Measuring the Impact: Key Metrics for Assessing Compliance Culture 

27/05/2024by admin0Read: 5 minutes

Establishing and nurturing a robust compliance culture within your organisation is not just a regulatory requirement; it’s a strategic imperative. A thriving compliance culture ensures ethical conduct, minimises risks, and contributes to the overall success of your business.

In this blog, we delve into the essential metrics that can help you measure and assess the impact of your compliance initiatives.

Compliance Metrics or Key Performance Indicators 

Key Performance Indicators (KPIs) in compliance serve as vital metrics to gauge the efficacy of your compliance performance vis-à-vis strategic objectives. These indicators encompass the degree of compliance with internal and external policies, as well as adherence to the prevailing regulatory framework.

Utilising KPIs provides a means to assess the efficiency of compliance programs, acting as a monitoring tool to detect and address potential signs of non-compliance at an early stage. In today’s data-driven business landscape, KPIs furnish essential information, allowing for a quantifiable evaluation of progress towards overarching business strategies.

Importance of Compliance Metrics or KPIs

1)  Elevate Compliance Effectiveness

The overarching objective is complete compliance, yet this concept is too abstract to formulate a cohesive and effective strategy independently. Utilising Key Performance Indicators (KPIs) allows you to deconstruct the journey toward this goal into manageable components, enabling you to monitor and enhance your progress systematically.

This approach provides a comprehensive view of the advancement of your compliance programs, facilitating adjustments and streamlining processes to bolster overall compliance effectiveness.

2) Detect and Rectify Gaps

By diligently tracking these data points, organisations can gain valuable insights into areas where your current compliance strategy may be lacking. Identifying gaps in their processes empowers them to optimise workflows or pivot away from ineffective approaches.

If KPI tracking reveals that a particular method is failing to shield your business from non-compliance risks, this constitutes a compliance gap. Addressing such gaps involves assessing whether employees require additional training, revised technology, or other corrective measures. This proactive stance prevents the company from persisting with an ineffective plan, ultimately reducing associated costs.

3) Stay Abreast of Regulatory Demands

Given the frequent introduction of new regulations and updates to existing legislation, companies must continually integrate specific compliance procedures into their operations. Regular monitoring of Safe Work Australia, Workplace Victoria and national government websites, along with staying informed through industry publications and conferences, is essential.

Establishing KPIs based on monitoring results ensures that the company remains aligned with regulatory changes. This proactive approach enables the timely implementation of measures such as whistleblowing reporting channels and trade communication recording procedures, meeting required standards.

4) Substantiate Compliance Efforts Tracking

Compliance metrics provide tangible evidence of your commitment to adhering to relevant policies and legislation. In the event of a compliance issue within your organisation, a business that can demonstrate proactive steps to mitigate risks is likely to receive more lenient treatment. Conversely, an organisation lacking a clear compliance strategy and allowing misconduct to thrive may be more susceptible to sanctions from competent authorities.

Compliance Metrics or Key KPIs to Assess Compliance Culture

Here are the key KPIs or compliance metrics that play an important role in sustaining a robust compliance culture.

1) Mean time to Issue Discovery

The time it takes to discover a compliance issue is critical for investigating and resolving problems within a reasonable timeframe. By calculating this number, you can understand whether the company is improving at uncovering violations or if they are being allowed to fester for longer. The shorter the mean time to issue discovery, the more effective your compliance efforts will be.

2) Mean Time to Issue Resolution

This KPI can be analysed on its own and in relation to the mean time to issue discovery. You want to see that you are resolving issues more quickly, and that is the headline figure. However, if you are getting quicker at discovery but resolution is stagnant or even taking longer, you have a better idea of where the blocks are in the pipeline.

3) Compliance expense per issue

What is the average cost of a compliance issue to the organisation? You look at the total received in fines for contraventions of legislation divided by the number of issues dealt with by the compliance department. If this figure reduces over time, you are likely to have successfully dealt with the most serious wrongdoing, and you can then work downward to tackle the rest of the issues.

4) Average cost of compliance-related lawsuits

Adding all of the expenses paid in relation to lawsuits brought against the organisation divided by the number of lawsuits. Again, this KPI can show you if you are successful at tackling the top level of unethical behaviour within the company. If the figure stays level or grows, you need to rethink your approach.

5) Total regulatory compliance expense

The total amount of money spent on fines from compliance issues over a set period. This is obviously a top-line figure and does not consider extraordinary events to explain the level of expense, but it is still helpful to understand the direction of travel of this KPI.

6) Risk Severity Gap

This refers to looking at the difference between the predicted compliance risks that affect the company and the risks that have manifested over a set period. If you find that you have been over-cautious, you have some room to swap out resources aimed at risks that did not occur and redeploy them. If you have not been cautious enough, this helps you understand where you need to be more robust.

7) Composite Risk Index

This is a way of understanding how likely a risk is to occur and the impact that it would have if it did occur. You give each potential risk a score out of five for the impact it might have and another score out of five for its probability. This can inform the priorities of your compliance programme. A risk with minimal impact and low probability is less important than one with high impact and high probability.

8) HR Regulatory Compliance Expense

The total expense by the human resources department relating to regulatory compliance issues. When divided by the total revenue of the company over the same period, you can assess whether your compliance procedures are effective or not in preventing wrongdoing within the organisation.

9) Compliance training expense

The total amount of money spent on compliance training for your organisation is divided by the number of employees. To show that you are serious about battling non-compliance within your business, you must show that you are making adequate investments and increasing that investment year-on-year to keep on enhancing your compliance culture.

10) Compliance training headcount

It is not just about spending money on compliance training. Monitoring the number of employees who undertake compliance training over some time is a way to show that you are providing the information needed for your staff to carry out their work in a compliant manner. By increasing your training headcount, you show that you are committed to spreading the word.

11) Number of misconduct reports

Detailing the number of misconducts reports you receive is important to understand how your compliance processes are working. However, you must be careful when analysing the data. An increase in the number of whistleblowing reports might seem like a negative occurrence, but it can also be a sign that your colleagues feel more comfortable speaking up. Once you have the quantitative data, explore the qualitative data from your employee feedback on attitudes towards your compliance culture.

Thus, effectively measuring the impact of your compliance culture requires a multifaceted approach. By leveraging these key metrics, your organisation can gain valuable insights, identify areas for improvement, and foster a culture of integrity and accountability.

Remember, a proactive stance toward compliance not only mitigates risks but also lays the foundation for sustainable business success.

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