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Harmonizing Information Technology and Business Strategy Risks: A Holistic Approach to Enterprise Risk Management

Enterprise Risk Management (ERM) is a comprehensive approach to identifying, assessing, and managing the risks that an organization faces. It is a strategic framework that aligns a company’s goals with its risk appetite, ensuring that all levels of the organization are involved in the risk management process. ERM is not just about minimizing risks but also about recognizing and capitalizing on opportunities that can create value for stakeholders. This holistic method of risk management considers a wide range of potential events, including financial, strategic, operational, and compliance risks. By implementing ERM, organizations can improve decision-making, enhance performance, and achieve strategic objectives more effectively. The concept has evolved over time and is now integral to the operational infrastructure of various industries, reflecting its importance in today’s complex business environment.

This article delves into the symbiotic relationship between IT and enterprise risk management, advocating for a cohesive strategy that ensures resilience, competitive advantage, and sustainable growth in the face of technological disruption. Due to the widespread use of AI (Large Language Models (LLM), Small Language Models (SLM), and Machine Learning (ML)) models and Generative AI such as ChatGPT is on the rise, assessing risks and opportunities holistically through an established ERM framework can be helpful to determine the impact of its use on business processes.

The Need for Integration

The role of IT has always been to enable the business to help drive strategic scale and achieve business objectives efficiently while managing risks effectively. Combining IT risk management with overall ERM is a smart way to ensure that risks related to technology are considered part of the bigger picture of a company’s risk planning and ingrained with the organization’s overall culture. This helps the company be more robust and better at creating value. It’s important to do this because problems with IT can affect how well a company operates, the reliability of its data, and its ability to compete in the market.

Companies should combine their IT risk management with their overall risk management strategies, especially as they deal with the complicated issues of today’s digital world. Although it’s not without its difficulties, if companies are dedicated and use the right methods, they can evaluate risks more holistically by combining IT risks and broader business risks. This helps them manage risks more effectively. Plus, when a company’s IT risks align with its main goals, it can become stronger, move faster, and stand out from the competition.

Guiding Principles

Key principles include a proactive approach to risk management, regular risk assessments, and the incorporation of risk management into the organizational culture. It’s essential to ensure that risk management processes are dynamic and adaptable to the changing IT landscape, as well as the ever-evolving business objectives and strategic plan. Identifying IT risks and opportunities is a critical step in the integration process. This includes assessing the potential impact of IT risks on business objectives and identifying opportunities for using technology to enhance business resilience.

Governance and Culture

Effective governance requires the support and commitment of senior management. Cultivating a risk-aware culture across the organization encourages proactive identification and management of IT risks through the lens of how they support critical business objectives. Integrating IT risk into this process requires a clear understanding of the technology landscape and its impact on business operations. Effective integration starts with the tone at the top. The IT function can no longer be viewed as an obstacle or a cost center but as a value-added support function for the entire organization. A company is only as reliable as the integrity of its data. Enterprise Risk Management is not fully addressed if it is only considering two-thirds of the organization.

Clear communication channels must be established to ensure that relevant risk information is disseminated throughout the organization. This supports a unified approach to managing IT risks within the ERM framework. Aligning business objectives and strategic plans with IT initiatives and security configurations will allow for more streamlined, less obtrusive, and more effective processes than if they were considered separately or not at all.

Cyber Risk Mitigation

A cybersecurity review is a critical complement to an ERM review due to the specialized nature of cyber threats that require focused attention beyond the scope of traditional ERM frameworks. While ERM encompasses a broad spectrum of enterprise risks, including financial, operational, and strategic risks, cybersecurity reviews delve deeply into the technological aspects, addressing the protection of networks, systems, devices, and data from cyber threats. Given the rapid evolution of technology and the increasing sophistication of cyber-attacks, a dedicated cybersecurity review helps organizations identify and mitigate specific vulnerabilities within their IT infrastructure and digital assets. This specialized review is essential for ensuring that cybersecurity measures are up-to-date and effective against current and emerging threats, thereby complementing the broader risk management strategies established by ERM.

KPIs, Performance Measurement, KRI’s, and Tolerance

Key Performance Indicators (KPIs), Key Risk Indicators (KRIs), and risk tolerance levels must be established to measure the effectiveness of IT risk management within the ERM framework. An organization’s risk appetite, determined at the enterprise level, will dictate how much risk the organization is willing to tolerate. Aligning IT risks with this risk methodology will ensure that IT risks will be responded to and treated consistently as other organizational risks. This will maintain a cohesive approach to risk management, allowing for better integration of IT into the enterprise-wide program.

Challenges

While alignment is the key, it does not come without challenges. As most organizations view IT as their own entity, the struggle to integrate IT with the rest of the organization will seem like a huge undertaking. There is also a language barrier between business and IT, further complicating things. However, this can be easily addressed by having a dedicated IT person included in the risk assessment process. This individual can be a data owner, system owner, IT support contact for a given segment, etc.

Another challenge organizations face is who would own the risks. Most organizations consider IT risks in a vacuum and are classified accordingly. While IT may be the risk owner, business considerations and impacts should be considered.

How Centri Can Help

At Centri, our Risk Advisory practice is designed with your greatest assets in mind — your people. We’re here to offer you the support, resources, and expertise you need, exactly when you need it most. Our advisory experts specialize in creating right-sized ERM programs, performing ERM maturity assessments and gap analysis, and providing meaningful results and solutions. We work alongside your senior leadership to help understand your current needs and align them with the right solutions. Please contact us for more information or to explore how our expertise in risk advisory and enterprise risk management aligns with the specific needs of your company.

Karyn DiMassa

Managing Director | CPA, PMP, CISA, CFE

Karyn is a Managing Director in the IT Risk & Cybersecurity Practice at Centri Business Consulting. She has more than 13 years of combined experience in internal IT audit and external audit support (IT controls), third-party assurance (SOC 1 and SOC 2 reporting), internal controls consulting, project management, IT risk and cybersecurity, and system implementation support. View Karyn DiMassa's Full Bio

Kevin Zeina

Senior Manager | CPA

Kevin is a Senior Manager at Centri Business Consulting within the Risk Advisory Practice. He has more than 13 years of experience in internal audit, SOX testing, and risk advisory services. View Kevin Zeina's Full Bio