally, log all these risks in a database so you can develop a risk register.

Identify Direct and Indirect Results of a Risk

A futures wheel diagram is an effective way to identify every potential risk’s direct and indirect results. Brainstorm with relevant stakeholders to chart out this diagram. Consider the impact of the risk on the project’s timeline, quality, and cost.

Make sure you review all possible consequences (positive and negative) of each specific risk, as well as subsequent repercussions. Also, discuss and document possible actions to control, mitigate, or eliminate negative consequences.

Conduct Risk Audits

If your organization already has a risk response plan, that’s great, but you’ll still need to examine and document the effectiveness of risk responses and controls as they apply to your project. Such an audit will reveal any gaps to be addressed to shore up your risk management program.

Design a Risk Action Plan

If a risk comes to fruition, how will your project team members respond?

Each risk on your risk register should have a corresponding response strategy. There are four primary strategies:

• Risk avoidance: avoiding risk means you seek to eliminate all uncertainties
• Risk transfer: pass risk liability to a third party, such as by taking out an insurance policy
• Risk mitigation: implement controls to reduce the risk probability below a certain acceptable threshold
• Risk acceptance: accept risks and devise strategies to control and monitor them

Identifying the right approach for each risk can help your project management risk owner and team members know what to do, so they can respond quickly and keep mitigation and remediation costs to a minimum.

Prepare a Contingency Plan

Preparing contingency plans is vital for project risk management and mitigation. A template for a process decision program chart (PDPC) can help.

To start, create a tree diagram of the project with all relevant objectives and activities. Then, identify potential problems for each element and countermeasures or preventive actions.

Not all actions may be feasible, so focus on the ones that are.

Simplify Project Risk Management with ZenGRC

The risk management techniques highlighted in this post can help you identify, analyze, monitor, and control your organization’s project risks.

If all of this sounds overwhelming, ZenGRC can be a valuable addition to your project risk management process. Automated workflows help you streamline activities, reducing the need for manual follow-ups. Built-in templates make risk registers, assessments, and audits a snap, giving your team members more time to focus on project deliverables.

This single platform provides visibility across the organization with insightful reporting and dashboards to enable risk-based decisions.

To learn more about ZenGRC, schedule a demo today!

Any organization that uses information technology should conduct cybersecurity risk assessments from time to time.

Each organization, however, faces its own unique set of security risks and needs to tailor its approach to addressing those specific risks within its risk management processes.

To get started, you first need to identify all your organization’s IT assets, which might be subject to those risks. Then, you can understand the losses you might incur should certain risk events happen and implement prudent steps to keep those risks in check.

IT assets include servers, customer contact information, sensitive partner documents, and trade secrets.

Some assets are physical, such as computing devices; others are electronic, such as data or software. Not all assets are of equal value, either. Some are more costly than others, and some have higher risk exposure.

Each asset has different associated risks, and the importance (the “criticality”) also varies. Your cybersecurity risk management plan will need to account for all those factors.

What is an IT Risk Analysis?

Information Technologies (IT) Risk Analysis is a process of identifying potential threats and vulnerabilities to your IT systems to establish what loss you might expect to incur if certain events happen. Its objective is to help your risk mitigation initiatives at a reasonable cost.

Creating an Asset Register for IT Risk Analysis

Risk assessments typically take one of two approaches. The most common is to start by compiling an inventory of your IT assets; the other method is to consider various scenarios or identified risks that can lead to a compromised asset or breach.

An asset-based risk assessment starts with an asset register or asset inventory. This document specifies all the places where sensitive information is stored and the asset’s estimated value.

So, one of the first things an organization should do when performing a cybersecurity risk assessment is to identify those IT assets.

Creating an asset register helps to clarify what is valuable in your company and who is responsible for it. You need to know what you have and who is in charge of protecting those assets to understand the technology risks to your company entirely.

First, generate the register itself: the list of hardware, software, devices, and databases that store sensitive information.

To do this, consult with the asset owners. An “asset owner” is the person or entity responsible for controlling an information asset’s production, development, maintenance, use, and security.

The asset owners will be familiar with how information moves through their departments. Involving them in the process will be quicker and less intrusive than having your implementation or compliance team go through the entire company.

What are Assets for IT Analysis

It might be that asset owners aren’t sure what assets fall within their responsibility. In that case, recommend that they list all the software they use, the documents in their binders and file cabinets, the employees in the department, and the equipment in their office, among others. Assets might include:

• Hardware: Laptops, servers, printers, cell phones, USB sticks, authentication keys.
• Software: Purchased software and free software.
• Information: Electronic media, such as databases, PDF files, Word documents, Excel spreadsheets, and the like, as well as paper documents. This also could include sensitive data.
• Infrastructure: offices, electricity, and air conditioning (the loss of these assets can cause information to be unavailable).
• Outsourced Services: Legal services, shipping services, online services (Dropbox, Gmail, and so forth). These aren’t assets in the purest sense of the word, but you control these services the same way as assets, which is why they are often included in an asset inventory.
• Human Resources: The employees in each department and their access to the IT infrastructure. These also aren’t assets in the purest sense, but they manage and run your business operations and could potentially lead to a data breach.
  
  

Identifying Risks to Your Listed Information Assets

When executing the risk assessment, identify the risks these different types of assets might encounter. The purpose of an information security risk assessment is to help inform stakeholders and decision-makers about the risks they face so that they can consider and support proper risk responses. So, think expansively about what risks might happen and how.

Hardware

With the increase in Bring Your Own Device (BYOD) policies, the hardware risks that affect companies also extend to employees’ personal equipment. At the same time, technology solutions are available to enforce removable media policies, limiting unauthorized extraction of information and malware infection.

Software

The principal risks of your company’s software are its vulnerabilities and the ease with which cybercriminals can exploit them to infect your organization.

Vulnerability scanners can help here by highlighting vulnerable software and pending security updates. Updating your tools and enforcing shadow IT and legacy software policies significantly reduces cybersecurity risks.

Infrastructure

The risk identification process can only be completed by considering infrastructure risks. Physical access controls are crucial in mitigating unauthorized access to critical systems.

At the same time, natural disasters are specific threats that hinge upon local geographic factors. Business continuity and data security policies must be in place to prevent cyberattacks during these critical events.

Outsourced Services

Your organization may rely on various third-party services for its operations. This includes traditional vendors and cloud service providers for your information systems.

Your information security risk assessment should consider your suppliers’ risks and data protection policies to determine their risk level. This activity allows your company to assess third-party risk and the cost-benefit of these services.

Human Resources

Human resources present risks that your company should assess, too. For example, phishing attacks are common cyber threats that depend heavily on the cybersecurity awareness of your employees. Malicious insiders may also exist, so implement security controls to identify and intercept potentially dangerous behavior patterns.

Manage and Mitigate Risks with Help from ZenGRC

Whether your organization has its IT team to conduct an information security risk assessment or outsource the task, ZenGRC can help make the process easier for you.

ZenGRC helps your organization implement, manage, and monitor your risk management framework. Prioritize tasks with automated workflows so everyone knows what to do and when. Insightful reporting and dashboards visualize information, making it easy to share with stakeholders.

On the compliance end, ZenGRC has templates to help your organization streamline the complete lifecycle management of all your relevant cybersecurity risk management frameworks, including PCI-DSS, NIST, HIPAA, and more.

Contact us today for a free consultation and demo and start managing risk worry-free the Zen way!

Risk is inseparable from the modern business landscape – and therefore, every company needs an effective risk management program to identify, assess, manage, and mitigate risk.

Robust processes, solid internal controls, and an enterprise risk management framework can help an organization identify best practices, share knowledge, and track metrics to meet these strategic objectives. But another critical element to risk management binds all those other components together: risk culture.

The Institute of Risk Management (IRM) defines risk culture as “the values, beliefs, knowledge, attitudes, and understanding of risk shared by a group of people with a common purpose.” This culture encompasses every aspect of risk, including:

• Which risks are relevant to the organization
• How these risks will be managed
• Risk appetite and risk tolerance
• How decisions about risk are made

A healthy risk culture means everyone understands the organization’s approach to risk, follows risk management policies and practices, and takes responsibility for managing risk.

Why a Strong Risk Culture Matters

A strong risk culture matters because, ultimately, people are what makes effective risk management possible. A risk-aware culture promotes a shared understanding of risk and supports the organization’s strategy, business model, operational practices, and competitive advantage.

When firms don’t foster a risk culture, they struggle to manage risk. As a result, they are vulnerable to potentially crippling consequences. They may make poor decisions that prevent the organization from achieving its operational and strategic goals. In the worst cases, those poor choices damage the company’s financial standing, compliance posture, and reputation.

A strong risk culture allows organizations to design appropriate risk management processes, mechanisms, and policies. It provides organizations with language for articulating acceptable levels of risk. Then accountability for risk management and decision-making is improved, and that ultimately drives the success of the enterprise risk management (ERM) program.

Creating a solid risk culture starts with assessing the current risk culture and evaluating the sustainability of risk management initiatives. Those things, in turn, begin with a look at your organization’s risk appetite.

What Is Risk Appetite?

Risk appetite is the amount of risk a company is prepared to take to achieve its goals before deciding what steps to take to lower that risk. Organizations assess their risk appetite to see how much financial and operational risk they are prepared to accept to innovate and achieve their goals.

The first thing to understand about risk appetite is that you decide (or more precisely, the senior management team decides) the level of risk-taking your company is willing to bear. Why? Because figuring out your risk appetite will help you determine how much risk you can handle, which helps you to distinguish risk tolerance from risk appetite.

Industry, corporate culture, rivals, nature of the goals pursued (such as how aggressive they are), financial strength, and organizational capacities are just a few of the variables that might affect risk appetite. It’s also important to remember that your risk tolerance may fluctuate over time. Therefore, it’s usually a good idea to evaluate your risk profile against risk criteria regularly – say, once or twice yearly, or perhaps even daily in particular risk situations. The frequency depends on the situation, available resources, talents, technologies, or systems.

Why Is Risk Appetite Important?

Understanding risk appetite is crucial because decision-makers must know what their risk exposure is if they want to perform effective risk analysis. For example, an organization implementing new business systems can focus on growth opportunities after determining the cyber risk appetite related to their business objectives.

Additionally, risk appetite helps the company to identify initiatives that limit potential losses and achieve higher returns. That increases the investor’s and the entity’s overall rewards.

What Is a Risk Appetite Statement?

An organization’s risk appetite is documented in a risk appetite statement, which outlines the risk-taking initiatives necessary to meet business objectives as well as the steps to take to reduce bad outcomes.

Every leader can benefit from a meaningful risk appetite statement that aligns with the organization’s goals, as a tool to support risk-aware decision-making. In addition, a public risk appetite statement strengthens your company’s commitment to mindful risk management in a risk-aware culture.

A good risk appetite statement includes plans for tackling any risks that threaten the organization’s capacity to accomplish its objectives. Here are a few fundamental ideas to keep in mind as you prepare to write your organization’s risk appetite statement.

Recruit a Diverse Workforce to Produce the Document

You’ll get a more informed and precise description of the organization’s risks when you include viewpoints from across the enterprise while writing your statement, so solicit input from a varied group of stakeholders and subject matter experts. Share examples of compelling risk appetite statements with the group, and remind them of the organization’s business objectives to get everyone up to speed on the job.

Start With a Plan

The organization’s goals and business objectives directly affect the level of risk it is willing to assume. Using those as the group’s “north star” will help the team stay on task and create a better document for evaluating risk exposure and developing the risk appetite statement.

Include a Brief Executive Summary

Every organization has an extensive collection of company documents, policies, and procedures; you want your risk appetite declaration that will actually be read, distributed, and used. Incorporate an engaging executive summary to outline the purpose of the document. Include images and graphics because those items are frequently a simpler, more powerful way to convey information.

Give Clear, Quantitative Definitions of Measurements

Metrics give teams a way to gauge risk levels. While some organizations develop their own risk scoring scales, others rely on well-known models and methods. Whatever approach you decide on should be easy enough for the reader to understand and use.

Metrics and charts also help visualize volatility and concentrations of risk, which helps for quick decision-making. For example, how many job openings can the company tolerate? How many hours of system downtime are acceptable? Concerns are quickly visible with metrics and graphs.

Remain Current

A risk appetite statement should be a “living document.” Review it at least once a year to assure that it still reflects the organization’s evolving risk appetite and current strategic objectives.

How to Assess Your Workplace Risk Culture

When evaluating your workforce’s risk culture and risk intelligence, it’s essential to assess several factors.

Risk Messaging and Communication

A strong risk culture promotes uniformity in risk messaging and a shared understanding of risk across the enterprise. Clear communication using a shared risk vocabulary improves the organization’s risk understanding, intelligence, and culture.

If this messaging is inconsistent (especially from leadership or senior management), that creates confusion among the broader workforce and weakens overall risk management.

Understanding of the Value of Risk Management

In a risk-intelligent culture, people understand risk and see the value of risk management. Moreover, they take responsibility for risk management and encourage others to do the same. They feel comfortable challenging authority figures (respectfully), and those leaders recognize that such conversations help strengthen the risk culture and respond positively.

Risk Governance Structure

The enterprise risk governance structure influences risk management and risk intelligence. This structure should include risk management policies, procedures, oversight activities, various types of risk assessments, risk indicator reports, and code of conduct and ethics programs.

Alignment of Individual Interests and Organizational Risk Strategy

When individual interests and values align with corporate values, risk appetite, tolerance, and strategic objectives, it usually indicates a risk-intelligent risk organization. A sense of common purpose, ethics, and approach among individuals and the enterprise helps to minimize risk and boost decision-making.

Regulatory Requirements and Other External Attributes

Regulatory requirements and the expectations of customers, investors, and other stakeholders can affect risk culture. If the organization aligns its risk management processes with these expectations, it can strengthen its risk culture and improve its risk resilience.

Critical Elements of a Strong Risk Culture

These key characteristics characterize strong risk culture:

• An enterprise-wide definition of risk and a risk “language”
• A common risk management framework supported by standards and controls
• Clearly-defined roles, responsibilities, and decision-making authority
• A workforce that takes individual and collective responsibility to manage risk
• A robust infrastructure to help business units meet their risk management responsibilities with full accountability
• Full transparency and visibility into risk management practices, particularly for governing bodies such as audit committees and the board of directors
• Shared functions such as IT, legal, HR, and finance help business units manage their risks in alignment with the overall enterprise risk program
• Compliance, internal audits, and risk management teams monitor the risk function and report its effectiveness and performance to the leadership, the Board, and other governing bodies
• Learning is encouraged to manage risks more effectively and avoid repeating mistakes
• Decision-making is guided by both organizational strategy and ethics
  
  

5 Strategies to Improve Risk Culture

A healthy risk culture strengthens risk management and improves risk-related decision-making. Building that effort, however, requires time and patience. Fortunately, an organization can create the desired risk culture if it follows these five strategies.

Start From the Top Down

Risk culture depends on the support and involvement of executive leadership. C-suites and corporate boards must be convinced of the value of good risk culture, prioritize it, and communicate its value across the workforce. They must build a consensus about the type of culture they want, why they want it, and how it can be enhanced.

Above all, leadership must lead by example and demonstrate desired risk-related behaviors and business decisions.

Employee Risk Awareness Training

To improve risk awareness, leadership should communicate using a common risk management vocabulary. Risk management roles, responsibilities, and accountability structures should be set up and shared. If possible, employees should receive customized training based on their duties and business unit. Risk management education should be included in new employee training.

Increase Risk Visibility

When employees have better visibility into risks, they can understand individual and collective actions necessary to manage them. Take advantage of having well-informed employees; seek employee feedback. Employee involvement can strengthen the risk culture significantly.

For example, employees can help identify specific risks and participate in establishing robust protocols, policies to guide actions, and communication flows to share risk information.

Align Risk Performance Metrics with Incentive Systems

Rewards, recognition, and incentives are powerful ways to drive and reinforce positive employee behaviors. Embedding risk performance metrics into motivational systems and compensation structures can help drive positive risk-related behaviors and strengthen the risk culture.

At the same time, it’s also important to hold people accountable for their actions and quickly address gaps that harm risk management and weaken risk culture.

Evaluate and Report Progress with Quantitative and Qualitative Metrics

The effectiveness and performance of the organization’s risk culture can be evaluated by looking at:

• Risk management ownership by business units
• Acceptable level of leadership and board support and sponsorship
• Results of critical risk-related decisions
• Use of risk appetite and tolerances in decision-making
• Alignment of risk management policies with strategic planning and risk culture with organizational culture

As risk appetite, risk tolerance, or business strategy change, these metrics should be modified to support ongoing risk culture evaluations.

Manage Risk Appetite Efficiently with ZenGRC

Enhanced risk visibility is invaluable to promoting a solid, risk-intelligent culture. Improve visibility into your risk landscape with the integrated risk software solution offered by ZenGRC. ZenGRC shows where risks exist and where they are changing so you can take the necessary actions to minimize business exposure.

ZenGRC provides multivariable scoring to help you evaluate risks across connections and business objectives. Identify and remediate threats in real-time with its intuitive workflows and automated alerts that support continuous risk monitoring.

Solve your risk management challenges and drive a thriving risk culture with ZenGRC. Schedule a demo today to see how ZenGRC can help your organization.

Risk exception

For all the importance of strong policies and procedures, another truth is this: that in day-to-day operations, your organization will very likely run into situations that violate them.

A risk exception occurs when a particular policy, standard, security program requirement, or security best practice cannot be fully implemented.

For example, your organization might make an exception so it can do business with a third-party vendor even if that vendor isn’t fully compliant with laws, policies, or regulations. Granting this exception, however, might come with consequences, and could put your organization at risk.
 

Risk exception vs. security exception and risk acceptance

A security exception is a type of risk exception that specifically pertains to information security and cybersecurity. 

Security exceptions are made when a condition does not align with formal security expectations as defined by policy, standard, and/or procedure — a missing patch, for example. 

At its heart, a security exception is a question of compliance, which may or may not represent an excessive level of risk.

Risk acceptance, on the other hand, is a formal and documented decision by a stakeholder to not remediate a level of risk that exceeds your organization’s risk appetite or risk tolerance. 

While you may think that the two go hand in hand, a risk acceptance isn’t always the result of a security exception. For example, the missing patch may not represent much risk, or the risk associated with applying the patch might outweigh the risk associated with not applying it. 

Or perhaps your organization’s security policy doesn’t prohibit using customer data in development and test environments, but a risk analysis shows that permitting large amounts of data represents a significant amount of risk. In this case, a security exception is not required, but a risk acceptance may be. 

Risk acceptance is a part of risk mitigation, and is one potential option to determine the appropriate risk response or treatment. Other treatments include risk avoidance, risk transfer, or risk reduction. 

Risk exception management

Avoiding risk altogether is almost impossible, so it’s best to put systems in place to manage it. 

Your organization’s overall risk management program should aim to minimize the impact of risks before they materialize and become threats, incidents, or events. The steps of risk management include risk assessment, risk analysis, risk evaluation and prioritization, risk treatment and mitigation, and risk monitoring and review. 

Similarly, vulnerability management programs identify, classify, prioritize, and mitigate cybersecurity vulnerabilities most often found in software and networks. Vulnerabilities in systems usually include open ports, poorly written code, unpatched applications, and dependencies on insecure libraries. 

Making risk exceptions, however, might complicate both your risk management and vulnerability management programs, by exposing your organization to risk that is otherwise avoidable. 

If you do decide to make a risk exception, you’ll need to implement a risk exception management program as part of your risk management program. This is to determine the potential impact and likelihood that the resulting risk could be exploited.

A risk exception management program will help your organization identify and evaluate any risk exceptions on a consistent basis. It will also recognize the areas where you aren’t compliant, and determine whether you’re at risk for malicious activity or fines and penalties due to non-compliance. 

Non-compliance can cause a number of headaches to your organization, including legal penalties, fines, business loss, and reputational loss. 

If your organization makes a risk exception that results in non-compliance, it’s important that your risk exception management program also includes methods for managing policy exceptions. 

Policy exceptions

A policy exception is a method for maintaining a policy but allowing an individual or entity to circumvent one or more restrictions. 

For example, your organization may have a certain information security policy in place that a vendor is unable to meet. It’s up to your organization to decide whether the risk of making that exception is greater than the loss that may occur if you refuse to do business with that particular vendor. 

If another business or vendor fails to fulfill your organization’s policies, it should submit a policy exception request form. In turn, your chief information security officer (CISO) can approve or deny the policy exception request based on the risk it poses to your organization. 

Here are some strategies for granting policy exception requests within your risk exception management program:

• Attach conditions to the policy exception request. Your organization signs up for additional risk whenever it grants a policy exception request. For this reason, it is important to attach conditions to the request. For example, you might limit the amount of time the exception is valid or add disclosure requirements to the vendor contract.    

You’re essentially communicating to whoever is submitting the policy exception request form that you understand the business imperative behind the exception request, but that you also have a responsibility to protect your organization. Most third parties will accept any conditions that may come with a contract. 

• Monitor exceptions to manage risk. Each risk exception you make will add additional risk to your organization. Therefore, you should avoid treating your risk exceptions as a set. Instead, treat each exception as a special case requiring attention. 

In addition, ongoing monitoring services as well as periodic assessments should be a regular part of your risk exception management program. 

• Regularly review and update company policies. Reviewing your policy exception requests might uncover the need to update or write a new policy. For instance, a concentration of exception requests associated with a specific policy is a sure indicator that the policy should be reviewed. 

While keeping your policies current won’t eliminate exception requests altogether, it will help you reduce the number significantly. You should review policies annually, making sure that they are defined, updated, and articulated so that they provide clarity to users, help manage risk, and protect your organization. 

Risk Exception and GRC

For some organizations, managing policy exceptions is a simple matter that can be handled manually on a case-by-case basis. Most of the time, the risk exception process is more complex and demanding. 

A governance, risk, and compliance (GRC) platform can help your organization process exceptions through multiple approval workflows, provide risk scoring, and present data to give a holistic view of risks associated with exceptions. 

ZenGRC is a compliance, risk, and workflow management software that offers an intuitive, easy-to-understand platform that not only keeps track of your workflow, but also lets you find areas of high risk before those risks manifest as real threats. 

It also provides users with a flexible platform that fits unique program requirements, including a connector for the leading digital workflow company, ServiceNow. With the ServiceNow connector, ZenGRC allows your organization to maximize efficiency, streamline processes, and use a single source for all metrics reporting and insights. 

Pre-loaded with content and templates, and with white-glove onboarding from our team of industry experts, ZenGRC provides exceptional value, including the best-in-class time to value and total cost of ownership. 

ZenGRC’s platform will simplify the way your organization manages information security risk and compliance, and encourage transparency and trusted relationships with key stakeholders.

Find out why the world’s leading companies trust ZenGRC and schedule a demo today to learn how to manage risk the Zen way.

From innocent but costly mistakes to deliberate fraud, all organizations are subject to risks that can jeopardize financial reporting or lead to the loss of corporate assets. That’s why it is imperative to establish a robust system of internal control to reduce or prevent such threats and strengthen financial reporting.

Internal controls are policies, procedures, and other activities implemented by a business to assure that it can achieve its objectives. Among those objectives are reliable financial reporting, compliance with laws and regulations, operational efficiency, and fraud avoidance. There are three types of internal controls: detective, preventative, and corrective.

An internal control system is a company’s set of all internal controls plus the tools the company uses to monitor those controls. The system should mitigate an organization’s risk of fraud and loss while safeguarding corporate assets and helping the business to achieve its objectives.

Every company will have its own unique internal control system, depending on its size, industry, history, and operations. That said, all effective systems of internal control operate in roughly the same manner and have the same fundamental components.

Risk assessments are one such component, and a crucial one at that. A risk assessment identifies the risks that might threaten the company’s ability to achieve its objectives, and then considers whether the design and operation of the company’s internal controls deliver the protection the company needs.

Why Is Risk Assessment Important in Internal Controls?

Risk assessments are important because they identify weak spots in your system of internal control. For example, you might identify new external threats that can overcome the internal controls you have; or you might discover that some internal controls no longer work as well as intended because your business operations have changed. With so much complexity and innovation in the modern enterprise, internal controls need constant monitoring and improvement to avert existing or emerging threats.

Internal controls and risk management are not goals in and of themselves. Rather, they are the means a company can use to keep achieving its objectives in the modern business world. Internal controls must always be considered when establishing and implementing corporate initiatives to achieve objectives. Flaws in internal control can emerge when new initiatives are not coordinated with risk management principles.

A proper risk assessment can help an organization to manage risks and improve decision-making. It assures that efforts have been made to identify risk, implement preventative controls where possible, and mitigate damages.

One of the most versatile and widely used frameworks for internal control is the one published by COSO, the Committee of Sponsoring Organizations. COSO first published its internal control framework in 1992, followed by a modern-day overhaul in 2013. A system of internal control based on the COSO framework will have five components. Risk assessment is one; the others are:

• Control environment. This is the foundation of an organization’s internal control system. It sets management’s tone for expectations, separation of duties, and the importance of internal controls within the overall company culture.
• Control activities. These are the policies, procedures, and mechanisms that make up the organization’s risk management strategy.
• Information and communication. Internally generated reports periodically summarize audit results and control activities for auditors and stakeholders to consider.
• Monitoring activities. Ongoing monitoring assures that control activities are implemented and enforced in day-to-day operations.

Those five components of internal control should all support each other. None can do much good for the management team without the others; they are meant to operate as a single, integrated system.

What Are the Different Types of Internal Control Risks?

To guard against risk, organizations must do more than set up internal controls, fraud prevention activities, and internal control testing. Companies must consider specific risks when implementing a comprehensive system of internal controls.

Common internal control problems include a lack of a sound internal control environment, poorly designed business processes, weak ethical values and integrity, and IT security risks. The most common issues can be classified into the following categories:

Inherent Risk

Inherent risk is the level of risk — inaccurate financial statements, cybersecurity threats, compliance failures, and so forth — that exists when an organization has no controls in place whatsoever to guard against the danger.

Control Risk

Control risk is the chance that an internal control fails to work as intended. For example, a company policy might require the board of directors to approve all contracts above $100,000. If management then executes a $150,000 agreement without board approval, that indicates a control failure: the organization didn’t have mechanisms in place to enforce the policy.

Residual Risk

Residual risk is the risk that remains after internal controls have been implemented. For example, as an anti-fraud control, a company may require two signatures for all payments over $40,000. There is, however, a residual risk that a transaction might still be fraudulent even after two signatures. (Maybe the two signing executives are conspiring together.) If the organization is unwilling to accept this residual risk, it should review its policies related to internal controls for cash.

Operational Risk

Operational risk refers to unexpected failures in the organization’s day-to-day operations caused by personnel, processes, or external factors. It is often related to control and residual risks. They include fraud, security failure, legal breaches, environmental hazards, or natural disasters.

Compliance or Regulatory Risk

This is the risk of failing to comply with laws or regulations, such as the Foreign Corrupt Practices Act (FCPA) or the Sarbanes-Oxley Act (SOX). For example, a public organization lacking strong internal controls over financial reporting is exposed to significant SOX compliance risk, financial penalties, and reputational damage.

How Do You Implement Internal Control Procedures?

Firms can lower their risk exposure and empower senior management to conduct business more efficiently by managing operational processes, financial information, and compliance risks.

Step 1: Create the Proper Control Environment

Organizational structure, ethics, and integrity form the foundation of any company. In addition, these aspects establish the basis for a proper control environment and access controls within a company.

Step 2: Risk Assessment and Internal Controls

Management must identify, analyze, and assess risks within an enterprise. These steps help management to understand what procedures, processes, and controls are (or aren’t) in place to mitigate the risks to business operations, financial reporting, and compliance obligations.

Step 3: Implement Control Activities

When the risk assessment identifies any controls that might not be sufficient for the risks confronting the company, management should then develop proper controls (say, policies about signing large controls, or employee training on working with third parties), and implement those controls promptly.

Step 4: Disseminate What Has Been Learned

Information and communication systems surrounding control activities should be circulated among employees to manage, monitor, and control an organization. Information and data must be provided to the appropriate personnel in a timely manner to help them do their jobs properly and drive appropriate behaviors.

Step 5: Keep Watching

Risks evolve over time; so do business operations. Plus, sometimes internal controls turn out not to work as well in practice as expected. All of this means risk management and compliance teams should monitor the performance of internal controls, perform periodic audits, and revisit risk assessments on a regular basis to be sure your system of internal control remains effective across time.

An internal control review process verifies that controls function as expected and are not negatively impacting operational efficiency. Findings and discrepancies should be evaluated and corrective actions or controls implemented to ensure problems are resolved.

Best Practices for Risk Assessment

An effective internal control system starts with the five components of internal controls listed in the COSO framework. In addition, comprehensive business planning and risk assessments reduce the risks to achieving business objectives while adhering to internal controls. These best practices guide the risk assessment process and the development of adequate internal controls.

Conduct Internal Audits

Internal audits are critical to verify that a company’s internal controls, control structure, and corporate governance are applied consistently and effectively. For example, an internal auditor will review financial statements, reconcile accounting records, and evaluate segregation-of-duties controls to confirm whether financial transactions are carried out correctly and appropriately.

Develop a Mitigation Plan With Controls for Each Risk

Risk assessments require a list of items to be assessed. The list should be presented in a clear, logically designed, easy-to-follow form and include corresponding mitigation plans for each risk. As a result, assessments will be more thorough and document relevant actions.

Identify Internal and External Risks

Risks come from a variety of sources. It helps to classify internal and external risks in your risk assessment, to determine where internal controls will be most effective. Distinguishing different types of risks will allow you to define more effective internal controls.

Collect Employee Feedback

Employees can be the best critics about whether processes and controls are working effectively. Collect employee feedback to understand whether internal controls are unnecessarily cumbersome. Ask them for their perspectives on potential risks and ideas for improving your internal controls. Staff will appreciate internal control processes more when their inputs have been considered.

Monitor and Make Changes

Conducting a risk assessment and setting up internal controls are not one-time projects. A continuous commitment to risk management requires an organization to make modifications to assure that internal controls are working as expected.

Improve Your Internal Controls and Simplify Risk Management with ZenGRC

In the world of organizational risk management and improved internal controls, ZenGRC is the expert. ZenGRC’s risk assessment modules provide valuable insight into where your financial reporting is lacking, so you can take quick action to compile the documentation you need.

ZenGRC enables you to set up, manage, and track progress within your risk management and internal control framework. For example, it can assist you in prioritizing activities so that all employees know what they need to accomplish and when they need to do it. In addition, its easy-to-use dashboards simplify reviewing tasks that need attention.

Its workflow tagging feature makes it simple to assign risk assessment, analysis, and mitigation tasks. ZenGRC also enables integration with popular tools such as Jira, ServiceNow, and Slack, assuring seamless adoption across your enterprise.

Hassle-free internal controls implementation and compliance is the Zen way! For a free consultation and demo of ZenGRC, schedule a demo.