Revolutionizing GRC: How Digital Twins Are Shaping the Future of Risk Management

Key Takeaways

• Digital Twins Transform GRC: Digital twins offer a dynamic, real-time view of an organization’s governance, risk, and compliance (GRC) framework, enabling businesses to simulate risk, visualize interdependencies, and respond proactively to disruptions.
• Simulation Drives Resilience: Beyond documentation, digital twins allow organizations to simulate a range of risk scenarios, from regulatory changes to geopolitical events, empowering more informed decision-making and strategic planning.
• Three Levels of Risk Management: Digital twins integrate across three layers of risk management: strategic decision support, objective-centric risk management, and operational execution, offering a holistic approach to managing uncertainty.
• Real-World Use Cases: Key applications of digital twins in GRC include strategic risk management, regulatory change management, operational control testing, and third-party risk management, helping organizations prepare for a wide variety of risk events.
• Visibility as the First Step: The initial value of digital twins lies in providing visibility into the current state of GRC. Once established, organizations can use digital twins for advanced simulations and continuous improvement in risk management practices.

Deep Dive

In an era where risk is increasingly interconnected, multifaceted, and shifting in real time, organizations can no longer rely on static frameworks to manage governance, risk, and compliance (GRC). Traditional tools such as policies, controls, and spreadsheets, while valuable, no longer offer the adaptability required to navigate the complexities of today’s business landscape. Risk no longer exists in isolated silos; it cascades through supply chains, reverberates across organizational structures, and evolves in response to forces like regulatory change, geopolitical events, environmental disruptions, and rapid technological advancements. To thrive in this turbulent environment, organizations need GRC tools that are as dynamic and fluid as the risks they aim to mitigate.

One such transformative tool is the concept of digital twins in GRC. Traditionally used in engineering and manufacturing to simulate physical objects, digital twins are now being adapted to model business systems, processes, and ecosystems. These virtual replicas are continuously updated with real-time data, offering an advanced capability to simulate risk, model uncertainties, and visualize the far-reaching impacts of both internal changes and external disruptions. Through this innovation, digital twins provide organizations the power to simulate risk scenarios, test potential responses, and understand the interdependencies within their risk landscape—well before these events materialize.

A recent experience during a supplier risk workshop in Madrid underscores the real-world applications of digital twins. Two large multinational manufacturers shared their strategic ambitions of leveraging digital twins to model the impacts of extreme disruption events, such as climate change-induced disasters or geopolitical instability, like a potential conflict in the Taiwan Strait. These conversations revealed the vast potential of digital twins to help businesses not only react to crises but also prepare strategically and proactively for the future.

In another conversation with a life sciences firm in Switzerland, the need for a GRC platform supporting digital twin technology came into sharp focus. The organization, in the midst of an RFP process, emphasized their desire to use digital twins to simulate the regulatory and operational risks that could impact their enterprise. This demand highlights a growing trend: forward-thinking companies are recognizing that traditional risk management approaches are no longer enough to keep pace with the volatility of today’s world.

But what truly sets digital twins apart in GRC is not just their ability to simulate risk but how they fundamentally change the way organizations perceive and manage risk in the first place.

Laying the Foundation: From Current-State Visibility to Risk Simulation

In my work with organizations adopting GRC 6.0 (business-integrated GRC strategies), I’ve seen that the first and most impactful use case for a digital twin is establishing a real-time, dynamic view of an organization’s current state. For organizations that are earlier in their GRC maturity journey, this initial step, the creation of a “current state map”, is critical. It provides an integrated, real-time picture of how risk, compliance, controls, and organizational objectives align across the business. This visibility alone is a game-changer for organizations, enhancing communication, alignment, and accountability.

Once this foundation is set, the true power of digital twins begins to unfold. They allow organizations to move from simple documentation to complex simulations. With a digital twin in place, organizations can model a variety of scenarios, conduct table-top exercises, run micro-simulations, and even engage in war-gaming to evaluate how various risk events, from regulatory changes to disruptive events like cyberattacks or supply chain failures, might impact their operations.

However, without an accurate and comprehensive digital reflection of the organization’s current state, any insights gained from simulations will be at best incomplete and at worst misguided. The ability to simulate risk effectively is built upon understanding the intricate and evolving interconnections within an organization. Only with an accurate digital twin can organizations uncover the true impact of risk events.

Risk Management Reimagined: A Holistic Approach

To fully appreciate the potential of digital twins, it’s useful to explore GRC 20/20’s framework for risk management, which identifies three distinct but interrelated layers of organizational risk management:

1. Strategic Risk & Resilience Decision Support: At this level, risk is not just a consideration but a guiding force in making high-level organizational decisions, from market expansion and new product development to mergers and acquisitions. This context provides tremendous value but often remains the least structured in many organizations. Digital twins offer a means to model how external and internal changes affect long-term strategic decisions, enabling organizations to make data-driven, resilient choices. This is the realm of Risk Management v2 (RM2), as defined by Alex Sidorenko.
2. Objective-Centric Risk & Resilience Management: This level focuses on the risks associated with achieving specific business objectives — whether financial, operational, regulatory, legal, or ESG-related. These objectives cascade from the strategic level and exist across entities, departments, processes, projects, assets, and third-party relationships. Digital twins bring all these layers together, offering a living model of risk in context. This approach, endorsed by Tim Leech, aligns closely with Objective-Centric Risk & Uncertainty Management, allowing businesses to evaluate how decisions and external events shape their outcomes.
3. Operational Risk & Resilience Execution: At the operational level, risk is managed through controls, tasks, issues, audits, and assurance processes. Digital twins offer an unprecedented opportunity to connect operational risks with strategic and objective-centric goals, moving risk management beyond a compliance exercise. This layer, known as Risk Management v1 (RM1), can become a powerful strategic tool when digital twins help bridge the gap between day-to-day operations and long-term organizational objectives.

What makes digital twins especially compelling in this context is their ability to integrate seamlessly across all three of these levels. This holistic approach transforms how risk professionals understand, communicate, and act on risk in a dynamic world.

Real-World GRC Applications of Digital Twins

1. Strategic Risk Management & Scenario Analysis
   Digital twins enable organizations to simulate the impact of strategic decisions in a data-driven, risk-aware manner. This capability provides leaders with insights that can guide major decisions before they are made, helping organizations prepare for a range of potential outcomes.
   • A global energy company models a variety of climate change scenarios — from rising sea levels to extreme weather events — to assess their effects on infrastructure and energy production strategies.
   • A multinational manufacturer simulates geopolitical tensions in the South China Sea to understand the potential disruption to supply chains, shipping routes, and contractual obligations.
2. Objective-Centric Risk Analysis
   Digital twins allow organizations to map how different risks and controls interact with specific business goals, turning abstract risks into actionable insights.
   • A pharmaceutical company models its ESG objectives, integrating emissions data with site-level performance and regulatory requirements to ensure alignment with broader business goals.
   • A logistics company assesses how fuel price volatility and labor unrest might affect key performance indicators like on-time delivery and service quality.
3. Operational Risk & Control Testing
   Digital twins enable ongoing virtual testing of operational risks, allowing for continuous assurance and refining of incident response procedures without waiting for periodic audits.
   • A financial institution simulates cyberattacks like phishing or ransomware to test resilience and refine response strategies.
   • A global retailer models transaction surges during peak seasons to test fraud detection and internal control mechanisms.
4. Regulatory Change Management
   Digital twins provide a dynamic way to visualize and understand the impact of regulatory changes across jurisdictions and business units.
   • A bank uses digital twins to simulate the impact of EU DORA on business units, policies, and training programs, helping them prioritize compliance efforts.
   • A tech company models the effects of global data privacy laws like PIPL and CCPA to assess their impact on data flows, vendor obligations, and compliance requirements.
5. Third-Party Risk & Extended Enterprise Resilience
   Digital twins help organizations map their extended supply chains and third-party ecosystems, allowing for more accurate risk simulation and mitigation.
   • A consumer electronics company models the semiconductor supply chain to predict the impact of disruptions or shortages.
   • A fashion brand integrates ESG signals and supplier data to evaluate due diligence requirements under international regulatory frameworks.

Digital Twins: The Future of GRC Starts with Visibility

While the ultimate value of digital twins lies in their ability to simulate risk, the first step for most organizations is gaining visibility into their current GRC architecture. This foundational step provides a real-time, integrated view of risk, compliance, and governance across the enterprise — a crucial advantage for organizations that are just beginning their GRC maturity journey.

From there, digital twins can facilitate simulations of disruptions, testing of controls, and modeling of regulatory impacts, offering a pathway for continuous improvement and agile governance. Yet despite the clear advantages, few GRC platforms currently support digital twins natively, with many still operating as static systems of record. However, forward-looking organizations are increasingly integrating or building digital twin capabilities, either through external solutions or next-generation platforms that offer this potential.

Digital twins represent more than just a technological innovation, they are a game-changer for how organizations manage risk, compliance, and governance in a fast-changing, interconnected world.

As you explore the possibilities of digital twins in your organization’s GRC strategy, feel free to reach out. I’m here to offer insights into the leading vendors and strategies that are helping businesses navigate the complexities of modern risk management.

For a deeper exploration of digital twins in GRC, check out my original article Digital Twins in GRC: Risk That Is Simulated, Not Just Documented.

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