Lots of people hear the terms compliance and risk management and assume the two terms are the same. While there is overlap between the two, it’s important to know the differences so you can assure your company is using each strategy to its full advantage.
Let’s look at what each strategy is, how they differ, and how to use them together to mitigate risks.
What is Compliance?
Compliance means to conform to a rule, in business, this can mean following the rules of a contract, like purchasing the right coverage if you’re a subcontractor starting a new project. Businesses and organizations strive to meet 100% compliance, but this is a difficult process that takes hours of work and endless man-power if a proper system isn’t in place.
In terms of tracking and collecting certificates of insurance (COIs), being in compliance means you have submitted an insurance certificate showing you have the coverage required in your contract.
What is Risk Management?
Risk management is the process of finding potential risks a business could face and assuring compliance is in place so these risks have coverage if they do occur. Risk management also involves coming up with plans to make sure employees know of all the potential risks and how to avoid these risks.
What’s the Difference Between Compliance & Risk Management?
The most obvious difference between compliance and risk management lies in their end goals. The end goal of compliance is to assure all rules are followed. The goal of risk management is to make sure there is money or insurance coverage in place to account for every risk a company could face.
Another difference between compliance and risk management is the ability to react to risk. With compliance, an organization is trying to make sure rules are met. If a company only focuses on compliance, when something out of the ordinary happens, there’s a good chance they won’t have coverage.
On the other hand, a risk manager’s job is to look for every potential risk a company could face and assure there’s a plan in place for each of these risks. Risk management is much more proactive when compared to compliance. To assure all risks have coverage, both compliance and risk management need to work together.
One last difference between compliance and risk management that’s worth mentioning is the departments they are a part of. Compliance is its own department where boxes are checked to assure rules are being followed. Risk management, on the other hand, spans across all departments to make sure risks are accounted for throughout the entire organization.
Bringing Compliance & Risk Management Together
Compliance and risk management need to work together to ensure the entire company is following necessary rules and has solutions in place for losses that may occur. One of the best ways to bring these two departments together is by using a COI tracking solution like SmartCompliance.
SmartCompliance allows compliance and risk management departments to work together by giving them an easy way to track which vendors and subcontractors are in compliance and which ones need to send in the verification of coverage.
