In the past few months, several important risk management industry papers have been released – covering the Three Lines of Defense model and Risk Appetite.
Both concepts have gained increasing traction over the past decade. Many organisations have been diligently implementing frameworks, policies and practices that have been shaped around both concepts. The latest papers are to be applauded for providing industry and the business community, more broadly, with the latest thinking in these two areas.
In the coming weeks, I will provide my thoughts on the papers and recommended actions for organizations. Risk management practices that are shaped by three lines of defense and risk appetite principles can create real value for organizations.
In the meantime, below are the links to the papers themselves.
- The Three Lines of Defence is no longer about Defense. The Institute of Internal Auditors (IIA) updated its Three Lines of Defense Model (3LOD) in late July 2020. The 3LOD model was first documented by the IIA in the early 2000s. This update drops the word Defense and simply refers to the Three Lines Model. This is to focus on and recognise active forms of risk management and governance rather than simply defense. In addition, it acknowledges the extensive interactions, interrelationships and collaboration among key functions and roles in a company. You can read the update here.
- Risk Appetite – Critical to Success. The industry body that oversees the risk management industry standard (ISO:31000) is the Committee of Sponsoring Organizations of the Treadway Commission (COSO). On 20 May 2020, COSO releasing new guidance on risk appetite, titled “Risk Appetite–Critical to Success”. It discusses how organizations can promote risk appetite as an integral part of decision-making. It is a timely update on the approach to setting risk appetite within organisations and the importance of linking risk appetite with strategies and objectives. Read the full document here.
It will be remiss to not acknowledge the COVID-19 driven deterioration in economic and financial conditions in many countries in recent weeks, including Australia. There is no doubt that for many businesses the continuation of activities and operations in some form – and mere survival – are the priorities.
It is not only an extreme test of leadership and management, but an immersive effort by many to keep their personal and professional lives in some sort of balance and rhythm. We can only look forward to better times ahead.
For those wanting to still try and look further ahead, have another read of my original article from early March 2020: Pandemics: The Convergence of Business Disruption & Economic Slowdown. You can read it here on the 52 Risks® website.