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Risk and Control Self-Assessment (RCSA): What is it, What are the Benefits, and How is it Done?

Risk and control self-assessment (RCSA) is an internal procedure used to identify, assess, and mitigate operational risks within a company.1

In this article, we will discuss the purpose and benefits of this process, before exploring the key stages involved in conducting a thorough RCSA.

What is the Purpose of an RCSA?

Regular engagement in RCSAs allows businesses to effectively identify and mitigate operational risks.

Key Benefits Include:

  • Improving companywide awareness of risks that pose a threat to operations.1

  • Ensuring a business meets industry specific regulations.1

  • Providing motivation for constant improvement.1

  • Strengthening a business’ resilience and ability to thrive on risk.2

  • Helping a business reach strategic targets by examining and mitigating financial risks.

What Businesses can Benefit From an RCSA?

An RCSA is a versatile tool that can be adapted to assess the unique risks faced by businesses in any sector. For example, financial services might face credit, market, compliance, and operational risks, and technology companies must navigate risks relating to cybersecurity, including intellectual property breaches. Healthcare providers may face additional clinical and informational risks, and are strictly regulated by industry specific laws and regulations like HIPPA.

What Does an RCSA Involve?

During an RCSA, operational risks for a business are identified, and current risk management strategies are evaluated.

Once the current control measures have been assessed, any ineffective risk management processes can be finetuned and re-assessed.

The RCSA process is usually comprised of the following stages.

  1. Stage One: Documentation and Definition

    2. The best RCSAs start with a thorough top-down analysis of a business’ operations.1

    This early step in the process is not about identifying or mitigating risks. Instead, it is about setting up a structure that allows the company to complete the next stages methodically and thoroughly.

    During This Stage, a Business Will:

    • Clearly define organizational units. RCSAs are not completed at an organizational level. This means the company must be split into hierarchical organizational units, also referred to as ‘entities’ for the purpose of the RCSA. Some commonly used entities include information technology, retail banking, treasury, payments, financial control, and asset management.

    • Define the relationships between these organizational units. This will allow the relationships between risks to be considered. This is important, as data from individual risk entities will be combined to create the organizational risk profile.

    • Decide who will perform RCSAs. Based on the above steps, identify who will be responsible for completing RCSAs in each unit. This duty may be allocated to executives or process owners, for example.2

  2. Stage Two: Identification of Risks

    3. This is the stage in which risks are pinpointed by the organizational units defined in the first step.

    Tools to Identify Risks

    Questionnaires and workshops can be excellent ways to gain solid qualitative and quantitative data to underpin the findings of an RCSA. A business may host workshops in which stakeholders can meet to identify and discuss current risks. They may also distribute questionnaires across the company to gain a range of perspectives on risks from individuals at every level.1

    Many businesses choose to combine these two data collection methods. This allows for a more thorough assessment that puts less of a burden on individuals.1 Once all risks have been identified, they should be categorized according to severity. Typically, severity is based on how much monetary value is at stake as a result.

    Consider Risks in the Following Order:

    1. Top-level entity risks. These risks usually hold the most weight and filter down to all organizational units.

    2. Regulatory risks. These are risks that arise due to government policies and regulators. They also often affect many organizational units.

    3. Unit risks. These are specific risks associated with the risk profiles of individual units.

  3. Stage Three: Assessment of Controls

    4. In this stage, current controls being used to mitigate the risks identified in stage two are carefully assessed, with any gaps and shortfalls being identified.1

    Assessment of controls should be carried out regularly, as even the most effective controls will not necessarily remain effective indefinitely. Risk control measures are often categorized as acceptable, acceptable with concerns, or less than acceptable based on their level of efficacy. It is up to each entity to manage its own risks and develop appropriate control plans.

    Once existing risk controls have been identified and assessed, a business will have a clear picture of where improvements need to be made. Control measures that fall short of acceptable should be refined by the relevant entity to improve their efficacy going forward. Risk controls can be refined with a corrective action plan.

    A Corrective Action Plan Typically Includes:

    • The name of the RCSA entity

    • The name of the person responsible for the entity

    • Date of test and period covered by the test

    • Descriptions of each weakness and severity rating

    • Clear action plan to solve each weakness

    • A target date for resolution

  4. Stage Four: Reviews and Ratings

    5. The final stage in an RCSA is to evaluate the new mitigation plans and controls introduced using corrective action plans.

    New measures can be categorized by efficacy in the same way that initial controls are categorized in stage three (e.g., acceptable, acceptable with concerns, or less than acceptable). These standardized ratings offer a benchmark that helps teams constantly improve risk control. To get a dynamic picture of how a mitigation strategy’s efficacy is fluctuating over time, these ratings can be compared to the average of its last three scores.

    The best RCSAs are iterative and regularly repeated to ensure the current data always accurately reflects the present picture. This allows any additional mitigation strategies needed to be introduced early, reducing risks to the business.

RCSA is a valuable tool for businesses wishing to be more proactive in mitigating risks and staying in line with industry regulations. The best RCSAs are methodical, dynamic, and set up to be constantly updated by organizational units. This ensures no risks go unchecked over time, and can ultimately boost a business’ financial prosperity for years to come.

Sources

1 https://www.logicmanager.com/resources/erm/a-guide-to-rcsa/

2 https://www.metricstream.com/learn/6-critical-factors-to-modernize-your-rcsa.html


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Risk Management