Cost cutting by aligning governance, risk and compliance
Australian business is following a worldwide trend to overhaul internal governance, risk and compliance (GRC) to reduce both costs and risk in a recovering economy, a global report has found.
Undertaken by the Economist Intelligence Unit on behalf of KPMG, the report found that 64 per cent of businesses worldwide now see GRC convergence as a key priority for their business.
Until recently, companies had responded to increased regulation or the call for a better approach to business by creating layers of compliance and process, said Sally Freeman, Australia’s advisory partner for KPMG.
“Corporate risk and compliance areas are now bloated and burdensome and can be difficult to navigate,” she said.
“While there is general acceptance that change is needed, many businesses are under the misperception that effective GRC is a technology platform.”
A focus on technology does little to address the more strategic issues arising at an overall governance level, said Freeman, who added that technology should not be the catalyst to bring necessary assurance elements in a business together.
As the economy recovers, Freeman also said there is added pressure on boards and senior leaders to find new ways of doing business vigilantly.
“Tightening budgets have affected many Australian companies and the tension between reducing risks to the firm in a cost-effective manner has driven many to overhaul their practices,” she said.
“Adding further processes to address changing regulations, evolving assurance requirement and demerging risk has resulted in a level of complexity that is not efficient, adding little value to organisations.”
The survey indicated that the cost of GRC activities is now a significant one for businesses. One out of every two estimated that the cost is as much as 5 per cent of their total annual revenues, while 11 per cent believe GRC costs more than 20 per cent of revenues while 8 per cent believe it costs nothing at all.
Companies know they need to trim down the monster that GRC has become, without slipping up on their regulatory requirements, Freeman observed.
“Yet they are struggling to justify the short-term investment required to achieve long-term savings and value,” she said.
“Done correctly, convergence can bring about very real performance improvement and cost savings. Until businesses can properly demonstrate this, they still face an uphill battle in justifying the time and effort needed to properly integrate risk management into their business.”
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