What Is GRC?

Last Updated: March 19, 2024

GRC stands for Governance, Risk, and Compliance. It is a framework to manage an entity’s governance, risk management, and adherence to both industry and governmental regulations. However, GRC is a rearview approach often relying on established rules and procedures. This approach can lead to a reactive stance, where organizations respond to issues as they arise rather than proactively managing potential future risks. 

As a counterpoint, ERM (Enterprise Risk Management) adopts a holistic view, strategically assessing and managing risks across the entire organization, rather than in isolated segments. While GRC focuses on ensuring that current practices are compliant and controlled, ERM seeks to understand and manage the risks that could impact an organization’s future objectives and strategies. This guide will explain the meaning of GRC, and explain how ERM provides a more effective and integrated framework for risk management.

What is GRC?

GRC is a broad framework that encompasses governance policies, risk management processes, and compliance with laws and regulations. It’s an organizational strategy that integrates these three key components to ensure that a company operates in a way that is consistent with its business goals, manages risks effectively, and complies with all necessary regulations. Here’s a brief overview of each component: 

  • Governance: Governance establishes the policies and rules that define how an organization is managed and steered toward achieving its goals. It defines the roles and responsibilities of stakeholders, including the board of directors, management, and employees, to ensure that everyone’s actions contribute to the company’s success. Effective governance fosters a culture of accountability and transparency, which is essential for strategic decision-making and operational excellence.
  • Risk Management: Risk management is the systematic process of identifying, evaluating, and mitigating risks that could negatively affect the organization. By anticipating potential issues and implementing controls to prevent or minimize their impact, companies can protect their assets, reputation, and stakeholders. A robust risk management strategy involves continuous monitoring and review to adapt to the ever-changing business environment. 
  • Compliance: Compliance refers to adhering to laws, regulations, and policies to ensure the organization’s activities are in line with external legal requirements and internal policies. It involves regular audits and assessments to verify that the company meets all legal obligations and industry standards, thereby avoiding penalties and maintaining its integrity.

60% of GRC users still manage compliance manually with spreadsheets.

However, a typical GRC framework has many shortcomings which makes it difficult to manage risk and results in inefficiency and waste. Challenges with GRC include:

  • Focus on Past Performance and Present State: Traditional GRC models often emphasize historical data, which may not provide sufficient insight into future risks and opportunities. A forward-looking approach is necessary to anticipate and prepare for potential challenges.
  • Siloed Processes: When departments operate in isolation, it leads to inefficiencies such as redundant efforts and inconsistent insights. Collaboration and integration across the organization are crucial for a unified risk strategy.
  • Lack of Centralized Risk View: Without a centralized perspective on risk, board reporting and decision-making can be fragmented. A consolidated risk framework supports better strategic planning and resource allocation.
  • Duplication in Control Development and Testing: Repeated efforts in developing and testing controls across different departments can waste resources. Standardizing control measures can streamline processes and reduce costs.
  • Reactive Approach to Risk Events: A reactive stance on risk events means the organization is always playing catch-up. Adopting a proactive risk management process enables the company to stay ahead of potential issues.
  • No Baseline for Risk Maturity: Understanding the current level of risk maturity is essential for improvement. Establishing a baseline allows for measuring progress and identifying areas that require enhancement.

Why is ERM more effective than GRC?

When it comes to keeping an eye on risks in the business world, think of ERM and GRC as two different pairs of glasses. ERM is like those cool, futuristic goggles that let you see potential potholes down the road, so you can swerve around them way before they’re a problem. It’s all about getting the big picture and making smart moves today that’ll pay off tomorrow. GRC, though, is more like your grandpa’s old specs that only help with reading the fine print right in front of you. Sure, they’re great for dotting the i’s and crossing the t’s on all the rules and regs, but they won’t help you spot trouble on the horizon.

Now, why is ERM the better pair of goggles? It’s simple. ERM helps everyone in the company get on the same page about the risks that could throw a wrench in your plans. It’s like a team huddle where everyone shares what they’re seeing, so you can call the right plays. This way, you’re not just playing defense, you’re setting up the game to win. GRC, while it keeps you in line, doesn’t set you up for scoring those big points.

Organizations that embrace ERM can navigate uncertainties with greater confidence and integrity, positioning themselves for success in an ever-evolving business landscape.

Silicon Valley Bank (SVB) Failures in Risk Management: Why ERM vs GRC

The case study of SVB’s collapse serves as a compelling example of the necessity of ERM over traditional GRC methods, underscoring the importance of a forward-looking approach to risk management.

Read More