The one thing that businesses are afraid of is – Disruption because it triggers changes in existing procedures, policies, and processes. This is where a risk-based approach makes sense.
What exactly is a risk-based approach?
A risk-based approach is simple to define. To prioritize control, policy, and procedure priorities, you need to identify the compliance risks your organization faces frequently. Your compliance program reduces the highest risks first, and then you move to lower risks.
Now you must have understood why a risk-based approach is recommended. Compliance risks that will cause the most disruption to your business include investigations, regulatory settlements, unwanted headlines, business partnerships put at risk, and so on. And each of these should be managed considering the compliance risks associated with the same. If you manage all the risks using one approach, it will only reflect incompetency to the regulators.
What Risk-Based Approaches Involve?
As we mentioned above, risk-based approaches are the basis for risk management. Two parts of this process are identifying certain risks and prioritizing them. Therefore, we refer to skill in risk assessment and agility when we say what a risk-based approach entails.
It would be best to keep that in mind as you defend the value of compliance programs to senior executives. Compliance programs are better run with a risk-based approach, but they aren’t necessarily more affordable or faster as savings and speed aren’t the main objectives. Instead, they are designed to reduce compliance risks.
An assessment of risk requires a variety of specific capabilities. Performing due diligence on third parties implies, for instance, the ability to verify their legitimacy, given that they may become part of your extended enterprise. There will inevitably be some risk associated with working with a third party, but the most important thing is that you are aware of the risks.
It implies that one can track regulatory changes as well. That can mean new rules for your business or existing laws that are becoming more difficult to enforce. Therefore, you must understand how changes in the external environment shift the criteria for an organizational “high” compliance risk.
Lastly, you should be able to recognize how your company’s internal processes can pose compliance risks. For example, a new product line, a new incentive compensation scheme, an IT system, a third party, an assignment for a third party could all change your compliance risk without anything in the “outside” world-changing.
For compliance officers to develop their capabilities, they will need access to more data and more analytics. Additionally, you’ll need a good relationship with other company parts, so you’ll be informed of internal changes. Finally, that means senior leaders must endorse compliance, so those in other parts of the enterprise understand the importance of compliance.
A risk-based approach also improves the decision-making process of an organization, regardless of its industry focus.
Related Article: Risk Assessment Vs Risk Management: How Are they Different?
Using a Risk-Based Approach has Many Benefits.
In terms of regulatory compliance, adopting a risk-based approach has several advantages:
- Increasing attention to regulatory outcomes, resources, and activities throughout the organization.
- Greater adaptability to changing environments.
- Improved transparency and accountability for outcomes.
- Improved quality – All the critical risks are taken care of
- Identify, investigate, and eliminate defects in risk-severity order.
- An action plan can be developed that identifies goals, strategies, and directions about problem areas.
- It is possible to monitor risks continuously to know the project’s status and quality.
- Linking product risks to requirements will help identify gaps.
- Processes are most efficient when done based on risk.
- Good tracking and reporting will improve customer satisfaction.
- Trouble spots are discovered at an early stage. You can then take proactive measures.
- You can develop better strategies and plans.
- As a result of measuring test results based on risk, the organization can make conscious decisions about the product release, knowing the residual quality risk.
- You can focus more on the risks of the business project instead of focusing on the format of the information system.
- Risk analysis will be more thorough and accurate.
Despite several advantages, the risk-based approach is not without disadvantages:
- One disadvantage may be that unknown risks may be involved and risk assessments that are too low. These risks will only become a problem if they become real. Furthermore, this disadvantage underscores the importance of risk identification and analysis as a foundation for a risk-based approach.
- The difficulty with risk assessment is that it can be highly subjective. This is because there are no objective criteria available, so it is common to rely on expert judgment in that case. Identifying and selecting the right stakeholders for risk assessment is, therefore, a significant challenge.
Manual System or Software: Which One is Better for Managing Compliance Risk?
Risk management can get challenging when done manually. You are likely to put more effort and time into managing the repetitive risks. Moreover, maintaining paper-based records is troublesome. It will further lead to data traceability and integrity issues.
On the other hand, relying on next-generation software for risk management can drive multiple benefits:
- All your records will be automatically stored in a secure, centralized database. As a result, you can manage repetitively occurring risks more efficiently.
- The software includes advanced reporting and analytics capability to help you make informed decisions and effective action plans.
- Data transparency, integrity, and accessibility will be no more troublesome. This will result in better decision-making.
You can have just one solution to automate the risk management process, primarily with highly regulated industries. In addition, the software comes with excellent in-built capabilities to simplify risk management for you.
Which is the Best Software to Choose?
If you are among the businesses looking for a comprehensive solution for quality, risk, and compliance management, you can go for Qualityze eQMS Suite without any second thoughts. It is suitable for modern business environments requiring flexibility and security to manage business data, processes, and systems without hassles.
Qualityze is an Enterprise Quality and Compliance Management solution with exceptional in-built capabilities, including risk management. The system automatically calculates the risk severity based on the field values you define so you can prioritize and manage risks efficiently. The powerful and secure cloud platform, i.e., Salesforce.com, supports all the compliance requirements with required flexibility, security, reliability, and performance. In addition, it comes will many other amazing functionalities such as digital signatures, audit trails, chatter, email approvals, and much more.
For all your questions and more information about our Qualityze Quality Management Software and enterprise benefits, please contact our customer success team by calling +1-877-207-8616 or emailing firstname.lastname@example.org. We will get back to you at your earliest convenience. A free demo is also available so that you can see the product in action.