Elements of an Integrated Risk Management System
An integrated risk management (IRM) system is a comprehensive, organization-wide approach that combines risk activities across all departments to provide a holistic view of enterprise risks—distinct from but encompassing elements of enterprise risk management (ERM)—and includes key components such as risk identification, assessment, response, communication, and monitoring to improve decision-making and performance through a structured governance framework linking business objectives and risk factors.
Integrated risk management (IRM) is defined as a set of practices and processes, supported by a risk-aware culture and enabling technologies, that improve decision-making and performance through an integrated view of how well an organization manages its unique set of risks.
Put simply, integrated risk management is an approach to risk management that integrates risk activities across every level of your company to drive better decision-making by your decision-makers.
Integrated Risk Management Systems vs. Enterprise Risk Management Systems
Integrated risk management is not the same as enterprise risk management (ERM). ERM focuses on planning, organizing, leading, and controlling your risk activities, allowing you to review your strategic business objectives as well as the information technology risks associated with those objectives.
Integrated risk management is more about analyzing the risks inherent in your company’s technologies. While it includes many elements of ERM, it is typically more comprehensive. Building an integrated risk management system often means replacing risk areas that have traditionally existed in silos with a single, holistic view of enterprise risk.
This strategy requires that all key functions in your company—personnel, financial services and accounting, manufacturing, procurement, information technology, legal, internal audit, strategic development, marketing, and so forth—take part in the risk management process.
An integrated risk management framework establishes a structured approach to governing risk, linking business objectives, functional departments, and risk assessment components (extent of potential loss and probability).
Elements of an Integrated Risk Management System
Every integrated risk management system will have these common components:
- Risk Identification
- Risk Assessment
- Risk Response
- Risk Communication
- Risk Monitoring
Risk Identification
Organizations identify and develop a solid understanding of their risks, including any that could keep employees from achieving business objectives at various levels. Staff should be given clear direction and tools for identifying risks, such as workshops, checklists, or enterprise risk management software.
Risk identification can be structured as part of a formal risk assessment or on an ongoing basis. When defining risk identification activities, consider:
- Who should be involved
- The rigor needed for activities
- The type and detail of data to collect
- How to document identified risks
Risk Assessment
Analyze and prioritize identified risks by assessing their likelihood and potential impact. Risk assessment generally focuses on “residual risk” (after existing controls and responses) but can also include “inherent risk” (before controls).
Risk analysis helps prioritize which risks to address first, considering risk tolerance. Assessments should occur at both organizational and activity levels and include risks that may affect business objectives. Define risk assessment activities by indicating:
- Who should be involved
- The rigor needed
- Information and detail required
- How to document assessed risks
Risk Response
Select and implement strategies to respond to specific risks, such as accepting, monitoring, transferring, avoiding, or reducing risk. Tolerance for a specific risk should determine the response.
If action is required, create a plan outlining actions, responsibilities, and timelines. Risk response strategies should include all accompanying activities, such as communications and outreach. When defining risk response activities, consider:
- The wider context of the risk and business objectives
- Stakeholder tolerance
- Resource allocation priorities
Risk Communication
Risk communication refers to how information about risks is reported to appropriate levels of the organization at the right times to support decision-making. This includes internal communication across operational areas and external communication to clients and stakeholders.
Effective communication ensures decision-makers have enough information to contribute meaningfully. Standardized methods for communicating risks are recommended. When defining risk communication activities, consider:
- The type of metrics and information needed at various stages
- The intended audience (employees, management, external stakeholders)
- Methods for communicating information
Risk Monitoring
Monitoring ensures risk information remains relevant. This involves reviewing whether the risk profile changes after implementing controls and reviewing risk responses for effectiveness.
Regular reviews account for changing circumstances and help identify improvements to the risk management process. When defining risk monitoring activities, consider:
- Who should be involved
- How to monitor changes and relevance of risks
- How to monitor progress and effectiveness of responses
- Review frequency
- Responsibility for changes or corrective actions
Implementing Your Integrated Risk Management System
Every company is different, so design risk management practices to meet your organization’s needs. While creating your system:
- Consult with internal and external stakeholders
- Communicate senior management’s commitment and vision
- Communicate components and modifications of your risk management approach in a timely manner
- Report effectiveness and outcomes of risk management solutions
Once foundational elements are established, integrate them so they become inherent to your company:
- Risk management strategy: Establish a risk-aware culture, executive sponsorship, plans, and frameworks.
- People: Empower employees with resources and ensure effective communication and reporting.
- Processes: Establish processes that deliver risk and compliance outcomes and are accessible to all.
- Technology: Implement technologies that support your risk management strategy, enable collaboration, and keep stakeholders informed.
Developing communication and reporting methods allows you to keep stakeholders informed about risk management processes, practices, and responses. At any time, you should be able to provide stakeholders with a snapshot of your company’s key risks and management actions.