The 2020 global pandemic is recognised as an event that brought about significant mindset shifts in what were once very unbending corporate structures. Three years later, the corporate world looks very different, and many more things are predicted to change over the next few decades. The new world of work demands that you keep up with this ongoing momentum of transformation, as the success of your business will largely depend on its flexibility to quickly adapt. It goes without saying then, that a company’s risk and compliance program must be dynamic.
A risk-based approach to compliance involves understanding your business operations against its risk landscape and identifying factors that could have negative consequences on your business.
The main objective of the risk-based approach is to first identify the highest compliance risks to your organization, making them a priority for controls, policies, and procedures in your company.
Why is a Risk-based Approach Important?
Bringing compliance and risk together can help your business to prioritize and focus their efforts more efficiently. By addressing compliance issues with a risk-based approach, companies are able to allocate resources sustainably, leading to a more effective compliance function.
The consequences of avoiding this could lead to the following:
- Financial loss incurred by lawsuits
- Theft as a result of lax business processes
- Catastrophic losses, such as the loss of reputation, market share, and/or investor trust
- Poor and risk-averse company culture brought about by a lack of transparency, responsibility, and accountability with staff
- Reduced company growth due to the company’s inability to effectively manage risks and take advantage of opportunities
Benefits of a Risk-Based Approach
- Adaptability to changing environments: This can give a company a competitive advantage as they will be responsive to new ideas, build resilience, and will recover quickly from incidents.
- Good tracking and reporting structure: This will improve customer satisfaction and create increased customer retention.
- Clear outcomes and accountability: Creates transparency in an organization between all stakeholders to ensure all are working towards common business goals.
- Prevent external disruptions: This could prevent damage and losses to a business, where additional costs could rupture a business.
- Quality management: Risk management ensures quality control in business activities. By avoiding risks, quality is obtained and the organization will also have an opportunity to drive change and improvement while achieving optimal customer success.
It is imperative that businesses aren’t treating compliance as a checklist task – a long-term, more strategic approach must be adopted in order to ensure that your business isn’t vulnerable to future threats.
