What is GRC? Governance, Risk and Compliance Explained.
GRC stands for Governance, Risk and Compliance, and is a system used by organizations to structure governance, risk management and regulatory compliance. The concept is to unify and align an organization’s approach to risk management and regulatory compliance. Strengthening and rationalizing these processes can help improve business performance and enhance decision-making within corporate governance boards. Organizations across a variety of industries can benefit from a well-planned governance, risk and compliance (GRC) strategy. GRC can help you align performance activities to business goals, manage enterprise risk and meet compliance regulations.
In this article, we’ll answer the following questions:
- What is GRC?
- Why does your organization need GRC?
- What does a strong GRC strategy look like?
- What does a weak GRC strategy look like?
- How can the right tools help your GRC strategy?
What is GRC?
GRC stands for Governance, Risk and Compliance. GRC is a system used by organizations to structure governance, risk management and regulatory compliance. The concept is to unify and align an organization’s approach to risk management and regulatory compliance. Strengthening and rationalizing these processes can help improve business performance and enhance decision-making within corporate governance boards.
The term GRC was coined by the OCEG and formally defined in 2007 as “the integrated collection of capabilities that enable an organization to reliably achieve objectives, address uncertainty and act with integrity.” As the name suggests, there are three main components to the discipline: governance, risk management and compliance. Before we dive into what makes a GRC strategy effective, we’ll define and explain each of these three components individually.
Governance is the process of ensuring that all organizational activities (IT operations, training, etc.) are aligned in a way that supports and advances the organization’s overall goals and objectives. Governance typically involves the organization’s key decision-makers, such as its board members or high-level executives. It defines and enforces activities like:
- Board composition
- Corporate disclosure
- Executive compensation
How executives gather data, make strategic decisions, communicate with key stakeholders and determine who joins the board all depend on governance. An example of poor governance in an organization might be a group of executives engaging in insider trading or a director whose business decisions and strategies consistently reflect a lack of interest in environmental, social or legal guidelines.
Effective governance relies on using various data, information and hard evidence to develop strategies and make decisions. Key sources include:
- Internal audits
- Assurance reports
- Compliance monitoring results
- Risk assessments
Robust governance helps keep the organization on track and aligned with defined objectives.
2) Risk Management and GRC Security
Risk managementinvolves identifying, assessing and controlling threats and risks to the organization. These threats could be financial pitfalls, legal consequences, cybersecurity threats, commercial liabilities, management errors and even natural disasters and other accidents.
Risk management processes typically rely on internal audits and risk assessments to identify critical gaps and areas of significant uncertainty. Risks can be found internally, within essential business operations and processes, or externally, out on the broader market.
Organizations often task many individuals with various elements of risk management, including IT security leaders, business analysts, finance officers and the governance board. A robust GRC framework can help ensure that all risk management activities are aligned with the organization’s ultimate goals and objectives.
3) What Is GRC Compliance?
GRC compliance involves aligning organizational activities with the laws and regulations that impact them. These regulations could be legal mandates, like privacy or environmental laws, or voluntarily established company policies and procedures.
For example, a compliance officer at a software company might work to ensure that their systems abide by regulations like GDPR. In contrast, an environmental inspector might search a construction site for environmental code violations and take the necessary steps to address them.
GRC frameworks encourage organizations to centralize compliance monitoring and stay on top of any laws or regulations that could affect their processes. Breaking compliance could result in devastating financial, legal and reputational consequences. These could include fines, time and money spent in court, and a tarnished reputation.
Why Does Your Organization Need GRC?
Organizations face a rapidly changing and increasingly complex business climate. Whether you’re part of a large corporation, government agency, small business or nonprofit, you’ll face numerous challenges, including:
- Constant changes to regulations and enforcement that severely impact business operations
- Stakeholder demand for strong performance outcomes, consistent growth and transparent processes
- Growing costs of addressing compliance requirements and managing risk
- Increase of third-party relationships and associated governance challenges
- Potential legal and financial consequences resulting from lack of effective oversight and overlooking critical threats
A disorganized approach to GRC can slow down an organization and cost more — all while achieving less, missing requisite compliance requirements and misidentifying threats to your revenue or reputation.
What Does a Strong GRC Strategy Look Like?
Too often, organizations believe that buying a single GRC software system or forming a specialized department will help resolve all of their GRC-related concerns. However, a robust GRC strategy is about more than a specific tool or set of roles. An effective implementation involves:
- Defining the right objectives for your organization
- Ensuring smooth communication and that the right information always reaches the right people at the right time
- Establishing and enforcing the right set of actions and controls to address risk and compliance needs
Benefits of Well-Planned GRC Management and Strategy
Focusing on the above can help you prioritize your needs and select the right array of tools and processes that support your goals without slowing down or overcomplicating day-to-day operations.
Organizations that can implement a cohesive, integrated set of processes and technologies can expect benefits like:
- Reduced costs
- Reduced duplication of business activities
- Faster, easier access to information
- Higher quality and accuracy of information and communications
- Greater ability to consistently repeat key processes
The standard components of a strong GRC strategy include, but are not limited to:
- Effective oversight
- Integrated reporting and analytics
- Organization-wide ethics and integrity requirements
- Integrated information, risk and control activities
- Unified vocabulary across departments and disciplines
- Standardized practices for core processes like hiring, training, investments, evaluation, etc.
Many organizations approach GRC by constructing overly complex and specialized programs in risk management, performance management, compliance, internal auditing and corporate social responsibility. The danger in this is creating too many disconnected silos that slow down communication, limit access to critical information and duplicate activities due to a lack of transparency and knowledge across the organization.
The best GRC strategy may be invisible. The end goal is that your selected tools, technologies and processes become “baked into” the fabric of your organization – so that any GRC standards and practices become a natural part of doing business.
What Does a Weak GRC Strategy Look Like?
Unfortunately, a suboptimal approach to GRC can cause many issues. A weak strategy is typically founded on a host of disjointed activities and poor processes, including:
- Unclear objectives
- Lack of effective oversight
- Lack of access to crucial information
- Organizational and functional silos
- High costs
- High rates of duplication
- Wasted resources, data and information
- Unnecessary complexity
The Downsides of a Poorly Planned GRC Strategy
When organizations choose to haphazardly create departments and arbitrary programs instead of basing their implementation on GRC best practices, they can expect to face drawbacks like:
- Lack of visibility into key threats and risks to the organization
- Higher costs
- Difficulty measuring risk-adjusted performance
- Reduced ability or total inability to manage third-party risks
When GRC activities are siloed and relegated to specialized departments and programs, it’s more likely that substandard strategies are chosen, activities are duplicated, and day-to-day business operations are slowed down considerably.
It’s also helpful to note that doing GRC “wrong” is very common. As organizations expand, it becomes more challenging to keep track of all the people and processes involved. As the business grows, the severity and frequency of governance, risk and compliance issues also grow.
It’s natural to want to silo GRC activities and relegate them to a specialized department instead of building a strategy to incorporate them throughout your organization seamlessly. However, for your strategy to be more scalable, sustainable and cost-effective, focusing on the latter approach is more likely to give you the results you’re looking for.
As the business grows, the severity and frequency of governance, risk and compliance issues also grow. It’s important to
What Are the More Serious GRC Risks
Organizations should perform risk assessments when considering wider business aims and objectives. Risk assessments identify potential issues throughout the business operation. Some of the more serious risks include:
- Financial risks
- Cybersecurity threats
- Commercial liabilities
These risks can impact teams differently throughout the organization. Teams most impacted by the issues above include:
- Business analysts
- Finance officers
- IT security executives
- The governance board
A GRC framework ensures these different teams are all working towards the same objectives.
5 Tips When Implementing GRC
Implementing a GRC model can seem complex, as it will generally include internal auditing of existing processes and procedures. It’s likely that each established area of the organization will have its own way of performing risk assessments or compliance monitoring. But a unified approach with shared expertise is the best way to achieve the overall aims of the organization.
With this in mind, there are ways to make the launching of the GRC program more straightforward. Here are five tips for implementing a GRC framework in an organization.
1. The Discovery Phase is Important
Spending time taking stock of existing processes is vital if the GRC program is to be a success. Organizations should perform an internal audit of the processes and procedures used by the risk assessment and compliance teams.
Approaches in departments and teams’ fields will of course be different, but the aim is to establish the similarities and shared processes. The results of the internal audit will help shape the direction of the whole GRC project.
It’s also important to define all relevant regulations, contracts, laws and legislation the organization may need to be compliant with. For example, organizations that process cardholder data will likely need to be compliant with the Payment Card Industry Data Security Standard. Once highlighted, the scale and scope of the GRC program can be decided.
2. Senior Management Should be Fully Onboard
The benefits of a unified GRC approach should be clear to any members of senior management. After all, it means better access to reports, analytics and evidence which help shape strategic decisions. Plus, improved risk management processes mean those strategic decisions are well-informed in the first place.
Senior management should provide a clear idea of the organization’s overall aims and strategy, which in turn will set the tone of the GRC project. If the board can decide on a unified GRC strategy, it will be easier to embed the project in the wider organization.
3. GRC Tools Can Streamline the Process
GRC tools such as compliance software or reliable board portal software will help streamline the project. GRC software will provide one area to record all the different risk assessments and internal audits. In addition, it can help directly with compliance monitoring. This centralized data can then be accessed and visualized remotely, for instant access to trends and records.
The GRC software will also help to trace the different processes and procedures used within different teams or roles. By centralizing processes within one piece of software, organizations can explore the trends found within different silos.
4. Make Improved Business Performance a Core Project Aim
When assessing existing processes and procedures the question should be asked: can it be improved? The main aim of a GRC program is to drive improvements to risk assessment and compliance monitoring. Both aspects are integral to the ongoing success of an organization.
Risk management directly informs decisions on the growth of the organization, or the improvement of services and products. A project to unify GRC programs should aim to improve processes for risk assessment and management. This can be through efficiency savings by sharing resources across teams and departments, or through the refining of processes. The overall performance of the business should improve as a result.
5. Define Objectives and Keep Communication Channels Open
Circling back to the goals of your GRC initiative is critical. There should be regular communication and clarity about the objectives to all members of the organization. GRC by its very nature is far-reaching and comprehensive, as the process will review the breadth of an organization.
The launching of a new GRC system will require training and engagement campaigns, so project communication is important. Questionnaires, surveys and interviews are useful ways of gaining insight into different processes across teams and departments. Plus, any changes in process will need to be announced and managed.
This is particularly true if the organization is introducing a new tool or piece of software to deliver the GRC system. Any changes in technology will require an element of engagement or training.
Diligent's Compliance Software Helps You Keep Track of Everything and Stay Ahead of the Curve
After you have clearly defined organizational objectives, established an effective communications strategy and enforced the best set of controls for your organization, the right tools and technology can help you stay on top of your GRC activities.
Diligent Compliance softwarecan help you store compliance monitoring results and internal audit documents in a single, centralized place. Governance boards can access the platform anytime, anywhere, across a range of devices.
Diligent also offers governance solutions to help board members and strategic decision-makers identify inefficient processes, benchmark against peers and stay up-to-date with the latest industry trends. These allow executives to:
- Keep track of industry news to identify market trends, stakeholder sentiments, key risks and critical opportunities
- Monitor governance “health” with peer group comparison, reputation monitoring and succession planning tools
- Enjoy a multi-channel experience with mobile, automated emails, dashboards, curated newsletters, API, finished reports, etc.
- Tailor the sources, volume, frequency and modes of consumption according to their personal preferences
- View analytics, flag discrepancies and evaluate performance
- Access an extensive database of director and executive profiles
- Access up-to-date intelligence and profiles on key competitors and companies of interest
Interested in learning more? Connect with Diligent today to understand how the right set of governance solutions and compliance software can accelerate your GRC strategy.
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