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Third Party Risk Management

What is Risk Governance Framework [& How to Create It]

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Risk governance is a critical component of any organization's risk management strategy. It helps to ensure risks are proactively identified, assessed and mitigated effectively to protect the organization's assets and achieve its objectives. 

A well-designed risk governance framework provides a structured approach to managing risk, fostering a culture of risk awareness and accountability throughout the organization. 

By establishing clear roles, responsibilities, and processes, a risk governance framework enables organizations to proactively identify and address potential risks, ultimately enhancing their resilience and competitiveness. 

In this article, we will explore the concept of a risk governance framework, and its importance, and provide a step-by-step guide on how to create one that aligns with your organization's unique needs and goals.

What is a Risk Governance Framework?

A risk governance framework is a structured approach to managing and mitigating risks within an organization. It outlines the policies, procedures, and responsibilities necessary to identify, assess, and manage risks effectively. 

This framework ensures that risk management is integrated into the organization's overall strategy and decision-making processes.

An effective risk governance framework involves a collaborative effort among various stakeholders, including senior management, risk management teams, and other departments. 

Organizations that implement a comprehensive risk governance framework can proactively manage risks, reduce uncertainty, and enhance overall resilience and performance.

Example of Risk Governance Frameworks

While there are several different risk governance frameworks out there, the right framework depends entirely on the needs of your organization.

Example of Risk Governance Frameworks

Here are a few commonly used risk governance frameworks together with their pros and cons:

1. Cybersecurity Maturity Model Certification (CMMC)

The Cybersecurity Maturity Model Certification (CMMC) is a framework mandated by the U.S. Department of Defense (DoD) for contractors handling Controlled Unclassified Information (CUI). 

It aims to enhance cybersecurity across the defense industrial base by enforcing specific cybersecurity practices. CMMC requires organizations to undergo third-party assessments to validate their cybersecurity maturity level, which ranges from basic cyber hygiene to advanced practices.

Pros:

  • Regulatory compliance: Ensures compliance with DoD cybersecurity requirements.
  • Risk mitigation: Addresses cybersecurity risks specific to federal contracting.
  • Standardized assessment: Provides a structured approach to assessing and improving cybersecurity maturity.
  • Clear requirements: Establishes clear security requirements based on organizational risk profiles and the sensitivity of handled information.

Cons:

  • Implementation costs: Can be resource-intensive, especially for smaller contractors.
  • Complexity: Requires understanding and implementation of multiple maturity levels and associated controls.
  • Scalability challenges: Tailoring requirements to fit various organizational sizes and types can be challenging.
  • Dependency on third-party assessors: Success depends on the availability and competence of accredited assessors.

2. NIST 800 - 53 & NIST CFS

NIST 800-53 and the Cybersecurity Framework (CSF) provide comprehensive guidance to federal agencies, contractors as well as organizations on securing information systems and responding to cyber threats. 

NIST 800-53 offers a catalog of security and privacy controls for federal information systems and organizations that handle sensitive information, tailored to various risk profiles and compliance requirements.

Pros:

  • Comprehensive controls: Provides a robust set of controls addressing a wide range of cybersecurity risks.
  • Adaptability: Can be tailored to fit different types of organizations and business environments.
  • Integration with Other standards: Aligns well with other frameworks and regulatory requirements.
  • Continuous improvement: Offers mechanisms for ongoing risk assessment and mitigation.

Cons:

  • Complexity: Implementing all controls can be daunting and resource-intensive.
  • Maintenance overhead: Requires continuous updates and adjustments to keep pace with evolving threats.
  • Initial implementation costs: Costly to implement initially, especially for smaller organizations.
  • Lack of flexibility: Some organizations may find it rigid and difficult to customize.

3. ISO 27001 & ISO 27002

ISO 27001 is an international standard for information security management systems (ISMS), providing a systematic approach to managing sensitive company information.

On the other hand, ISO 27002 offers a set of guidelines and best practices for implementing the controls outlined in ISO 27001.

Pros:

  • Global recognition: The frameworks are accepted internationally and aid compliance efforts across different markets.
  • Risk-based approach: Focus on risk assessment and mitigation and can be tailored to organizational needs.
  • Continuous improvement: Encourage ongoing evaluation and improvement of security measures.
  • Management support: Require commitment from senior management which fosters a compliant culture.

Cons:

  • Resource intensive: Implementation can be costly and time-consuming.
  • Complex certification process: Certification requires rigorous audits and compliance with strict criteria.
  • Organizational resistance: Requires buy-in from all levels of the organization to be effective.
  • Interpretation variability: Interpretation of standards may vary, leading to inconsistencies in implementation.

4. AICPA SOC 2

SOC 2 (Service Organization Control 2) is an auditing standard developed by the AICPA (American Institute of CPAs) for technology and cloud computing organizations. The risk governance framework focuses on controls relevant to security, availability, processing integrity, confidentiality, and privacy.

Pros:

  • Trust assurance: Provides assurance to customers regarding the security of their data.
  • Flexibility: Allows organizations to define and implement controls based on specific business processes.
  • Market differentiation: Enhances marketability by demonstrating a commitment to security and privacy.
  • Continuous monitoring: Requires ongoing monitoring of security controls to maintain compliance.

Cons:

  • Complexity: Requires understanding of audit requirements and adherence to rigorous standards.
  • Costs: Audits and compliance efforts can be costly, especially for smaller organizations.
  • Limited applicability: Primarily benefits service providers and may not be relevant to all organizations.
  • Dependency on auditors: Success depends on the competence and availability of certified auditors.

5. EBIOS

EBIOS (Expression des Besoins et Identification des Objectifs de Sécurité) is a risk management methodology developed by the French National Agency for Information Systems Security (ANSSI). 

It is used primarily by French public organizations and critical infrastructure sectors to identify and manage information security risks.

Pros:

  • Tailored approach: Adaptable to different types of organizations and sectors.
  • Risk-centric: Focuses on identifying and prioritizing risks based on business processes.
  • Integration with French regulations: Aligns with French regulatory requirements and guidelines.
  • Collaborative process: Involves stakeholders at various levels of the organization in risk assessment and mitigation.

Cons:

  • Limited international recognition: Primarily used within France, which may limit its applicability globally.
  • Resource intensive: Requires significant resources for implementation and maintenance.
  • Training requirements: Requires training and expertise to effectively use the methodology.
  • Documentation overhead: Documentation requirements can be extensive and time-consuming.

Risk Governance Framework Components

Risk Governance Framework Components

A Risk Governance Framework typically consists of several key components that organizations use to manage risks effectively. These components can vary slightly depending on the industry and specific organizational needs, but generally include the following:

1. Risk Culture and Awareness

Risk culture and awareness refer to the shared values, beliefs, and behaviors regarding risk within an organization. It encompasses how risk is perceived, discussed, and integrated into decision-making across all levels. 

A strong risk culture ensures that all employees understand their role in managing risks and are proactive in identifying and mitigating them. Awareness involves ongoing education and communication to ensure everyone understands the importance of risk management. 

This component also includes fostering an environment where employees feel safe to report risks and mistakes without fear of repercussions. 

2. Risk Appetite and Tolerance

Risk appetite defines the amount and type of risk an organization is willing to pursue or retain to achieve its objectives. It is often set by the board and articulated in a board-approved policy that aligns with the organization's strategic goals. 

Risk tolerance, on the other hand, establishes the acceptable level of variation in performance relative to the achievement of objectives. Together, they guide organizations in making decisions that balance risk and reward. 

These components require ongoing assessment and adjustment to ensure alignment with changing business conditions, regulatory requirements, and stakeholder expectations. 

3. Risk Identification

Risk identification involves the systematic process of recognizing and describing risks that could potentially affect the achievement of objectives. It is an essential aspect of business processes as it allows organizations to proactively assess potential threats and opportunities. 

Risk identification methods may include workshops, surveys, scenario analysis, and review of historical data. In sectors like the financial and defense sectors, where compliance requirements and cyber threats are prevalent, robust risk identification practices are crucial. 

This component ensures that all relevant risks, including those related to compliance efforts and cyber threats, are identified and evaluated for their potential impact on the organization.

4. Risk Assessment and Evaluation

Risk assessment and evaluation involve analyzing identified risks to determine their likelihood and potential impact on business objectives. This process helps prioritize risks based on their significance and develop appropriate responses. 

It involves assessing risks against predefined criteria, such as compliance requirements, financial implications, operational disruptions, and strategic alignment. 

In sectors with stringent compliance environments, such as financial and defense sectors, risk assessment must adhere to accuracy requirements and common controls. 

5. Risk Response and Treatment

Risk response and treatment refer to the development and implementation of strategies to manage and mitigate identified risks. This component aims to reduce the likelihood or impact of risks to an acceptable level while maximizing opportunities. 

Responses may include risk avoidance, mitigation, sharing, or acceptance, depending on the organization's risk appetite and the nature of the risk. 

Effective risk response requires clear roles and responsibilities, adequate allocation of company resources, and integration with existing business processes. 

In sectors facing cyber threats or stringent compliance processes, proactive risk response measures are crucial to safeguarding sensitive data and ensuring regulatory compliance.

6. Risk Monitoring and Reporting 

Risk monitoring and reporting involve tracking identified risks, evaluating the effectiveness of risk treatments, and communicating this information to stakeholders. It ensures that risks are managed within acceptable limits and that any emerging risks are promptly addressed. 

Monitoring activities include regular risk reviews, performance indicators, and scenario analysis to assess changes in risk profiles. 

Reporting provides stakeholders, including the board and regulators in compliance-driven sectors, with transparent and timely information on the organization's risk exposure and management efforts. 

7. Risk Communication

Risk communication involves the exchange of information about risks between the organization and its stakeholders. It ensures that relevant parties are informed about potential risks, risk management strategies, and their impact on business objectives.

Effective communication promotes understanding, facilitates decision-making, and fosters a collaborative approach to risk management. In sectors like finance and defense, where compliance processes and stakeholder expectations are high, clear and concise risk communication is essential. 

It helps build credibility and transparency, enabling stakeholders to make informed decisions and align their expectations with the organization's risk management practices.

8. Risk Management Oversight

Risk management oversight refers to the governance structure and processes established by the board and senior management to direct and oversee the organization's risk management activities. 

It includes defining roles and responsibilities, setting strategic objectives, and ensuring compliance with applicable laws and regulations. Oversight ensures that risk management practices are effective, integrated into business operations, and aligned with the organization's risk appetite. 

9. Continuous Improvement 

Continuous improvement involves regularly reviewing and enhancing the effectiveness of the risk governance framework. It includes evaluating the efficiency of risk management processes, identifying areas for improvement, and implementing necessary changes. 

Continuous improvement provides guidance to organizations in adapting to evolving business environments, emerging risks, and regulatory changes. It ensures that risk management practices remain relevant, responsive, and aligned with strategic objectives. 

These components collectively provide guidance to organizations in navigating the complexities of risk management, benefiting from enhanced resilience, and achieving sustainable growth.

Why Do You Need a Risk Governance Framework?

A well-implemented risk governance framework not only helps organizations navigate uncertainties but also strengthens their overall operational resilience and strategic decision-making capabilities.

Why Do You Need a Risk Governance Framework?

Here are more reasons why your organization needs a risk governance framework 

  • Risk identification and assessment: A robust risk governance framework helps organizations systematically identify and assess potential risks across various operational facets. By formalizing this process, organizations can anticipate challenges, proactively manage uncertainties, and prioritize resources effectively to mitigate potential negative impacts on strategic objectives and operational continuity.
  • Decision making and accountability: Clear risk governance structures clarify roles and responsibilities for risk management at all organizational levels. This ensures that decision-makers have access to timely and accurate risk information, enabling informed choices aligned with the organization's risk appetite and strategic goals. Furthermore, accountability mechanisms within the framework promote transparency and discipline in managing risks, fostering a culture of responsible decision-making.
  • Compliance and regulatory requirements: In many industries, regulatory compliance is mandatory and closely tied to effective risk management practices. A well-defined risk governance framework helps organizations meet these compliance obligations by establishing standardized processes for risk assessment, monitoring, and reporting. By adhering to regulatory requirements, organizations mitigate legal and reputational risks while demonstrating commitment to ethical business practices and stakeholder expectations.
  • Enhanced stakeholder confidence: Effective risk governance instills confidence among stakeholders, including investors, customers, and employees. By demonstrating a structured approach to identifying and managing risks, organizations showcase their commitment to sustainable growth and resilience. This can lead to enhanced trust and credibility in the market, attracting investment, fostering customer loyalty, and maintaining a positive reputation even amidst uncertainties and challenges.

How to Create a Risk Governance Framework?

How to Create a Risk Governance Framework?

Now that you understand what a risk governance framework and its components are, how do you create one for your organization?

Creating a risk governance framework involves systematic steps to identify, assess, mitigate, and monitor risks across an organization. 

Follow these eight simple steps to create a comprehensive risk government framework that systematically manage risks, enhances decision-making, and supports long-term resilience and success:

1. Define Objectives and Scope

This step establishes the foundation for understanding what risks need to be managed and the extent of the governance framework.

Start by defining the specific goals of the governance framework, such as improving risk oversight or ensuring regulatory compliance. Clearly articulate these objectives to align with the organization’s strategic vision. Then determine the scope by identifying which organizational units, processes, and activities will be covered. Include key stakeholders and their roles in the framework. 

2. Establish Risk Appetite and Tolerance

Define the organization’s risk appetite, specifying the level of risk it is willing to accept to achieve its objectives. This should reflect both qualitative and quantitative aspects, such as financial thresholds and strategic priorities. 

Establish risk tolerance levels for various risk types, considering factors like operational, financial, and reputational impact. This provides a benchmark against which risks can be evaluated, ensuring that risk-taking aligns with the organization’s capacity and willingness to bear risk.

3. Conduct Risk Assessment

This step provides a detailed understanding of the risk landscape and helps prioritize risk management efforts.

Once you have established risk appetite and tolerance, perform a comprehensive risk assessment to identify potential risks across the organization. You can utilize tools like risk registers, heat maps, and scenario analysis to gather data from various departments. 

Also engage stakeholders through workshops and interviews to gain insights into potential risks and their implications. Ensure you assess the likelihood and impact of identified risks, prioritizing them based on their potential effect on the organization’s objectives. 

4. Develop Risk Management Policies

After risk assessment, formulate detailed risk management policies and procedures. These should outline the processes for risk identification, assessment, mitigation, and monitoring. Clearly define the roles and responsibilities of key stakeholders, including risk owners and governance committees. 

Establish protocols for reporting and escalation to ensure timely risk communication. These policies provide a consistent and structured approach to managing risks across the organization, ensuring that all stakeholders understand and adhere to the framework.

5. Implement Risk Mitigation Strategies

This step focuses on reducing the likelihood and impact of risks to acceptable levels, enhancing the organization’s resilience and stability.

Develop and implement specific risk mitigation strategies based on the prioritized risks identified. Assign responsibility for each mitigation action to appropriate individuals or teams. 

Ensure that these strategies align with the organization’s risk appetite and tolerance levels. Ensure you utilize resources effectively to address high-priority risks while balancing cost and benefit. 

6. Establish Monitoring and Reporting Mechanisms

Implement systems to continuously monitor identified risks and the effectiveness of mitigation strategies. Develop key risk indicators (KRIs) to track changes in risk levels and trigger alerts for potential issues. 

Establish regular reporting mechanisms to provide updates to senior management and relevant stakeholders. This includes setting up dashboards, periodic risk reports, and review meetings. Continuous monitoring and reporting ensure that risks are managed proactively and adjustments are made in response to changing conditions.

7. Communicate and Educate

Effective communication and education promote a unified approach to managing risks and enhance the overall risk culture within the organization.

Communicate the components of the risk governance framework throughout the organization and ensure that all employees understand their roles in risk management through clear communication and documentation. 

Also conduct training sessions and awareness programs to build a risk-aware culture. Finally, encourage employees to report potential risks and contribute to risk management activities. 

8. Evaluate and Improve

Lastly, evaluate the risk governance framework’s effectiveness regularly through audits, assessments, and stakeholder feedback. Review the outcomes of risk management activities and identify areas for improvement. Ensure you stay informed about emerging risks and regulatory changes that may affect the organization. 

Continuously update and refine the framework to address new challenges and enhance its effectiveness. This ongoing evaluation ensures that the framework remains robust, adaptive, and aligned with the organization’s evolving risk landscape and strategic objectives.

How can Cybersierra help in creating a Comprehensive Risk Governance Framework?

Cyber Sierra’s AI-powered cybersecurity platform helps in creating a comprehensive risk governance framework by providing a centralized platform for governance, risk, and compliance management. Besides, the tool has pre-built NIST and ISO controls as well.

The platform’s comprehensive suite of tools and expertise in cyber risk management helps organizations to:

  • Identify and assess risks: The platform allows users to identify and assess all risks across all asset categories. This enables organizations to understand potential problems or uncertainties that could affect them.
  • Develop and implement controls: The platform helps develop and implement controls to mitigate identified risks and also create measures to lessen the impact of those risks.
  • Monitor effectiveness: Cyber Sierra enables continuous monitoring of the effectiveness of implemented controls and security posture while providing updates and information to relevant teams about governance, risk, and compliance efforts.
  • Report to stakeholders: The platform facilitates reporting on GRC activities to stakeholders, ensuring transparency and compliance with regulatory requirements.
  • Compliance with regulations: Cyber Sierra supports compliance with various regulations, including GDPR, HIPAA, PCI DSS, ISO27001, SOC2, and others, by providing pre-made policy templates and controls.
  • Streamlined processes: The platform automates tracking and monitoring, saving time and reducing complexity in compliance and risk management processes.

Overall, Cyber Sierra’s suite of tools and features help organizations to create a comprehensive risk governance framework that integrates risk management, compliance, and cybersecurity governance, ensuring a robust and secure risk management strategy.

Book a demo today to see Cyber Sierra in action.

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Srividhya Karthik

Srividhya Karthik is a seasoned content marketer and the Head of Marketing at Cyber Sierra. With a firm belief in the power of storytelling, she brings years of experience to create engaging narratives that captivate audiences. She also brings valuable insights from her work in the field of cybersecurity and compliance, possessing a deep understanding of the challenges and pain points faced by customers in these domains.

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