Overcoming Compliance Challenges: How to Build a Risk Management Framework?

Did you know that organizations face an average of 2.4 regulatory changes every day? This rapidly evolving risk management and compliance landscape presents a significant challenge for businesses, with non-compliance issues costing organizations nearly $9.4 million on average.

In fact, 57% of senior executives admit they feel least prepared to address risk and compliance challenges. These challenges span across multiple areas, specifically cybersecurity, operational, financial, legal, and reputational risks. For highly regulated industries like manufacturing, pharmaceuticals, and chemical production, staying compliant while managing these risks has become increasingly complex.

This detailed guide will help you understand and set up working risk management and compliance strategies for 2025 and beyond. You’ll learn everything needed to protect your organization and follow regulations - from building a comprehensive risk management framework to picking the right compliance software.

Understanding Risk and Compliance Basics

Risk management and compliance form the foundation of a robust business strategy. Let's explore these fundamental concepts and understand how they work together to protect organizations.

What is Risk Management?

Risk management systematically identifies, evaluates, and controls potential threats that could affect an organization’s goals. These threats come from many sources. Market uncertainty, political instability, project failures, legal liabilities, and natural disasters are just a few examples.

Risk management requires taking a proactive approach that focuses on two main aspects:

• Identifying and assessing potential risks before they happen,

• Developing strategies to minimize or prevent negative effects.

The process involves analyzing both negative risks (threats) and positive risks (opportunities). On top of that, it helps businesses make smart decisions about their resources and risk tolerance levels. It also provides a structured method to manage risks associated with cyberattacks, regulatory changes, and economic uncertainties.

Effective risk management is crucial in identifying, assessing, and mitigating risks, thereby enhancing decision-making, fostering innovation, and maintaining organizational reputation amid evolving threats.

>> Discover: Top Risks in Manufacturing

Key Components of Compliance

Compliance encompasses adherence to regulatory guidelines and internal policies. Organizations must follow two primary types of compliance requirements:

1. Regulatory Compliance: This involves following external laws, regulations, and guidelines set by governing bodies. Federal agencies, such as the Department of Defense, play a crucial role in ensuring compliance with federal regulations like the Federal Information Security Modernization Act (FISMA).

2. Corporate Compliance: This focuses on internal policies and procedures that ensure ethical business practices.

A robust compliance program requires several essential elements. First, organizations need designated compliance officers and committees to oversee operations. Subsequently, they must implement standardized business practices, conduct internal audits, and maintain detailed documentation of compliance activities.

How Risk and Compliance Work Together?

Although distinct in their approaches, risk management and compliance are inherently interconnected. Compliance serves as a subset of risk management, as maintaining regulatory compliance is one of many objectives that organizations must achieve.

The relationship works in two primary ways:

1. Strong compliance practices help protect organizations from various risks.

2. Effective risk management helps identify and prevent potential compliance issues before they occur.

Companies that integrate both disciplines effectively can achieve several benefits:

• Reduced likelihood of legal penalties and financial losses,

• Enhanced operational efficiency through streamlined processes,

• Improved stakeholder confidence and reputation management.

Furthermore, both risk management and compliance require continuous monitoring and improvement. As regulatory landscapes evolve and new risks emerge, enterprises must regularly update their strategies and controls to maintain effectiveness.

Risk governance plays a crucial role in integrating risk management and compliance. It codifies risk mitigation procedures and ensures employees are informed and compliant, fostering a culture of proactive risk management.

Manufacturing, pharmaceutical, and chemical production industries need this integration even more. These sectors deal with complex regulations and face serious consequences if they don’t comply.

Understanding Risk Assessment and Analysis

Risk assessment and analysis involve a systematic approach to identifying potential risks, assessing their likelihood and impact, and prioritizing them based on their severity. This process of assessing risk involves:

1. Identify Potential Risks: The first step is to identify potential risks that could affect the organization’s information systems and assets. This involves a thorough examination of internal and external factors that could pose threats.

2. Assess Risk Likelihood and Impact: Once potential risks are identified, the next step is to assess the likelihood of each risk occurring and the potential impact it could have on the organization. This assessment helps in understanding the severity of each risk.

3. Prioritize Risks: After assessing the likelihood and impact, risks are prioritized based on their severity. This prioritization helps in focusing on the most critical risks that need immediate attention.

4. Evaluate Existing Security Controls: The final step is to evaluate the effectiveness of existing security controls in mitigating the identified risks. This evaluation helps in identifying areas where improvements are needed to enhance the organization’s security posture.

By following these steps, organizations can develop a comprehensive understanding of their risk landscape and implement effective risk mitigation strategies.

>> Learn about: Risk Quantification

Overview of Risk Management Framework (RMF)

The Risk Management Framework (RMF) provides a structured approach to risk monitoring and reporting. It involves continuously monitoring an organization’s information systems and assets for potential risks and reporting on the effectiveness of risk mitigation strategies. The RMF also includes evaluating the effectiveness of existing security controls and identifying areas for improvement.

Continuous monitoring is a key aspect of the RMF, as it ensures that potential risks are identified and addressed promptly. This ongoing process helps organizations stay ahead of emerging threats and maintain a strong security posture. Additionally, regular reporting on risk mitigation efforts provides valuable insights into the effectiveness of the implemented strategies and helps in making informed decisions about future risk management initiatives.

Building Your Risk Management Framework (RMF)

Building a robust risk management framework requires a systematic approach that aligns with organizational goals. Let's explore the essential steps to create an effective framework that safeguards your business against potential threats.

Step 1: Risk Assessment Methods

Risk assessment combines quantitative and qualitative approaches to evaluate potential threats effectively. The quantitative method assigns numerical values to risks, enabling objective analysis and clear cost-benefit evaluations. This approach proves especially valuable when presenting risk assessments to executives and board members.

Conversely, qualitative assessments focus on scenario-based evaluations, categorizing risks on scales like High, Medium, or Low. Organizations often employ a semi-quantitative approach, using numerical scales from 1-10 or 1-100 to balance both methodologies.

Three primary assessment approaches emerge:

• Asset-based: Focuses on hardware, software, and network infrastructure.

• Vulnerability-based: Examines known weaknesses within systems.

• Threat-based: Evaluates conditions creating risk, generally offering the most comprehensive assessment.

Strong data security depends on a thorough risk management process. Organizations can protect important information by following the six key steps of the Risk Management Framework (RMF) from the National Institute of Standards and Technology—NIST. These steps include categorizing systems, selecting specific controls, implementing those controls, assessing their effectiveness, authorizing them, and continuously monitoring them. By doing this, organizations can reduce threats and keep their critical information safe.

The National Institute of Standards and Technology (NIST) plays a crucial role in the development and maintenance of compliance programs, ensuring organizations adhere to established standards and practices.

Step 2: Creating Risk Policies

Effective risk policies start with understanding your organization's risk tolerance and appetite. Risk appetite defines acceptable risk levels for achieving objectives, moreover risk tolerance determines acceptable deviations from these levels.

When developing policies, consider:

• Services offered and marketing strategies,

• Human resources and staff management,

• Information and resource handling,

• Regulatory obligations,

• IT security measures,

• Succession planning,

• Client acceptance procedures,

• Cash flow management.

Step 3: Setting Up Controls

Internal controls act as the backbone of effective risk management frameworks. These controls cover processes, procedures, and safeguards that protect company systems and data.

To establish effective controls:

1. Design Common Processes: Create standardized procedures that help employees worldwide access systems securely.

2. Implement Safeguards: Deploy controls based on risk prioritization to protect systems without overwhelming employees with repetitive processes.

3. Monitor Effectiveness: Continuously evaluate controls to verify they meet organizational needs and comply with new regulations.

4. Automate Where Possible: Consider implementing automated control systems for real-time insights and improved visibility into risks.

Senior leadership plays a crucial role in control implementation. The CEO should guide the control framework while internal audit and accounting teams report directly to the board. This structure ensures controls meet both organizational and regulatory requirements.

Implementing robust controls becomes critical, especially when you operate in highly regulated industries like manufacturing, pharmaceuticals, and chemical production. These sectors face complex regulatory requirements and severe collateral damage from non-compliance.

The NIST Risk Management Framework (RMF) follows a six-step process to build and maintain a robust risk management strategy. These steps are:

1. Categorize the Information System
   Define the system’s boundaries and determine its security impact level based on the types of information it processes.
   
   

2. Select Security Controls
   Choose a set of baseline security controls from NIST SP 800-53 that correspond to the system’s impact level and tailor them as necessary.
   
   

3. Implement Security Controls
   Deploy and integrate the selected controls into the system’s architecture and operational environment.
   
   

4. Assess Security Controls
   Evaluate the controls to ensure they are correctly implemented, functioning as intended, and effectively mitigating risk.
   
   

5. Authorize the Information System
   A senior official reviews the risk assessment to determine whether the residual risk is acceptable for the system to operate.

   
   

6. Monitor Security Controls
   Continuously track the performance and effectiveness of the controls, updating them as needed to address changes in the threat landscape or system environment.

   
   

These six steps, outlined in NIST SP 800-37, create a continuous security life cycle that helps organizations manage risk proactively and maintain ongoing security posture.

Remember that risk management frameworks require regular updates as new threats emerge. By maintaining flexibility and adaptability in your framework, you can effectively respond to evolving risks while ensuring continuous compliance with regulatory requirements.

Setting Up Compliance Programs

Establishing an effective compliance program stands as a critical defense against regulatory violations and financial penalties. Studies show that organizations pay 2.71 times more when they don’t comply with regulations than when they maintain proper compliance measures.

Regulatory Requirements Analysis

The lifeblood of any compliance program starts with a complete analysis of regulatory requirements. Your organization needs to identify all regulations from federal, state, and local authorities. This analysis should cover:

• Industry-specific mandates and guidelines,

• Federal and state compliance standards,

• Local regulatory requirements,

• Changes in compliance landscape.

The U.S. Department of Justice reviews corporate compliance programs based on their governance structure and how well they work. Therefore, your compliance efforts should focus on risks that matter most to business operations.

Compliance Program Design

The design phase requires careful consideration of seven fundamental elements outlined by federal guidelines:

1. Written Policies: Create clear, documented standards that define employee conduct and operational procedures;

2. Compliance Leadership: Appoint a dedicated compliance officer with authority and independence;

3. Communication Channels: Establish secure reporting mechanisms for potential violations;

4. Monitoring Systems: Implement regular audits and reviews;

5. Enforcement Standards: Define consistent disciplinary guidelines;

6. Response Protocols: Develop procedures for addressing compliance issues;

7. Documentation Systems: Maintain comprehensive records of all compliance activities.

Your organization should tailor its compliance program to meet specific needs and challenges. The Department of Health and Human Services requires healthcare organizations to train their corporate officers, managers, and employees on specific topics. Effective risk management strategies are crucial in designing a compliance program that can adapt to evolving threats and minimize risks.

Training and Documentation

Training is vital to your program’s success. That's why companies should make training programs mandatory for continued employment. A good training strategy includes:

• Initial awareness training upon hire,

• Annual refresher courses,

• Job-specific compliance education,

• Board member training on regulatory updates.

Effective risk reporting is also crucial in compliance training, as it aids in monitoring known risks and ensures transparency for stakeholders.

Documentation plays an equally crucial role in maintaining compliance. Enterprises should maintain records of:

• Data collection policies,

• Operational procedures,

• Privacy measures,

• Technical security protocols,

• Audit findings.

For measuring training effectiveness, organizations employ three primary metrics:

1. Post-training assessments.

2. Monitoring of specific topics covered.

3. Review of compliance concerns reported through proper channels.

Making compliance training mandatory and part of annual performance evaluations is a good idea. Your organization should also update training materials regularly based on audit and investigation findings.

>> Read about: Challenges and solutions of the data imperative for compliance teams

Implementing Risk and Compliance Software

Modern organizations need reliable software solutions to manage their risk and compliance requirements well. According to Cognitive Market Research, the global risk management software market was valued at USD 2.87 billion in 2022. It will reach USD 8.65 billion by 2030, registering a Compound Annual Growth Rate (CAGR) of 14.8 % for the forecast period 2023-2030.

So, selecting the right tools is vital for organizational success. Managing risks through structured approaches like Risk Management Frameworks (RMF) is essential for identifying, assessing, and mitigating various threats, particularly in today's digital landscape.

Key Features to Look For in Compliance Software

A comprehensive risk and compliance software solution should offer several essential capabilities. First, the platform must provide real-time monitoring capabilities for tracking regulatory changes and assessing compliance status. This enables organizations to respond swiftly to evolving threats and regulatory requirements.

The software should also include:

• Automated Risk Assessments: Tools that optimize risk review processes and enable continuous monitoring of risk levels,

• Centralized Documentation: A unified platform to store and manage all compliance-related documents,

• Control Testing: Features that review control effectiveness regularly,

• Data Integration: APIs that blend with existing systems to pull operational data without manual transfers.

According to McKinsey research, it is possible to reduce costs by 15 to 25% while increasing risk effectiveness through a well-structured risk transformation program. Using integrated risk management software, companies can reduce operational losses and risk exposure costs.

>> Find out how you can secure business continuity plan with Parakeet.

Integration Best Practices

Successful implementation of risk and compliance software requires careful planning and execution. Initially, organizations should evaluate their existing technology stack to ensure seamless integration with new solutions. This assessment helps prevent the creation of data silos and reduces manual work.

For optimal integration:

1. Define Clear Objectives: Outline specific goals for the software implementation, aligning them with organizational priorities.

2. Ensure Data Security: Verify that the platform complies with security certifications like SOC Type 1 & 2 and ISO 27001.

3. Establish User Hierarchy: Create a structured permissions system where:

   • Operational staff can complete basic tasks,

   • Middle managers can approve risks and receive notifications,

   • Leadership teams access high-level risk dashboards.

4. Implement Training Programs: Organizations that prioritize stakeholder training experience higher satisfaction rates post-integration.

   
   

The software must offer customization options without needing extensive coding knowledge. This flexibility lets organizations adapt the platform to their specific needs while keeping operations efficient.

Automated workflows within the platform can cut compliance costs substantially. The right software solution also improves audit readiness through detailed audit trails and real-time reporting capabilities.

>> Explore: ISO 50001: The Standard Powering a Sustainable Future

Measuring Success and ROI

Organizations need to calculate the success of their risk management and compliance initiatives to confirm their investments make sense. Companies can make smart decisions about where to put resources by tracking specific metrics and analyzing performance data.

A dashboard showing functionalities of Parakeet Financial risk and compliance management platform.

A well-defined risk management process is crucial in this context, as it provides a structured approach to measure success and ensure effective management of risks.

>> See Parakeet in action and book a demo!

Key Performance Indicators

The success of risk and compliance programs depends on carefully picked KPIs that match company goals. These indicators show how well employees know, get involved with, and follow compliance initiatives. Companies should keep track of:

• Policy review and update frequencies,

• Training completion rates and post-assessment results,

• Communication engagement metrics,

• Incident reporting trends across various channels.

Rather than focusing solely on completion rates, organizations must evaluate how well employees understand and apply compliance training in their daily operations. Furthermore, tracking the correlation between training dates and corresponding activities provides deeper insights into program effectiveness.

Risk Reduction Metrics

Risk reduction measurements focus on four crucial aspects that demonstrate program effectiveness:

1. Systemic Risk Identification: This metric detects dependencies across all organizational levels.

2. Process Area Coverage: Evaluates the percentage of areas involved in risk assessments.

3. Risk Monitoring Rate: Measures the proportion of key risks under active surveillance.

4. Risk Mitigation Success: Tracks the percentage of identified risks successfully addressed.

   
   

Companies that use expandable risk management solutions report up to 20% fewer operational losses. The best results come from analyzing both Key Risk Indicators (KRIs) and Key Performance Indicators (KPIs) together. This combination reveals how reliably companies reach their strategic goals. Effective risk management strategies play a crucial role in reducing risks by adapting to evolving circumstances and minimizing vulnerabilities.

Compliance Success Rates

Measuring compliance program effectiveness requires a comprehensive approach endorsed by various authorities, including the United States Sentencing Commission. Success rates can be evaluated through:

• Regular internal audits examining employee conduct,

• Testing of control systems,

• Immediate remediation of identified gaps.

Companies can consider different operational challenges and industry types when measuring compliance effectiveness. Compliance officers should focus on three primary measurements:

1. Cost Analysis: Compare compliance maintenance costs against potential non-compliance penalties,

2. Program Impact: Evaluate changes in violation rates and severity,

3. Resource Efficiency: Assess time and resource allocation improvements.

Companies in heavily regulated industries like manufacturing and pharmaceuticals must keep detailed records of compliance activities. These records prove that programs work well and help during regulatory checks.

Regular culture surveys and knowledge checks help paint the full picture of program success. These evaluations help identify potential gaps in understanding and areas requiring additional attention. Hence, it is worth looking at survey trends and feedback from departments to see if compliance efforts meaningfully impact employees and overall operations.

Conclusion

Risk management and compliance have become critical pillars for business success, especially as businesses face increasing regulatory changes and compliance costs. In this article, we've shown how the proper integration of risk management and compliance programs helps organizations reduce potential threats while ensuring regulatory adherence. Above all, successful risk and compliance management requires three key elements: robust frameworks, effective compliance programs, and reliable software solutions.

Now you know that risk management and compliance success rely on good documentation, regular checks, and quick adaptation to new rules. Need help making decisions? Contact us! Our expert team offers groundbreaking risk management solutions to keep your business compliant and competitive. We help you protect public health, your brand value, and your customers' trust.