This post is part of our GRC 101 series, providing an entry-level overview of the business of governance, risk management, and compliance. In this post, we take a look at a similar acronym, IRM, which stands for integrated risk management.
Risk management professionals face an ever-increasing number of new and varied risks each day. From operational risk, to third party risk, to compliance risk and beyond, every organization’s risk landscape is becoming more and more difficult to manage.
For some time, traditional governance, risk, and compliance approaches have fallen well short of capturing what’s really going on with an organization’s risk posture. These legacy methods are ill-equipped to manage the risks that permeate organizations in new (and expanding) ways.
It’s something Gartner noted as far back as 2018:
“By 2021, 50 percent of large enterprises will use an IRM (Integrated Risk Management) solution set to provide better decision-making capabilities.”
On top of that, Gartner predicted that the market for Integrated Risk Management alone would reach $8 billion annually, including consulting and technology implementation fees. Considering IRM’s relative infancy as a field at that time, it made for a bold vision of the future.
Turns out, that vision came to fruition. And, Gartner actually undershot their figure: More recent reports show the global integrated risk management market at $9.5 billion in 2022, and predicted to grow to $18.7 billion by 2027.
The bottom line is that enterprise risk management had become too big — and far too important — for unsophisticated systems to handle. Thankfully, there are new, sophisticated ERM software solutions that give users a connected view of risks and controls and no shortage of established frameworks to help risk teams roll out integrated risk management programs.
In this post, we’ll zero in on IRM — what it is, how it can level up risk management programs, how to install a proper framework, and what solutions can help you get going.
Let’s dig in.
What is Integrated Risk Management?
Integrated risk management (IRM) is a set of practices, processes, and principles that allow organizations to properly identify, assess, mitigate, and manage risk.
IRM is most effective when it’s supported by a risk-forward culture that utilizes modern risk management technology to improve decision making.
What’s behind the rise of IRM?
Digital processes, global business, outsourcing to third parties and more have created a rising tide of risks that are impacting organizations in unforeseen and difficult-to-manage ways.
- Digital Processes: Companies are finding efficiencies and competitive advantage in a wide range of emerging digital technologies, including big data, mobile devices, the Internet of Things, and social media — all of which contribute to an expanding risk profile. These include cybersecurity concerns, data exposure, and privacy issues.
- Globalization: Over the last few decades, globalization has promoted worldwide economic growth, created new markets, lowered prices for consumers, and much more. It has, however, also introduced a great deal of operational risk. Geopolitical risks from natural disasters to currency swings can impact business operations in significant ways.
- Reliance on Third Parties: In recent years, companies have increasingly come to rely on networks of third-party vendors — especially cloud services providers in tandem with the emergence of the digital economy — to help them compete. These vendor relationships are not only more numerous, but more sensitive information is being shared across them as well. This has led to a host of oversight concerns including lack of control, cybersecurity threats, and reputational risk.
Attributes of Effective Integrated Risk Management
A truly integrated risk management program has lots of components. There are so many types of risk to account for, and every risk needs to have a response plan in place.
Effective integrated risk management can have a profound impact on the success and failure of an organization, so it’s important to keep these principles top-of-mind when building it out:
- Connected to business outcomes – Organizations should know how each risk affects their business, and how they are connected to other risks.
- Decision-oriented – Assessing and responding to risk through risk quantification and risk scoring allows risk and compliance leaders to make decisions that drive bottom-line value.
- Always monitored – Each risk should be tied to a key risk indicator (KRI), a tolerance threshold for your organizational risks. When one of these KRIs exceeds its acceptable threshold and is flagged by your GRC software, there should be a response plan ready.
- Aligned with objectives – Every risk you monitor should be tied to the strategic objectives of your organization. It’s not always about mitigating risks outright, but knowing what risks may be on the horizon if, say, you’re expanding into a new market, introducing a new product, or taking any strategic risks designed to drive growth.
- Clear response protocol – Having systems and processes for risk response in place ahead of time makes decision-making across an entire organization more efficient, and, ultimately, more effective.
- Reported on regularly – It’s not only important for organizations to know where key risks exist, but also if they’re being reported on accurately. Having a regular — or better, automated — reporting cadence helps keep key stakeholders informed on the health of organizational risk.
- Supported by technology – Utilizing a modern GRC tool, like LogicGate’s Risk Cloud® makes risk management processes far easier. These powerful systems break down communication silos, connect systems, remove redundant work, and more. They can enable your organization to scale faster and more seamlessly with an integrated approach to risk management..
Sound similar to GRC? That’s because it is. The definition of IRM is not incredibly different from the goals of GRC.
What can IRM do for organizations?
Integrated risk management gives business leaders a clear picture of all their risks. With their newfound understanding of the enterprise’s dynamic risk profile, they can make better decisions at the enterprise level about which risks to mitigate, and which to avoid, accept, or transfer.
Similarly, by integrating risk areas and recognizing interdependencies, executives can ask more strategic questions about how risk in one part of your business impacts other parts of the business.
With IRM, the value of the program actually increases as more risk activities are brought into view. In a fully mature IRM program, all risk categories should roll up into centralized reporting tools and dashboards, allowing business leaders to leverage insights from all risk areas for better decision making.
The Key Difference between IRM and ERM
Integrated risk management and enterprise risk management both refer to programs that help keep organizations aware of risks and the processes put in place to mitigate them. In many ways, they are very similar, and in a distinct way, they are foils of one another.
ERM typically refers to a top-down approach to risk management, where decision-making is focused on business objectives and performed at a higher level. IRM typically refers to the more technical, bottom-up approach where teams focus on risk associated with an organization’s technology and processes
IRM is more in the court of GRC and risk management teams. It’s built into the culture of an organization, and the technology they rely on for decision making. ERM tends to be handled more commonly at the executive and board levels.
5 Elements of an Integrated Risk Management Framework
To further this point, let’s take a look at the five elements of an integrated risk management framework.
1. Strategy
An organization’s integrated risk management strategy should lay out how risk is tied directly to business goals. It’s the first step in bringing a risk-aware culture to life within a larger organization.
If every business unit understands how risk is tied directly to their objectives and individuals’ personal responsibilities, they can buy into an IRM strategy that articulates how risk is identified, assessed, measured, monitored, and mitigated.
When your IRM strategy is clearly defined, it allows organizations to have better answers to questions about how the current risk landscape and the decisions they make around it play into success five, 10, or even 15 years down the road.
2. Monitoring and Reporting
The best way to monitor and report on risk throughout an organization is by establishing key risk indicators (KRIs) to give early warning of potential risk events. As noted earlier, KRIs act as tripwires designed to spot internal errors or external activities that can lead to risk events.
Having the right KRIs, tracking them meticulously, and reporting regularly can make every stakeholder aware of potential vulnerabilities, how they align with an organization’s risk appetite, and what should happen when one is triggered.
3. Assessment
Risk is ever-present in every organization, but being able to assess the importance and impact of each risk is the most feasible way to manage it. Otherwise, you leave yourself vulnerable to uninformed decision making.
Organizations need to install ways to monitor and evaluate the impact of risk. Regulatory compliance violations, for example, can come with heavy fines. Cybersecurity breaches can lead to valuable data loss. Product recalls can lead to huge revenue losses. Natural disasters can cause operational delays for weeks on end. Operational risks and external risks both need to be assessed and measured.
If you don’t know the impact of a business risk, if it’s not built into the framework of your integrated risk management strategy, how can you possibly know how to respond when something like that happens?
Risk assessments are essential to answer what’s at stake when a particular risk comes to light.
4. Response
Risk identification and assessment is one thing, but making strategic decisions about how to respond to a risk event is an entirely different matter. Risk management activities aren’t always just about mitigating risk entirely. They’re also about creating a plan for how to limit damage when something does happen.
Your integrated risk management plan should have processes in place when a risk event occurs, so you can limit the organization’s potential impact of a damaging event and mitigate future risks even further.
5. Technology
Technology isn’t a silver bullet, but its an essential piece to any integrated risk management strategy. Modern technology allows you to design and implement your IRM architecture so that your organization understands the full scope of risk across its landscape.
An integrated risk management solution gives an overview of risk, risk mitigation workflows, reporting protocol, processes, and responsibilities of teams and stakeholders. If implemented properly with careful planning, it can act as the single source of truth for your risk strategy.
LogicGate’s Holistic Risk Management Software
At most companies, the full scope of risk is too much to manage with manual methods. Thus, IRM must be powered by modern risk management technology if it’s to effectively meet the myriad and interconnected challenges that we’ve identified.
LogicGate helps users perform IRM in ways that are not only effective and efficient, but agile enough to respond to the ever-shifting nature of global risk.
Our Enterprise Risk Management solution offers powerful data mapping capabilities, enabling you to see a holistic view of all your risks and how they relate to the business objectives and drivers that impact your organization.
Based on your organization’s unique risk appetite, LogicGate’s flexible app builder empowers you to customize your risk scoring model and drive risk-response protocols based on conditional logic and dynamic reporting. Armed with this data, you’ll be able to make decisions concerning risk and innovation with confidence.
For more on Enterprise Risk Management, check out LogicGate’s eBook below on How to Build Organizational Support for ERM.
