Risk Management

Risk Response: Strategies for Managing Compliance Risks

Learn to develop and implement effective responses to compliance risks. Understand your options—avoid, mitigate, transfer, or accept—and build controls that reduce risk to acceptable levels while optimizing resources.

In This Guide

Understanding Risk Response

Risk response involves selecting and implementing actions to address identified and evaluated risks. The goal is to bring risk levels within acceptable tolerance while making efficient use of organizational resources. Effective risk response requires understanding your options and matching responses to specific risk characteristics.

Response decisions should be based on risk evaluation results, cost-benefit analysis, organizational risk appetite, and available resources. Not all risks require the same level of response—prioritization ensures the most significant risks receive appropriate attention.

The Risk Response Decision

For each evaluated risk, organizations must decide: What action will we take? Who is responsible? What resources are needed? How will we know if it's working? These decisions form the basis of your risk treatment plan.

Risk Response Strategies

Four fundamental strategies address compliance risks. The appropriate choice depends on risk severity, cost of response, and organizational capabilities.

Avoid

When risk outweighs benefit

Eliminate the risk by stopping the activity that creates it. This is the most definitive response but may mean foregoing business opportunities.

  • Exit high-risk markets or activities
  • Discontinue risky products or services
  • Refuse high-risk customer relationships

Mitigate

When risk can be reduced

Implement controls to reduce the likelihood or impact of the risk. This is the most common response for compliance risks.

  • Implement preventive controls
  • Strengthen detective controls
  • Enhance corrective capabilities

Transfer

When others can manage risk better

Shift risk to another party through insurance, contracts, or outsourcing. Note: compliance accountability often cannot be transferred.

  • Insurance for financial impact
  • Contractual indemnification
  • Outsource to specialists

Accept

When response cost exceeds benefit

Acknowledge the risk and choose not to take action. Appropriate for low-impact risks or when controls aren't cost-effective.

  • Document acceptance decision
  • Obtain appropriate approval
  • Continue to monitor the risk

Compliance Risk Reality

Unlike some business risks, compliance risks often cannot be fully transferred. Regulators hold organizations accountable regardless of outsourcing arrangements. Risk transfer can address financial impact but not compliance responsibility.

Designing Effective Controls

Controls are the mechanisms that implement risk mitigation strategies. Well-designed controls efficiently reduce risk while integrating with business operations.

1

Preventive

Stop risks from materializing

2

Detective

Identify when risks occur

3

Corrective

Address risks after occurrence

Control Design Principles

  • Address Root Causes: Controls should target the underlying causes of risk, not just symptoms
  • Proportionate to Risk: Control strength should match risk severity
  • Layered Defense: Multiple controls provide redundancy if one fails
  • Automated Where Possible: Automated controls are more consistent than manual ones
  • Integrated with Operations: Controls embedded in processes are more sustainable
  • Measurable: Effectiveness should be verifiable

Implementing Risk Responses

Successful implementation requires careful planning, adequate resources, and effective change management.

1

Develop Treatment Plans

Document specific actions, responsibilities, timelines, and resource requirements for each risk response. Clear plans enable execution and accountability.

2

Secure Resources

Obtain budget, personnel, technology, and other resources needed to implement responses. Inadequate resources doom implementation efforts.

3

Execute Controls

Implement controls according to plans. Manage change to ensure adoption. Address obstacles promptly.

4

Verify Implementation

Confirm controls are operating as designed. Test functionality. Address gaps between design and operation.

5

Monitor & Adjust

Track control performance over time. Adjust responses based on effectiveness data and changing risk conditions.

Measuring Response Effectiveness

Ongoing measurement ensures risk responses achieve their intended objectives. Key metrics include:

  • Control Performance: Are controls operating as designed? What is the pass/fail rate?
  • Risk Reduction: Has residual risk decreased to acceptable levels?
  • Incident Trends: Are compliance incidents decreasing?
  • Audit Findings: Are controls satisfying auditor requirements?
  • Efficiency: Is the control achieving results at reasonable cost?

Resource Optimization

Organizations have limited resources for risk response. Optimization strategies include:

  • Risk-Based Prioritization: Focus resources on highest-priority risks
  • Control Consolidation: Design controls that address multiple risks
  • Automation: Reduce ongoing costs through technology
  • Integration: Embed controls in existing processes rather than creating separate ones
  • Continuous Improvement: Eliminate ineffective controls and enhance efficient ones

Continue Learning

Risk Identification

Start by identifying compliance risks systematically.

Risk Evaluation

Assess and prioritize risks before responding.

Monitoring & Review

Track response effectiveness over time.