A Definitive Guide To What Is Governance, Risk And Compliance (GRC)?

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GRC Definition: -

GRC is the capability, or integrated collection of capabilities, that enables an organization to reliably achieve objectives, address uncertainty and act with integrity, including the governance, assurance and management of performance, risk, and compliance. (www.grcglossary.org)

What is GRC?

In February of 2002, Mr Michael Rasmussen, considered by many to be the “father” of GRC, was the one who first proposed using the abbreviation GRC. A model and a framework for GRC were initially made available in 2003 by the Open Compliance and Ethics Group (OCEG). The acronym is now recognised in its official capacity, and it signifies the three terms “Governance,” “Risk,” and “Compliance.”

Every global business engages in good governance, risk management, and compliance practices (GRC), even though many people are unaware of the value and meaning of GRC. In an official or informal setting, OCEG has stated, “GRC is not a recently developed concept”.

Let’s begin by discussing this anecdote to comprehend the rationale behind Mr Rasmussen and OCEG’s decision to merge these three words into a single acronym that has gained widespread reputation over the years.

In 2001, Fortune magazine honoured “America’s Most Innovative Company” for the sixth year in a row as one of the most successful corporations in the United States. The dot-com era had just reached its zenith; consequently, most investors and regulators were accustomed to the new normal of unusually high share prices. This, in conjunction with the lax regulatory climate of the period, allowed the CEO to be “creative,” enabling him to conceal hazardous assets and losses through a scheme that also involved the chief financial officer, other executives, and even the company’s auditor.  

Enron went bankrupt in December of 2001, resulting in a loss of $74 billion for shareholders, the loss of billions of dollars in pension benefits for its employees, the collapse of the audit firm Arthur Andersen, and the loss of all employees, business partners, and other financial and societal implications as a result of people and businesses losing their income. We now know that this was the largest corporate bankruptcy that had ever occurred in the history of the financial world.

Even though Mr Rasmussen had a broad vision for GRC version 1.0, the Sarbanes-Oxley Act of 2002 (SOX), adopted as a direct response to the Enron scandal, was the focus of every organisation in the financial sector at that time. GRC 1.0 became, in essence, the recipe for managing your firm in a manner that complies with the SOX internal control criteria.

Components: -

To understand the term more comprehensively, let’s understand each one of its components individually:

Governance: Governance is a term that refers to a collection of guiding principles, policies, and procedures that determine how an organisation works towards achieving its objectives. When it comes to implementation, it takes a top-down approach, which involves essential stakeholders such as board members, senior management, and other high-level executives. The ability to carry out its operations honestly and openly depends on the robustness of its governance structure.

The higher-ups are given the ability to make decisions while keeping an awareness of the risks involved, engaging with the various stakeholders, and obtaining greater visibility into potential problems and incidents. The data is an indispensable component of this equation. The processes of data visualisation, internal auditing, reporting, and risk assessment are all facilitated by a GRC programme, making accessing relevant metrics easier.

You can uphold a culture of accountability at every level of your company’s operations if you implement sound governance practices. You can optimise the use of company resources and find a sweet spot between the risks you take and the rewards you receive if your company has clearly defined internal guidelines.

Risk Management: Identifying, analysing, and taking preventative measures against possible risks is referred to as “risk management.” Cybersecurity risk, legal risk, financial risk, operational risk, contractual risk, third-party risk, and the unpredictable risk of natural disasters and crises are examples of the many types of risk that can exist. Risk managers and risk management software must work together as part of a successful risk management programme to address potential dangers before they can cause any damage.

As an alternative to implementing a separate risk management programme, you can choose to incorporate risk management processes into your daily operations. This improves risk visibility, making accessing risk data more straightforward, prioritising threats, and implementing remediation strategies.

An organisation needs to strike a balance between its risk appetite and the amount of risk it is willing to take to accomplish its business goals while reducing the amount of risk it is exposed to. You can significantly increase the rate at which threats are responded to and incidents are resolved if you have open communication channels and a well-established hierarchy. You can protect your organisation on multiple fronts when you add automated controls and plans for business continuity.

Compliance: You, as a business, will have to act with integrity by following the statutory government regulations that are particular to your practice area. The penalties for violating these regulations range from a reprimand that amounts to little more than a slap on the wrist to significant monetary harm. 

The rules themselves are subject to ongoing revision and adjustment. You don’t want to end up in the headlines for violating some environmental regulation, do you?

You can keep tabs on many regulations, industry standards, rules, and policies while using only a few resources available if you have a compliance programme that works effectively. Establish transparent workflows to facilitate the acceleration of compliance management and conduct internal audits at regular intervals to ensure that everything is operating as it should.

The Importance of GRC: -

If you have an integrated plan of action, managing risks will be much less demanding, even as those risks become more complicated and maintaining compliance becomes costlier.

The lessons learned from the pandemic caused by COVID-19 show that flexibility in risk management and compliance programmes is hugely beneficial. As a result of disruptions in supply chains, businesses are increasingly turning to third-party logistics (3PL) providers to capitalise on the explosive growth of the retail eCommerce industry.

However, increasing the number of relationships with third parties increases risk and the obligations to comply with regulations. When it comes to governance, risk, and compliance (GRC), having a framework that is clearly defined makes it possible to incorporate additional responsibilities with relatively little friction.

Greater visibility into governance, risk, and compliance programmes provide the data necessary to recognise areas of vulnerability and overcome challenges. It provides you with sufficient room to capitalise on potentially beneficial chances while minimising the likelihood of potentially harmful incidents. Your company can expand its operations with the appropriate GRC programme, which will also assist it in managing the risks and regulations associated with its expansion.

Renowned Frameworks: -

• Enterprise Risk Management - COSO - The COSO Framework sets up internal controls for corporate processes. COSO was founded because of Enron. These controls ensure the organisation operates ethically, transparently, and according to industry standards.
• Food Safety - HACCP - HACCP is a preventive approach to food safety from biological, chemical, and physical hazards in production processes that might make the finished product dangerous. It proposes ways to minimise these risks to a safe level.
• IT Risk, Information Security Risk Assessment - FAIR - Factor Analysis of Information Risk (FAIR) is a taxonomy of risk variables and their interactions. It’s focused chiefly on estimating the frequency and magnitude of data loss.
• IT Risk, Information Security Risk Assessment - ISO 27005 - ISO 27005 supports ISO/IEC 27001’s general concepts and aids in risk-based information security implementation.
• Risk Management - ISO 31000 - Using ISO 31000 can help organisations achieve goals, identify opportunities and hazards, and allocate and manage resources for risk treatment.
• Operational Risk in Banking And Finance - The Basel Committee - Operational risk is embedded in all banking products, activities, processes, and systems, and effective management is a cornerstone of a bank’s risk management programme.

Critical Drivers For Adoption: - 

• Risk Landscape is becoming more complex – Today’s exposure to risk entails a greater degree of complication and potential harm than it did thirty or forty years ago. It is no longer possible to combat every threat with legacy programmes or restrict fallout to a particular industry without allowing it to spread to other business divisions. The Good Governance, Risk, and Compliance (GRC) framework functions as a checks and balances system that maintains all risks within acceptable parameters.
• Constantly evolving Regulatory Compliance – You can build tactics to track the modifications made in real time to regulations. The vast majority of GRC solutions can fully automate this process, eliminating the requirement for additional resources to be invested.
• Data Privacy and Protection – On the one hand, the General Data Protection Regulation (GDPR), the Consumer Cancellation and Portability Act (CCPA), and the Personal Information Protection and Electronic Documents Act (PIPL) have mandated that businesses strengthen their cybersecurity defences. On the other hand, in contrast to adopting a standalone programme, implementing an integrated security solution has become significantly more cost-effective and efficient.
• Third-Party Engagements – Due to shifting legislation and disturbances in the supply chain, relationships with third-party entities and suppliers have become significantly more complicated. GRC allows you to review and manage your connections with third parties so that they are in your best interests.
• Big Data & Analytics – Having a foundation in GRC enables you to gain additional insights from risk data, which is especially helpful in light of recent advancements in big data analytics.

Essential Benefits of GRC: - 

• Visibility – Thanks to GRC, which provides a unified framework for managing governance, risk, and compliance issues, you may find all your data in a single location. This, in turn, enables you to delve deeper into risk data and acquire contextual information on fundamental weaknesses. It is not enough to be aware of what is incorrect; GRC enables you to comprehend the modifications you need to implement into the three systems to forestall future problems. Gaining visibility into your organisation’s financial and operational health helps you to make real-time adjustments and benchmark key performance indicators (KPIs).
• Optimising Costs & Resources – The potential to save time and money is the key benefit of implementing a GRC programme in your organisation. As a result of the unification of these three processes, you will no longer be required to allocate resources distinctly for each unit. In addition, if you opt to go with GRC software, you can automate day-to-day processes. This will allow your personnel to spend more time on billable activities, ultimately increasing your revenue. You can even integrate chatbots and natural language processing (NLP) to build rules for responding to and dealing with risk situations without involving a natural person if you combine artificial intelligence (AI) and machine learning (ML).
•  Centralised Access To Risk Data – Maintain a record of every piece of information about risks in a single database. You can view the data remotely, allowing you to respond to risk situations more quickly. For safety and privacy reasons, you may choose who can access the risk data and what devices can access it.
• Process Unification - is one of the more understated benefits; you won’t notice it immediately, but it will pay dividends in the long run. A uniform process, taxonomy, and terminology are all things that can be established using GRC. Standardised methods simplify training new employees, evaluating and benchmarking performance, and ensuring that the platform continues to operate smoothly even when staff members leave or are replaced. Additionally, over time, it fosters a more risk-aware culture at work, ultimately reducing the number of risk-related occurrences. This increases the organisations’ ability to withstand risks and breaks down the functional and operational walls built up.
• Analytics - You are provided unrestricted access to the risk data, enabling you to go deeper into the information to unearth hidden insights that might have otherwise been missed owing to a lack of oversight. Additionally, integrated advanced analytics tools and reporting capabilities assist in analysing, sharing, and utilising risk information advantageous to the organisation and its customers.

How Does GRC Function?

The following are the underlying principles that enable a successful implementation of a GRC framework.

Key Stakeholder Management - Collaboration between departments that practise governance, risk management, and regulatory compliance is necessary for GRC, which necessitates cross-functional working relationships. The following are a few examples that illustrate this point:

• Senior Level Executives responsible for making strategic decisions after risk assessment.
• Legal professionals who help in preparing and mitigating legal implications.
• Financial experts responsible for statutory compliance.
• The HR function manages critical and confidential information.
• IT function taking care of cybersecurity and cybersecurity resilience.  

GRC Framework - A GRC framework is a paradigm for managing an organisation's governance and compliance risks. It entails the process of defining the essential policies that can push the firm toward the goals that it has set for itself. You may take a proactive approach to manage risks, make well-informed decisions, and guarantee business continuity if you adopt a GRC framework. This enables you to take advantage of the many benefits of using such a framework.

Companies put in place GRC by adopting GRC frameworks, which include essential policies that align with the organisation’s strategic objectives. When formulating company policies, organising processes, and exercising governance over the business, key stakeholders base their work on a shared understanding derived from the GRC framework. Companies can use specialised software and other resources to coordinate and keep track of the progress made using the GRC framework.

GRC Maturity - An organisation’s level of GRC maturity can be defined as the degree to which it has successfully integrated governance, risk assessment, and compliance. You have reached a high degree of GRC maturity when implementing a well-planned GRC strategy yields positive cost efficiency, productivity, and the efficacy of risk mitigation. On the other hand, a low level of GRC maturity is inefficient and causes business units to continue functioning in isolation.

Implementing GRC Effectively: -

To implement a GRC solution effectively, below are the tips to ensure a successful implementation

Value Creation: It is essential to understand the actual benefit of GRC implementation. The start of a successful implementation starts by identifying the already existing multiple methods across different business segments. In addition, the process enables you to determine which procedures are successful and must be maintained in constructing a unified system.

Similarly, you can get rid of any data, technologies, or assets that aren't needed, are duplicates and hurt value while also having the ability to make the centralised process more difficult.

From this vantage point, you will be able to prioritise the assets of your company that bring in the highest revenue, and you will be able to direct your GRC strategy toward improving these assets.

Creating A GRC Roadmap: To narrow the scope of your strategy, you will need a distinct goal that summarises the primary GRC functions performed by the framework. These results have to be the product of ongoing collaboration between all stakeholders to guarantee that they are by the requirements of each division. Your targeted results can be more easily achieved if you have a solid understanding of the potential benefits that could be gained from a successful GRC framework. Some pertinent benefits of a practical GRC framework are:

• Cohesive approach and better alignment of every department and business goals.
• Ensures effective risk mitigation and management entailing financial, legal, strategic, operational, and cyber.
• Well Informed and quick decision making.

GAP Analysis: Once you have identified all the details about your existing GRC processes, you need to zero in on the following

1. Maturity of the processes.
2. Quality of Data.
3. Existing Gaps.

The following are next steps are to record the following

1. Any missing or duplicate data.
2. Any duplication or redundant processes.
3. Identify the scope for automating or removing manual workflows.

Managing Stakeholder Expectations: Your GRC implementation strategy's success needs to ensure that your entire organisation is on the same page, even though this is frequently neglected. Every department is involved in an effectively planned GRC project. All significant stakeholders must be allowed to express their thoughts and concerns about your plan. Organisational alignment can be achieved as shared below:

1. Alignment of Executive Team With Critical Factors - The first stage in securing organisational common ground is to create a detailed plan that includes essential aspects of the project, such as the timetable and the budget. Before taking additional action, you must confirm that leadership agrees with your strategy. Then it would be best if you made any necessary adjustments before telling the rest of the organisation.
2. Moving Down From The Top - As soon as you have received executive approval, you will need to put change management practices into effect across all other business units. These processes need to be realistic and conveyed understandably.

For instance, it is reasonable to anticipate that the modifications you have suggested will be met with some level of opposition. Processes and procedures that have been in a department for a long time often need to be gradually phased out before they can be eliminated.

It is to be ensured that each team receives consistent and informative updates if you want a seamless transition. These updates should inform all the leading stakeholders about the essential changes that have been made and how those changes will influence their roles. Make sure that any team member can easily share any concerns, suggestions, or other significant input that may be why it is required to adjust your approach. Create a process that is open and transparent.

Create A Robust GRC Approach - Putting in the necessary foundation is necessary if you want to ensure that your GRC system is practical and adaptive. Because of the ever-evolving nature of cyber threats and vulnerabilities, the ever-changing landscape of cyber threats, and the severe repercussions of data breaches, these components are of the utmost importance in information technology governance and risk management (IT GRC).

Even more, emphasis needs to be paid to guaranteeing that the GRC methods employed by financial institutions and health organisations are flexible enough to accommodate the regular changes in regulatory requirements that their respective businesses are subject to.

Invest In A GRC Software Solution Of Repute - Putting in place a GRC programme from the beginning necessitates the utilisation of many different moving elements, such as the consolidation of information silos, continual upgrades, and the utilisation of manual procedures such as spreadsheets. You can direct more of your implementation efforts to higher-level activities using a GRC platform because it can simplify many of these problematic areas.

When selecting a GRC tool for your firm, just as you would with any other third-party vendor, you need to complete your due diligence to ensure that the tool complies with all compliance rules and does not put your organisation in a position where it faces extreme security risks.

The appropriate GRC technology should result in a return on investment (ROI) that can be measured in terms of money and time saved. Some critical questions that need to be addressed are

• Does the software solution offer ease of use?
• Does it have automated workflows?
• Is it customisable and scalable?
• Does the solution offer detailed task management and execution?
• Does it support the integration of third-party applications?
• Is it cost-effective from a TCO (Total Cost of Ownership) perspective?

Use Industry Prevalent and Accepted Standards - The capacity to align with the requirements of the entire business is one of the essential characteristics of a GRC strategy that is both successful and efficient. A baseline should be established as a point of reference, even if every department will have its own unique set of criteria. For example, you can adopt an industry standard such as NIST 800-53 or ISO 27001 to standardise your control architecture.

Evaluate and Adjust Your GRC Strategy - Getting your new GRC programme up and running is not a "set it and forget it" kind of endeavour. After it has been implemented, you must ensure that your strategy can develop and adapt to your company's goals. Every group should maintain comprehensive and up-to-date records of their GRC requirements, highlighting any significant shifts in the situation, such as incorporating new tools.

This reporting can serve as a point of reference during the periodic meetings with stakeholders to ensure that the entirety of your organisation continues to follow the overall strategy. To ensure compliance management is being properly carried out, at least one annual audit must be performed. You should then prioritise the resolution of any compliance issues that have arisen.

Concluding Remarks – Deploying a robust GRC framework is a tedious initiative. But If you partner with an expert partner like DivIHN Integration Inc ., you do not have to worry about your ROI. To know more, please reach out to sgovilkar@divihn.com.

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