Integrate IT Risk Into Enterprise Risk

Don’t fear IT risks, integrate them.

Integrate IT Risk Into Enterprise Risk

Don’t fear IT risks, integrate them.

EXECUTIVE BRIEF

Analyst Perspective

Having siloed risks is risky business for any enterprise.

Valence Howden Principal Research Director, CIO Practice

Petar Hristov Research Director, Security, Privacy, Risk & Compliance

Ian Mulholland Research Director, Security, Risk & Compliance

Brittany Lutes Senior Research Analyst, CIO Practice

Ibrahim Abdel-Kader Research Analyst, CIO Practice

Every organization has a threshold for risk that should not be exceeded, whether that threshold is defined or not.

In the age of digital, information and technology will undoubtedly continue to expand beyond the confines of the IT department. As such, different areas of the organization cannot address these risks in silos. A siloed approach will produce different ways of identifying, assessing, responding to, and reporting on risk events. Integrated risk management is about embedding IT uncertainty to inform good decision making across the organization.

When risk is integrated into the organization's enterprise risk management program, it enables a single view of all risks and the potential impact of each risk event. More importantly, it provides a consistent view of the risk event in relation to uncertainty that might have once been seemingly unrelated to IT.

And all this can be achieved while remaining within the enterprise’s clearly defined risk appetite.

Executive Summary

Your Challenge

Most organizations fail to integrate IT risks into enterprise risks:

• IT risks, when considered, are identified and classified separately from the enterprise-wide perspective.
• IT is expected to own risks over which they have no authority or oversight.
• Poor behaviors, such as only considering IT risks when conducting compliance or project due diligence, have been normalized.

Common Obstacles

IT leaders have to overcome these obstacles when it comes to integrating risk:

• Making business leaders aware of, involved in, and able to respond to all enterprise risks.
• A lack of data or information being used to support a holistic risk management process.
• A low level of enterprise risk maturity.
• A lack of risk management capabilities.

Info-Tech’s Approach

By leveraging the Info-Tech Integrated Risk approach, your business can better address and embed risk by:

• Understanding gaps in the organization’s current approach to risk management practices.
• Establishing a standardized approach for how IT risks impact the enterprise as a whole.
• Driving a risk-aware organization toward innovation and considering alternative options for how to move forward.
• Helping integrate IT risks into the foundational risk practice.

Info-Tech Insight

Stop avoiding risk – integrate it. This provides a holistic view of uncertainty for the organization to drive innovative new approaches to optimize its ability to respond to risk.

What is integrated risk management?

• Integrated risk management is the process of ensuring all forms of risk information, including information and technology, are considered and included in the enterprise’s risk management strategy.
• It removes the siloed approach to classifying risks related to specific departments or areas of the organization, recognizing that each of those risks is a threat to the overarching enterprise.
• Aggregating the different threats or uncertainty that might exist within an organization allows for informed decisions to be made that align to strategic goals and continue to drive value back to the business.
• By holistically considering the different risks, the organization can make informed decisions on the best course of action that will reduce any negative impacts associated with the uncertainty and increase the overall value.

Enterprise Risk Management (ERM)

• IT
• Security
• Digital
• Vendor/Third Party
• Other

Enterprise risk management is the practice of identifying and addressing risks to your organization and using risk information to drive better decisions and better opportunities.

IT risk is enterprise risk

IT risks have a direct and often aggregated impact on enterprise risks and opportunities in the same way other business risks can. This relationship must be understood and addressed through integrated risk management to ensure a consistent approach to risk.

Your challenge

Embedding IT risks into the enterprise risk management program is challenging because:

• Most organizations classify risks based on the departments or areas of the business where the uncertainty is likely to happen.
• Unnecessary expectations are placed on the IT department to own risks over which they have no authority or oversight.
• Risks are often only identified when conducting due diligence for a project or ensuring compliance with regulations and standards.

Risk-mature organizations have a unique benefit in that they often have established an overarching governance framework and embedded risk awareness into the culture.

35% — Only 35% of organizations had embraced ERM in 2020. (Source: AICPA and NC State Poole College of Management)

12% — Only 12% of organizations are leveraging risk as a tool to their strategic advantage. (Source: AICPA and NC State Poole College of Management)

Common obstacles

These barriers make integrating IT risks difficult to address for many organizations:

• IT risks are not seen as enterprise risks.
• The organization’s culture toward risk is not defined.
• The organization’s appetite and threshold for risk are not defined.
• Each area of the organization has a different method of identifying, assessing, and responding to risk events.
• Access to reliable and informative data to support risk management is difficult to obtain.
• Leadership does not see the business value of integrating risk into a single management program.
• The organization’s attitudes and behaviors toward risk contradict the desired and defined risk culture.
• Skills, training, and resources to support risk management are lacking, let alone those to support integrated risk management.

Integrating risks has its challenges

62% — Accessing and disseminating information is the main challenge for 62% of organizations maturing their organizational risk management. (Source: OECD)

20-28% — Organizations with access to machine learning and analytics to address future risk events have 20 to 28% more satisfaction. (Source: Accenture)

Integrate Risk and Use It to Your Advantage

Accelerate and optimize your organization by leveraging meaningful risk data to make intelligent enterprise risk decisions.

Risk management is more than checking an audit box or demonstrating project due diligence.

Risk Drivers Audit & compliance Preserve value & avoid loss Previous risk impact driver Major transformation Strategic opportunities		Only 7% of organizations are in a “leading” or “aspirational” level of risk maturity. (OECD, 2021)	63% of organizations struggle when it comes to defining their appetite toward strategy related risks. (“Global Risk Management Survey,” Deloitte, 2021)	Late adopters of risk management were 70% more likely to use instinct over data or facts to inform an efficient process. (Clear Risk, 2020)	55% of organizations have little to no training on ERM to properly implement such practices. (AICPA, NC State Poole College of Management, 2021)
		1. Assess Enterprise Risk Maturity	3. Build a Risk Management Program Plan	4. Establish Risk Management Processes	5. Implement a Risk Management Program
		2. Determine Authority with Governance Unfortunately, less than 50% of those in risk focused roles are also in a governance role where they have the authority to provide risk oversight. (Governance Institute of Australia, 2020)
IT can improve the maturity of the organization’s risk governance and help identify risk owners who have authority and accountability. Governance and related decision making is optimized with integrated and aligned risk data.			ERM incorporates the different types of risk, including IT, security, digital, vendor, and other risk types. The program plan is meant to consider all the major risk types in a unified approach.		Implementation of an integrated risk management program requires ongoing access to risk data by those with decision making authority who can take action.

Integrated Risk Mapping — Downside Risk Focus

Integrated Risk Mapping — Downside and Upside Risk

Third-Party Risk Example

Insight Summary

Overarching insight

Stop fearing risk – integrate it. Integration leads to opportunities for organizations to embrace innovation and new digital technologies as well as reducing operational costs and simplifying reporting.

Govern risk strategically

Governance of risk management for information- and technology-related events is often misplaced. Just because it's classified as an IT risk does not mean it shouldn’t be owned by the board or business executive.

Assess risk maturity

Integrating risk requires a baseline of risk maturity at the enterprise level. IT can push integrating risks, but only if the enterprise is willing to adopt the attitudes and behaviors that will drive the integrated risk approach.

Manage risk

It is not a strategic decision to have different areas of the organization manage the risks perceived to be in their department. It’s the easy choice, but not the strategic one.

Implement risk management

Different areas of an enterprise apply risk management processes differently. Determining a single method for identification, assessment, response, and monitoring can ensure successful implementation of enterprise risk management.

Tactical insight

Good risk management will consider both the positives and negatives associated with a risk management program by recognizing both the upside and downside of risk event impact and likelihood.

Integrated risk benefits

Measure the value of integrating risk

• Reduce Operating Costs

  • Organizations can reduce their risk operating costs by 20 to 30% by adopting enterprise-wide digital risk initiatives (McKinsey & Company).

• Increase Cybersecurity Threat Preparedness

  • Increase the organization’s preparedness for cybersecurity threats. 79% of organizations that were impacted by email threats in 2020 were not prepared for the hit (Diligent)

• Increase Risk Management’s Impact to Drive Strategic Value

  • Currently, only 3% of organizations are extensively using risk management to drive their unique competitive advantage, compared to 35% of companies who do not use it at all (AICPA & NC State Poole College of Management).

• Reduce Lost Productivity for the Enterprise

  • Among small businesses, 76% are still not considering purchasing cyberinsurance in 2021, despite the fact that ransomware attacks alone cost Canadian businesses $5.1 billion in productivity in 2020 (Insurance Bureau of Canada, 2021).

“31% of CIO’s expected their role to expand and include risk management responsibilities.” (IDG “2021 State of the CIO,” 2021)

Make integrated risk management sustainable

Assessment

Assess your organization’s method of addressing risk management to determine if integrated risk is possible

Assessing the organization’s risk maturity

Mature or not, integrated risk management should be a consideration for all organizations The first step to integrating risk management within the enterprise is to understand the organization’s readiness to adopt practices that will enable it to successfully integrate information. In 2021, we saw enterprise risk management assessments become one of the most common trends, particularly as a method by which the organization can consolidate the potential impacts of uncertainties or threats (Lawton, 2021). A major driver for this initiative was the recognition that information and technology not only have enterprise-wide impacts on the organization’s risk management but that IT has a critical role in supporting processes that enable effective access to data/information. A maturity assessment has several benefits for an organization: It ensures there is alignment throughout the organization on why integrated risk is the right approach to take, it recognizes the organization’s current risk maturity, and it supports the organization in defining where it would like to go.

Maturity should inform your approach to risk management

The outcome of the risk maturity assessment should inform how risk management is approached within the organization.

For organizations with a low maturity, remaining superficial with risk will offer more benefits and align to the enterprise’s risk tolerance and appetite. This might mean no integrated risk is taking place.

However, organizations that have higher risk maturity should begin to integrate risk information. These organizations can identify the nuances that would affect the severity and impact of risk events.

Integrated Risk Maturity Assessment

The purpose of the Integrated Risk Maturity Assessment is to assess the organization's current maturity and readiness for integrated risk management (IRM).

Frequently and continually assessing your organization’s maturity toward integrated risk ensures the right risk management program can be adopted by your organization.

Integrated Risk Maturity Assessment A simple tool to understand if your organization is ready to embrace integrated risk management by measuring maturity across four key categories: Context & Strategic Direction, Risk Culture & Authority, Risk Management Process, and Risk Program Optimization

Use the results from this integrated risk maturity assessment to determine the type of risk management program that can and should be adopted by your organization.

Some organizations will need to remain siloed and focused on IT risk management only, while others will be able to integrate risk-related information to start enabling automatic controls that respond to this data.

Info-Tech research to support risk management maturity

Info-Tech Insight

Organizations that try to adopt integrated risk without having the maturity to adopt an advanced risk management program are setting themselves up for failure.

Governance

Establish a governance process to support the ongoing integration of information to inform good risk management

Governing integrated risk

Lacking defined governance is often one of the key problems in integrating risk management

Information and technology have enterprise-wide impacts on the organization. As a result, IT leadership does not have sole accountability to ensure the risk management process is successful, IT risk or not. IT is one of many different types of stakeholders that can and should have a role in providing critical information to enterprise-level decision makers.

Integrated risk management provides governance for the organization by setting the direction, allowances, and methods for measurement, as well as providing insight if the risk threshold has been exceeded.

Moreover, as organizations attempt to transfer their risk, access to cyberinsurance will depend on a formalized risk structure with defined governance. Mitigating losses and driving value for the enterprise is now dependent on someone overseeing risk management.

90% of business executives expect risk management to be a part of the decision-making process when it impacts the enterprise. (EY)

Integrated risk management benefits from governance

Steps to establishing integrated risk governance

1. Decide who in the organization has risk ownership and accountability to ensure the risk management process is adhered to.
2. Formalize and communicate the organization’s intended risk posture. Define both the organization’s appetite for risk and threshold for accepting risk.
3. Identify what will make your integrated risk management process successful and how that success will be measured across key performance indicators.
4. Implement processes, procedures, and behaviors that demonstrate the desired risk culture and reinforce the organization’s risk appetite.
5. Approve what and how information will be integrated into the organization’s enterprise risk management practices to enable risk-aware business decisions.

Info-Tech Insight

IT leaders are rarely the accountable risk owners, even when it comes to information- and technology-related risks.

Info-Tech blueprints to support governing risk management

Program

Information integration can be the driver to enhance the scope of the enterprise’s risk management program

Establishing a program that supports integrated risk

Stop approaching risk in silos

A risk management program can be focused on as little or as much as the program requires. However, an integrated risk management program attempts to remove the organization’s siloed approach to risk. Instead, the program would be enterprise-wide and encompass the IT, operational, or digital risks that would have an impact on the business.

For organizations with a lower risk maturity, embracing this type of program might not be realistic. A lack of support from the executives, inability to gather and access risk data, or a risk-unaware culture in the organization could prevent this holistic approach. However, organizations in the process of maturing their risk management should be looking to embrace an integrated risk management program.

While only 42% of organizations that participated in Deloitte’s 2020 Extended Enterprise Risk Management Survey indicated that their organization has a formal ERM policy, we can see from the statistics on the right those that do embrace ERM are heavily skewed toward IT, cyber risk, and data.

Extended ERM budgets are already skewed toward information technology (65%), cyber risk (60%) and data privacy (60%). (Source: “Extended Enterprise Risk Management Survey, 2020,” Deloitte)

Remove the silos in your risk management program

“[V]ery sophisticated companies realize that cyber can impact multiple lines of business, and I think they are starting to realize that it’s a board-level issue, it’s a company financial health issue.” (Kelly Castriotta, Allianz Global Corporate & Specialty)

Steps to creating an integrated risk management program

1. Determine if the program can and will include an enterprise-wide approach to risk.
2. Identify the individual or individuals with authority rights over the risk management program. Ensure these individuals have established a regular cadence to discuss any risk-related items that require decisions to be made.
3. Establish how risks will be identified, assessed, and reported. As an integrated risk program, this should be done through consultation with all areas of the organization.
4. Implement a method to gather and report risk data, with automatic controls in place to respond should the risk likelihood or impact change.
5. Empower employees with the tools and ability to respond to risk events if the threshold is being exceeded due to one or multiple risk events taking place.

“Compliance and risk activities are frequently undertaken by different departments using different data sets. As a result, they find themselves managing governance, risk and compliance initiatives discretely and in an uncoordinated manner in an era when risks are interdependent and controls are shared across the organization” (MetricStream)

Info-Tech blueprints to support risk management programs

Process

Understand the impact and likelihood of any risk event as it applies to the organization

Advance the risk management process

Invest in a good process to enable greater focus on strategy

There are five key phases to the risk management process – identify, assess, respond, monitor, and report. When engaging in integrated risk, the main benefit is having access to key risk information. As a result, the monitoring process, once established, can be less time consuming for the organization, allowing a greater focus on strategic initiatives and risks.

The ability to assess the impact and severity of a risk is enhanced through access to risk information. A functional impact is a short-term negative impact on the operations of the organization. However, the reputational impact can be long-term and affect both internal and external sentiment toward the organization. Having controls that automate mitigation is crucial.

Moreover, if you don’t spend the money mitigating, risk will cost the organization more money in the long run. The average cost of a data breach is $5 million, while the average cost to mitigate is $1.78 million (IBC, 2022).

Executives in leading organizations will spend 35% or more of their risk focused time identifying strategic risks. (Wiggins, “Do you spend enough time assessing strategic risks?,” 2022)

Risk Management Process

Identify: Embed the identification process as a norm within the organization, where any role is responsible for identifying possible risk events and bringing them to the attention of the accountable person(s). Assess: Integrated risk allows the organization to view each risk event on the same scale, where impact and likelihood can be comparable, in order to view the risk events across a single severity matrix. Respond: Determining an appropriate response to the risk event requires research and subject matter expert involvement. Furthermore, the response needs to consider if new risks would be generated or if the severity of another risk event would be altered. Monitor: This is the most important step in the process of integrated risk, as monitoring of risk events (or key risk indicators) should be established in an automated environment. Set the right controls and have automatic responses to mitigate the risk impact. Report: Monitor the effectiveness of the automatic controls that are leveraging access to risk data. If insufficient data – or worse, the wrong information – is being provided, then improve how this risk event is being monitored and responded to.

Assessing risk events requires experience, knowledge, and research

		Impact and likelihood do not necessarily increase or decrease at the same rate. However, the compounding of these two parameters does increase the threat of any risk event.
Impact Risk events are not static, and they do not occur independent of other risk events. It is important to make sure risk impact assessments take into consideration these constantly changing variables to make accurate assessments.	Likelihood Likelihood does not just take into consideration the possibility of the risk event happening in a given time period but also how the organization would be altered in how it functions, accesses information, and recovers.

Implement and leverage a centralized risk register

The purpose of the risk register is to act as the repository for all the risks identified within your environment.

Frequently and continually assessing your organization’s maturity toward integrated risk ensures you can adopt the right risk management program.

Risk Register Tool A simple tool that allows the organization to identify, assess, respond to, monitor, and report on risk events. It will describe the risk profile of the entire organization and how it compares to the overall risk tolerance.

Use the results from the Integrated Risk Maturity Assessment to determine the type of risk events that should be captured here. Additionally, the output from the Integrated Risk Maturity Assessment should inform the level of detail to use when assessing the likelihood and impact of the risk. Mature organizations should use all three parameters, while less mature organizations should use one.

Express the risk severity in a statement

Risk statements are used to communicate the potential adverse outcomes of a particular risk event and can help stakeholders to make informed decisions.

What are risk statements?

Risk statements should include the following elements:

1. What is the risk event (threat)?
2. What is the risk impacting (asset) and in what ways (nature of the threat)?
3. What are the sources (vector) of the risk?
4. What are the consequences or outcomes of the risk event?
5. What is the opportunity lost (if upside risk – e.g. there is a risk of revenue loss if we don’t do this)?

Risk statements can include the following element:

6. What are contributing factors of the risk event?
   • Look beyond just the “symptom” of the risk event and examine underlying reasons why the risk event is occurring

Risk Statement Types

• Analyze the risk of threat impacting the nature of an asset using a vector
• If-Then-Because
• Condition-Consequence

Info-Tech blueprints to support the risk management process

Implement

Implementation of a risk management program and process will lean on all members of the organization to be successful

Successfully implement integrated risk management

Risk management programs often fail due to an unsuccessful implementation into the organization.

Implementing an integrated risk management program successfully will require the involvement of several stakeholders, including the governance body/committees identified previously.

After all risks have been identified and assessed and appropriate mitigation responses determined, maintaining an understanding of whether that risk severity or likelihood has changed is critical. This should be done through a formalized process where key risk indicators (KRIs) are used.

KRIs are fundamental to the implementation process of integrated risk management because they use data to trigger a warning related to the risk event, informing the appropriate stakeholder.

Other elements of the implementation process include:

• Adequate training and understanding.
• Reinforcement of policies and procedures by leadership.
• Alignment to compliance and audit requirements.
• Access to tools to support the monitoring and reporting process.

55% — 55% of organizations have little to no training on ERM to properly implement such practices. (Source: AICPA & NC State Poole College of Management)

Integrated risks become a part of your DNA

Key risk indicators (KRIs)

KRIs are metrics that predict changes in potential risks that would negatively affect an organization. They support and enable risk monitoring.

KRIs are leading indicators that act as an early warning of increasing risk – especially within high-risk areas or for high-severity risks.

KRIs can:

• Help identify emerging risks.
• Help quantify changing likelihood or impact.
• Support risk monitoring.
• Provide lead time to develop and plan risk response.

KRIs can be qualitative or quantitative and can be operational, HR, technological, or financial.

Developing KRIs for success

Examples of KRIs

• Number of resources who quit or were fired who had access to critical data
• Number of risk mitigation initiatives unfunded
• Changes in time horizon of mitigation implementation
• Number of employees who did not report phishing attempts
• Amount of time required to get critical operations access to necessary data
• Number of days it takes to implement a new regulation or compliance control

Info-Tech blueprints to support the risk management process

Research Contributors and Experts

Plus 10 additional interviewees who wish to remain anonymous.

Bibliography

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