Are you closing 100+ issues per year, but your issue inventory continues to grow?

It has happened to the best of us: we spend immeasurable hours and effort resolving issues, but the issue inventory continues to grow. For every issue we resolve, one or two other ones emerge.

Many highly regulated industries, like the banking industry, are experiencing a rise in issue inventories due to various factors, including regulatory pressure, outdated IT systems, integration challenges, cybersecurity threats, adoption of emerging technologies, operational and resilience challenges, increased risk and compliance focus, increased third-party and supply chain risk, and cultural and organizational factors.

To address these challenges, businesses must modernize their systems, adopt proactive issue resolution strategies, and enhance their risk and control frameworks.

In my previous article, I discussed my recommended method for closing issues. So, this time, I'll explore how risk managers can improve their risk and control frameworks. Here's my recommended approach:

1. Recognize the Need for Change

• Many businesses use outdated, in-house risk management frameworks or frameworks that a consulting firm established years ago.
• An outdated control model can lead to several issues, including lack of alignment with current regulations, inadequate risk identification and mitigation, inflexibility and scalability, poor integration with business strategy, weak governance and accountability, limited operational resilience, suboptimal control monitoring, insufficient focus on ESG and sustainability risks, data management and analytics deficiencies, and an inability to meet stakeholder expectations, resulting in potential legal penalties and damage to trust and credibility.

2. Align Risk Management with Global Standards

• Risk managers should align their control management processes with international risk self-assessment standards such as RCSA, ISO 31,000, and COSO Enterprise Risk Management for several reasons. These include global standardization and consistency, enhanced risk identification and mitigation, regulatory compliance, improved governance and accountability, operational efficiency, resilience to economic shocks, reputation and investor confidence, and strategic risk management.
• Global standards ensure a common framework for risk management across industries and countries, enabling better communication and collaboration with stakeholders, regulators, and partners globally. They provide comprehensive frameworks for identifying, assessing, and mitigating risks, enabling proactive mitigation and stronger control mechanisms. Adherence to these standards helps firms meet regulatory requirements and avoid fines or sanctions due to non-compliance.
• Improving governance and accountability is another benefit of aligning risk management with the overall business strategy. Frameworks like COSO ERM emphasize integrating risk management into corporate governance, strengthening accountability and decision-making at all levels. Realigning risk management processes with these standards can also enhance a company's reputation and investor confidence.

3. Build a Resilient Control Framework

• Leverage methodologies to guarantee that processes, activities, risk, controls, and control monitoring are all in alignment. This can be achieved by mapping out processes using the Business Process Model and Notation (BPMN 2.0) standard and establishing a relational database to track the decision-making process involved in developing the control environment. There is a method to create maps with these properties using Microsoft Visio Pro and Excel, which I will demonstrate in a subsequent publication.
• Review your organization structure and establish Centers of Excellence to offer governance, direction, and technical assistance to risk analysts overseeing the risk and control lifecycle and ensuring cyber, third-party, and business continuity risks are adequately addressed.
• Establish a business compliance function that takes a proactive approach in evaluating new corporate policies and regulations. This function should also oversee risk initiatives to ensure compliance with the latest requirements and prepare for upcoming regulatory obligations, such as the Digital Operational Resilience Act (DORA), Capital Requirements Regulation (CRR3), Corporate Sustainability Reporting Directive (CSRD), Sustainable Finance Disclosure Regulation (SFDR), and Technology Risk governing regulatory projects related to AI, Machine Learning, and Blockchain.

4. Leverage Business Intelligence in your Control Design

• Control theory, statistical process control (SPC), design thinking, and big data analytics are essential components of modern control design.
• Control theory focuses on understanding system responses and adjusting systems to achieve desired outcomes.
• SPC uses statistical methods to monitor and control processes, enabling continuous monitoring and data-driven decisions.
• Design thinking promotes creativity and innovation, ensuring controls are user-centric.
• Big data analytics enhances risk detection, predictive insights, and efficiency.

Integrating these approaches creates a comprehensive, adaptive, and efficient control framework, improving compliance, scalability, and decision-making. In addition, it creates forward-looking control environments that are efficient to manage, easy to update, and provide sufficient evidence to demonstrate compliance to company policies and regulations.

This approach also helps alleviate the administrative workload and operational expenses for the business.

Let me know your thoughts:

• If you think this article was interesting, please like or repost
• If you have questions or disagree, please add your comments the end of the article!
• If you would like assistance with your risk control environment: Book a free 30-minute consultation!

Daniel

In case you missed these Evolving Risk and Control publications:

• How I Closed 400 Issues in Three Years.
• Process Maps are Useless!
• Is Your Risk Management Team Agile?
• Is your Risk & Control function adding value to the business… or is it seen as a hindrance to progress?
• Agile and Risk Management
• Great Teams

Copyright 2024 Daniel Espejel

Keywords

#RegulatedIndustries #IssueInventories #RegulatoryPressure #OutdatedITSystems #CybersecurityThreats #OperationalChallenges #ResilienceChallenges #SupplyChainRisk #RiskAndControlFrameworks #DataPrivacyRegulations #ModernizeSystems #IssueResolution #RiskManagementFrameworks #GlobalStandards #BusinessCompliance #DigitalResilienceAct (DORA) #SustainabilityReporting (CSRD) #FinanceDisclosureRegulation (SFDR) #TechnologyRisk #BusinessIntelligence #ControlTheory #StatisticalProcessControl (SPC) #DesignThinking #BigDataAnalytics