Compliance vs risk management: What’s the difference?

the difference between risk and compliance

Staying compliant and avoiding risks are not one and the same – understanding how compliance and risk differ is the key to managing both effectively.

There’s no denying that compliance and risk are closely aligned, but common assumptions may mean your organisation isn’t managing both to an adequate standard.

For instance, there’s a misconception that just because a company is compliant that it is able to combat any and all potential risks. Similarly, people assume that having a robust risk-management program must mean an organisation is compliant. Not so.

These falsehoods can create unexpected problems for businesses across all industries, which is why it’s so important to clearly understand the differences between compliance and risk.

What is compliance?

In the workplace environment, compliance generally refers to the management processes that ensure an organisation is carrying out its duties in accordance with the relevant requirements – these can range from laws to regulations, contracts, policies, internal strategies, and even ethical values and mission statements.

The whole point of organisational compliance is to ensure that a robust set of guidelines, in regards to legal and other regulations, are in place and invariably followed. Moreover, compliance is not static – in order to combat issues like organisational fraud, the processes must be able to adapt to new laws.

What is risk management?

Risk management, on the other hand, refers to the internal processes that identify, analyse and respond to risks that could negatively impact an organisation’s objectives. While on the surface this may sound very similar to compliance, risk management is more about how to avoid, accept or control a variety of risks – from commercial and financial risks to IT and other technological risks.

Consider risk through the lens of what would happen if a company had no stringent risk management processes. Both internal and external threats could cause potentially huge financial losses to the company, not to mention injury to staff and customers and reputational damage.

Risk management is therefore a measure to help businesses combat problematic risks or, in the best-case scenario, avoid them entirely.

3 key differences between compliance and risk management

To help illustrate the inherent differences between compliance and risk, here are three instances where the processes are polar opposites at a base level:

  • Prescriptive vs predictive: Also regarded as reactive compliance versus proactive risk management, there’s a prescriptive nature to compliance due to the fact that it is merely adhering to rules and regulations that are already set in stone. At the other end of the equation, good risk management needs to be predictive, as it must be agile in order to identify and thwart new or unexpected risks that could threaten the business.
  • Tactical vs strategic: Compliance is generally seen as a ‘box-ticking exercise’ – something that must be done in order to ensure an organisation is complying with the prescribed laws and regulations. Conversely, risk management is all about being strategic and forward-thinking – setting up the right systems and ensuring proper analysis to effectively overcome potential risks.
  • Siloed vs centralised: Typically, different departments have their own compliance processes, which may be transparent but don’t necessarily need to be. This siloed mentality is ingrained in compliance. By contrast, risk management must escape the siloed nature of compliance in order to be even remotely effective. Departments, systems and processes must come together in an integrated, transparent, centralised system in order to properly identify, analyse and combat the various risks that an organisation is prone to.

The importance of distinguishing separate strategies

By their very nature, compliance and risk management involve very different processes that are only closely aligned at the surface level. It is therefore critical that decision-makers focus their efforts on both, rather than favouring one over the other.

After all, a company that heroes compliance but does not have an adequate system in place to identify, manage and ultimately thwart risks can suffer serious organisational damage, regardless of how compliant it may be.

Bringing compliance and risk management together

Once both strategies have been created and shared among the organisation, bringing compliance and risk management together under the same umbrella can deliver myriad benefits.

Using a dedicated platform like Cited – which streamlines the onboarding process, makes compliance easy and intuitive, and allows decision-makers to better manage and track risks – can help you address the prescriptive nature of compliance while at the same time acting as a central hub where you can consolidate all of your organisation’s most critical risk and compliance data.

Armed with a dual-purpose solution that manages both compliance and risk, you can ensure your organisation is complying with the proper laws and regulations while leveraging analytics to prepare for – and overcome – business-critical risks.