There are many misconceptions when it comes to compliance and risk management. While both help prevents While both are closely aligned, they are not to be used interchangeably as they aren’t the same, they have an overlap!
It’s crucial to understand the differences between compliance and risk management to ensure organizations handle them correctly. While distinguishing the difference may not sound like a crucial agenda, it can make a huge difference between merely avoiding risk or providing plain old compliance training for employees and actually producing tangible value.
Here are the differences to note of:
Compliance is the act of conforming to a set of standards, requirements, and regulations. There are two crucial components in compliance, which are regulatory and corporate compliance. Risk management is a process of identifying, assessing, then managing any potential issues that may damage an organization’s earnings and reputation.
- Tactical vs. Strategic
Because non-compliance may result in pricey fines, penalties, and even reputational damage, you should not undervalue it. The compliance training courses conducted should be seen as more than a box-checking approach so you’re more assured that employees are obeying the relevant rules and regulations internally and stated by law.
On the other hand, risk management would depend more heavily on analysis to identify risks and prevent them. It may also have you determine any risks worth taking to benefit the organization.
- Prescribed vs. Predictive
Compliance has more or a prescriptive nature while risk management takes on a predictive nature. That’s why the former is considered more tactical while the latter is more strategic.
When it comes to compliance, organizations need to adhere to the rules and regulations already set. But with risk management, must be less reactive. It must be able to forecast the impact that risks may have on the organization, thus spurring new and innovative processes to minimize risks or take advantage of the upsides it comes with them. This is opposed to following and subscribing to already established rules!
- Risk Aversion vs. Value Creation
Compliance has its great upsides. But complying with governance rules and regulations would rarely translate into value-generating business propositions without risk management’s long-term approach.
Compliance would usually stop with the verification that rules have been followed to prevent risks.
However, the best risk management would have the ability to transform so-called necessary evils associated with compliance, creating a winning value proposition instead.
- Siloed vs. Integrated
Compliance is usually driven by a siloed compliance department or initiatives from various departments. While compliance processes greatly benefit from the broad transparency, it’s possible to live without it.
Conversely, some of the most impactful risk management programs can’t perform in siloes! It’s necessary to integrate departments, processes, and technology systems to discover the risks in the organizations and how to handle them, whether it’s to avoid the implications or drive further value.
Wrapping It Up
While compliance and risk management have their differences, you can address both with the right strategies and technologies.