Managing compliance using business modelling

Research shows more than half of Australian businesses struggle to keep up with compliance. In fact, it is an area that keeps many managers up at night. Failure to comply with industry regulations can have serious and dire consequences resulting in heavy fines, trading restrictions and sometimes even jail time for directors.

With the constant changes to regulations, the level of documentation plus the frantic activity that often surrounds compliance audits, the process is often seen as less of an ongoing quality control mechanism and more of a costly reactive imposition with little benefit.

Some of the problems often associated with governance and compliance include:

• The corporate knowledge, including how companies comply with regulations, is stored in the heads of experienced staff, or in multiple disconnected documents often of different formats, rather than being turned into a well-managed and linked corporate asset that can be used by all employees in a consistent way and on a daily basis.
• No standardised reporting and documentation across the business, which leads to a higher risk of mistakes.
• Increased costs and resources required at time of audit.
• Little awareness of the breadth of impacts any changes to regulations may have on the business operations, technologies and employees.
• Treated in isolation and on an ad hoc basis, compliance only offers short-lived quality control.
• Little understanding of how business process is linked to regulation, making it difficult to understand what needs to change when a regulation is modified.
• Further business and systems changes means processes and associated documentation are not continuously improved and kept up-to-date in a way that complies with regulations.
• No mechanism to allow staff to feedback on business processes in context so drive continuous improvement and allow staff to improve compliance.

For highly regulated and complex organisations, often the best way to manage changing regulations is a modelling approach. It is the only way to consistently record all the relationships between regulations, operational procedures, systems and staff. This will allow senior executives to better understand the impact of the change on the entire organisation.

Developing a comprehensive model of the business’ operations will allow you to clarify responsibilities and link all compliance obligations to the related operational processes and systems. It will also allow you to see the relationships between employee roles, business operations, strategies, objectives as well as compliance obligations. The system that results from this work is often called a business management system (BMS).

Once your organisation’s procedures have been modelled, when new regulations are introduced you will be able to accurately:

1. Understand your obligations. By having an accurate organisational model you will be better positioned to recognise what you will need to do to achieve compliance and how this applies to your operations.
2. Understand how specific procedures, IT systems, roles and employees will be affected by the regulation change.

This approach gives those responsible for regulatory obligations a direct line of sight to all the process steps and staff members responsible for satisfying that obligation. In the reverse direction, process performers can see what regulations are being satisfied by the various steps they perform so they can better understand the consequence of their work.

Achieving an integrated approach for managing compliance, regulations and reporting systems will ensure they are incorporated into the organisation’s day-to-day operations. Compliance activities need to be implemented in the context of operations and also in a way that is agile enough to move with business transformation or continuous improvement initiatives.

An effective model should include visual diagrams that capture the DNA of the organisation (its services, structure, roles, projects, values and goals) in a single, flexible business management system. This system can also aid in planning and managing the implementation of strategy, provide a platform for continuous improvement, create a reliable and up-to-date source of truth and allow management to see the whole picture rather than segments of the organisation.

Changing industry and sustainability regulations can be onerous. However, organisations that adopt a modelling approach to managing compliance will benefit from being able to better respond to changes in regulation as well as drive efficiency and more successfully execute business strategies.