Converging Governance, Risk and Compliance

by Melba-Jean Bernad, 16 August 2010

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topics:
Risk Management

tags:
Audit2 compliance corporate governance enterprise risk management governance GRC convergence Oracle risk SAP

The global financial meltdown exposed underlying weaknesses in the risk management system of many companies: disparate systems and processes, fragmented decision-making, and inadequate forecasting. As a result, there has been a great change in attitude toward governance, risk and compliance (GRC).

In a recent report, PricewaterhouseCoopers notes that increased transparency, accelerated rate of change, and greater complexity are three fundamental reasons that will push business leaders to focus on GRC, a combined area of focus within an organisation that developed because of interdependencies between the three components.

The PwC report explains that the accelerated pace of business requires a GRC approach that enables organisations to be more predictive and to align risk and rewards through the efficient allocation of resources, both strategically and tactically. Also, because of added complexity, it is more difficult to identify and evaluate new sources of risk, whether from the political environment, from consumer expectations, or beyond.

Fearful of both business failure and the consequences of non compliance, many businesses have resorted to expanding their governance, risk management and compliance (GRC) departments, reveal KPMG International and the Economist Intelligence Unit in a joint study.

The expansion, however, has led to costly disparate systems and processes that created redundancies – resulting in GRC losing sight of its prime objective: to improve performance and efficiency, says the KPMG study.

Convergence

“In recent years, internal auditors, risk officers, compliance officers and information technology chiefs have begun to work together more closely, finding commonality between disparate GRC projects,” notes Mike Nolan, Global Risk & Compliance Service Group Leader, KPMG. “Some organisations even formed GRC committees, and an increasing number of software vendors entered the GRC market to ease the burden of administration. Such efforts have increasingly come under the banner of GRC convergence.”

The joint survey conducted by KPMG and the Economist Intelligence Unit found that almost two thirds (64%) of respondents say that convergence is a priority for their organisation, driven by business complexity, a desire to reduce risk exposure and a need to improve corporate performance.

According to survey respondents, the top three main benefits of better GRC convergence is the ability to identify and manage risks more quickly; improved corporate performance; and cost reduction through reduction in duplication and identification of synergies.

“We believe that GRC convergence is an idea whose time has come. It is not simply a technology tool; it is a way to rationalise risk management and controls, giving management the information they need to improve business performance and achieve compliance,” according to KPMG.

But like any major transformation program, GRC convergence also encounters opposition, with 44% of respondents acknowledging “resistance to change” as the main barrier.

Integration of GRC does not appear to be held up by technical factors as only nine percent of respondents say inadequate technology is a barrier to successful convergence. “Companies should think as much about the process change and the organisational change as the IT change,” says Dr. George Westerman of the Sloan School of Management. “When projects fail, it’s usually not the technology that is the problem.”

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