Mar 12, 2025
Why Policy Management is Key to Risk Management & Compliance
Within an organization, policies guide day-to-day processes to fulfill legal and regulatory obligations while cementing an organizational culture that builds a foundation for success. Today, there are hundreds of internal and external requirements that organizations must satisfy.
In this article, we will look at how policies fit into an organization, the challenges of policy management, and different approaches to successful policy management implementations.
Policies and Policy Management
A policy defines a set of guidelines or rules to determine the course of action to be taken to achieve business goals and set strategies in accordance with regulatory compliance frameworks. Policies are critical to an organization as they determine how business operations and transactions are conducted, outlining boundaries and relationships among entities in an organization. By setting rules or a predefined course of action, policies ensure that organizations adhere to compliance frameworks and their requirements.
To track, update, and communicate policies, many companies have implemented a process for policy management. Policy management is an ongoing task that entails the creation, communication, and maintenance of organizational policies. When done correctly, policy management drives everyday compliance, minimizes risks and liabilities, and builds company culture. Like an investment, policy management brings value to the organization.
Why Best-Practices-Based Policy Management Matters
Implementing best-practices-based policy and procedure management is essential for maintaining compliance and strengthening risk management processes. This approach ensures policies are not only established but also understood and adhered to by employees. Organizations need to routinely measure the comprehension of these policies, which acts as a key indicator in identifying potential gaps or lapses in behavior.
Benefits of a Best-Practices Approach
Proactive Compliance: Establishing metrics shifts the organization into a proactive state, allowing for the early identification and rectification of compliance issues.
Enhanced Defensibility: Robust policy management enhances the defensibility of the organization’s compliance program, proving that risks are taken seriously and controls are in place for defined purposes.
By continuously assessing policies within the changing business landscape, organizations can remain agile and compliant.
Roles Policies Play in an Organization
Policy management is a crucial part of compliance that keeps employees in the know and grows your company culture. A well-developed dedicated policy management program or built-in GRC policy management solution allows for policy changes to be made and communicated, while delivering real-time reporting keeps you organized when preparing for an audit and minimizes risk.
Organizational Governance: Policies define the relationships, behavior, rules, and what is expected by various entities that interact with one another in an organization. By doing so, policies establish accepted company values and ethics, which form pillars of company culture.
Identify and Mitigate Risk: Procedures and protocols defined in policies offer an actionable way to deal with risks and potential threats. The actions include evergreen processes, as well as processes that are deployed in case of an incident.
Define Compliance: Policies define how an organization meets regulatory obligations and requirements for compliance in terms of day-to-day actions. This, in turn, fosters a security-conscious culture.
Simplify Audits: Having a policy management system also makes audits a much simpler and smoother process: all policy records and versions are maintained in one platform and can be quickly accessed as needed.
Policy Management Challenges
Due to changing requirements and complexities around compliance, proactive teams are continuously seeking to improve their processes when it comes to policy management, including:
Unstructured Policy development
An unstructured policy creation process will be problematic. It leads to the creation of inconsistent policies and implementation of rogue policies. This challenge can be partially mitigated by using templates.
However, the consequences of such ad-hoc or rogue policies extend beyond mere inconsistency. When policies are created without alignment to organizational objectives, they risk impeding progress and leave the organization vulnerable to unforeseen risks.
Lack of Alignment: Ad-hoc policies often lack a clear connection to the organization's goals, which can result in efforts that don't support the overarching mission.
Increased Exposure: Without understanding the defined risks, these policies fail to protect the organization effectively, increasing exposure to potential threats.
Complicated Operations: Such policies can over-complicate business processes. They introduce unnecessary complexity, making it difficult for teams to navigate and execute their tasks efficiently.
Measuring Effectiveness: It becomes nearly impossible to assess the true effectiveness of these policies. Without a framework tied to organizational objectives, evaluating their success is a significant challenge.
By addressing these aspects, organizations can avoid the pitfalls of ad-hoc policy creation and ensure that their policies are both effective and strategically aligned. Using structured templates is a step in the right direction, but a comprehensive approach is essential for safeguarding organizational integrity.
Maintenance and Tracking
This challenge arises when organizations do not regularly update existing policies nor maintain records of past policies and versions. This leads to scattered policies across teams and divisions, making tracking compliance and acceptance a difficult task. The auditing process will also be tiresome since it will be hard to gather evidence and link related standards and regulations.
Without a robust system for maintenance and tracking, organizations may unknowingly increase their exposure, as outdated or poorly tracked policies fail to address current risks and compliance requirements effectively.
Communication and Attestation
If policies are not well communicated, accepted, and easily accessible, organizations may not meet the set requirements and obligations. Organizations should provide ways and controls to ensure policies are in effect, and all entities are aware of them. This might include proof of attestation, such as tracking acceptances and acknowledgments.
When risk and policy management are not taken seriously, it can lead to significant pitfalls. Companies can find themselves in these situations without realizing the increased exposure, underscoring the importance of clear communication and attestation processes.
Training
Lack of coordinated policy training and communication may lead to non-compliant and even inefficient work behavior. Training helps raise awareness and standardization of organization-critical processes.
By addressing underlying issues such as defining objectives, maintaining and tracking policies, ensuring clear communication, and providing comprehensive training, organizations can better manage their risks and avoid the pitfalls of misaligned and ineffective policies.
What is the Connection Between Risk and Policy Management?
Effective risk management and policy management are deeply intertwined, each playing a crucial role in guiding a business toward its objectives. To grasp their connection, let's break it down:
Establishing Objectives and Identifying Risks
Before policies can effectively guide an organization, it must first have a clear set of objectives. Understanding potential threats or risks to these goals is essential. Identifying risks allows businesses to anticipate challenges and prepare accordingly.
Strategies for Managing Risks
In the world of risk management, organizations have a toolbox of strategies to handle potential threats. Understanding and deciding on these strategies is crucial for long-term success and sustainability. Here are the four foundational approaches to managing risk:
Avoidance
This strategy involves taking proactive steps to ensure a risk never occurs. By completely eliminating the source of risk, organizations can prevent potential issues altogether. This might mean steering clear of certain activities or making significant changes to current processes to circumvent potential pitfalls.
Transference
When a risk is transferred, the responsibility for dealing with the consequences is shifted to another party. This is commonly achieved through insurance policies, where, for example, a business pays a premium to an insurance company, which then assumes the financial burden should the risk eventuate. This allows the organization to focus its resources on core activities while ensuring protection against identified risks.
Mitigation
Mitigation doesn’t aim to prevent a risk entirely but rather to reduce its impact or likelihood. This involves designing and implementing strategies to lessen the effect of potential risks. Whether through improved processes, additional training, or implementing safety measures, mitigation is about preparation and resilience.
Acceptance
In some cases, especially when the cost of prevention outweighs the potential impact, organizations may choose to accept the risk. This decision arises when a business determines that dealing with the risk's consequences is feasible and preferable to expending resources on prevention. Acceptance is a calculated strategy where the risk is acknowledged, and its impacts are managed as they arise.
Each of these strategies has its place in comprehensive risk management, and the best choice depends on specific circumstances and risk assessments. By thoughtfully considering these options, organizations can navigate uncertainties more effectively.
The Role of Policies and Procedures
Policies and procedures serve as the backbone for managing risks. They act as specific strategies or controls that either directly mitigate risks or aim to prevent them altogether. By defining how an organization approaches risk, they establish the framework within which employees are expected to operate.
Defining Organizational Culture
At their core, policies and procedures define an organization's risk culture. They establish the ethical standards and behaviors anticipated from employees, influencing decision-making and actions across all levels. This framework supports a consistent approach to risk and ensures that everyone is aligned with the organization's values and priorities.
The connection between risk and policy management is fundamental to an organization’s success. By outlining risks and creating tailored policies, businesses cultivate a risk-aware culture that aligns with their strategic goals.
Why is it Important for Risk Management and Policy Management to be Addressed Holistically?
Understanding why risk management and policy management should be addressed holistically involves recognizing their intricate interconnection. When viewed comprehensively, these elements ensure that an organization's processes align seamlessly.
Here's why this approach is crucial:
Unified Processes: Holistic management enables an organization to synchronize its risk and policy strategies, fostering an environment where processes support one another. This alignment is vital for maintaining robust compliance frameworks and operational efficiency.
Enhanced Defensibility: By considering these aspects together, companies can present a united front when defending against potential audits or legal challenges. This comprehensive approach ensures that all bases are covered and that any gaps between risk and policy are effectively plugged.
Continuous Improvement: Addressing risk and policy management as a whole encourages ongoing assessment and refinement, rather than treating them as isolated components. This continuous loop not only aids in compliance but also drives innovation and improvement across the organization.
Streamlined Compliance: As regulatory landscapes shift, a holistic perspective allows businesses to be more agile and responsive. By having risk and policy management working hand-in-hand, organizations can consistently meet compliance obligations without unnecessary delays or conflicts.
Strategic Advantage: Ultimately, a holistic approach confers a strategic advantage. It elevates an organization’s ability to anticipate risks and adapt policies proactively, thus securing its operational resilience in the face of change.
By integrating these practices, an organization not only mitigates risk but also leverages it as a cornerstone of strategic planning and execution.
How Are Companies Managing Their Policies?
SharePoint/Document Depository
Storing policy documents in a folder on a network share is a great place to start. Although this approach lacks the security and control needed to mitigate rogue policy and version control.
Dedicated Document Management Solution
With new SaaS platforms popping up every day there is countless options for centralized document management. Advantages should include, document controls, versioning, policy communication, and acknowledgement tracking.
GRC Policy Management
As policies are built around compliance requirements and legal obligations, having a policy management solution that is built-in or can integrate your GRC solution is becoming increasingly popular. Combining all of the advantages of a dedicated document management solution with a GRC tool, such as StandardFusion keeps everything under one roof.
You can also manage the manual complexities of compliance programs with GRC tools, so you can focus on the human element and enhance the quality of your compliance initiatives. GRC tools also:
Automate Task Management: Streamlines repetitive processes, ensuring that your team can dedicate more time to the people in your organization.
Enhance Resource Allocation: By handling the intricate details, technology enables better allocation of resources, ensuring compliance programs are not just maintained but continually improved.
Integrating these kinds of solutions within your GRC framework ensures that your compliance efforts are comprehensive and efficient, empowering your organization to stay ahead in today's complex regulatory landscape.
Summary
Policy management is a crucial part of compliance that keeps employees in the know and grows your company culture. A well-developed dedicated policy management program or built-in GRC policy management solution allows for policy changes to be made and communicated, while delivering real-time reporting keeps you organized when preparing for an audit and minimizes risk.
