In today’s fast-paced digital landscape, Integrated Risk Management (IRM) is a crucial concept that covers methodology and governance model. Its primary objective is to provide organizations with the tools necessary to effectively monitor and report on their risk and compliance posture across various operational domains.
When it comes to managing IRM practices efficiently, the Three Lines of Defense Operating Model is the best practice Governance framework.
The 1st line of defense consists of people ‘in the business’ who are assigned certain responsibilities (‘ownership’) of a particular organizational domain. For example, department, process, or IT system owners. In line with the defined company ‘Policies’, these people are responsible for ensuring that the Policy ‘measures’ and ‘procedures’ are effectively implemented for the domain that they are responsible for. In short: The 1st line of defense is considered the ‘Control Owners’. In a high-maturity IRM use case, these people often perform well-documented ‘Control self-assessments’, to record that they are complying with the Policy ‘Control objectives’.
The second line of defense consists of individuals in oversight roles within the organization, for example, risk managers and compliance officers. They are primarily responsible for:
Additionally, individuals in the second line of defense often engage in various activities to fulfill their duties:
The 3rd line of defense, known as Internal Audit, operates as an ‘independent’ entity within the organization. It reports directly to the Executive team and has two primary objectives:
Internal audit teams follow Annual Audit Cycles depending on the regulatory, legislative, and internal company policies. During these Audit cycles, they engage with both the 2nd and 1st lines of defense, conducting sample-based tests of Controls and assessing Risk Response follow-up. This process involves a high administrative workload for all stakeholders across the three lines of defense due to the volume of information exchange.
The extent of information exchange and administrative workload varies based on the IRM maturity in different use cases. Companies relying on manual-driven processes, such as Excel or spreadsheets, encounter several business challenges, including:
Implementing a digital integrated risk management capability brings several key advantages to the organization, including:
Streamlined information exchange
A digital integrated risk management streamlines information exchange along the 3 lines of defense, minimizing the total cost of compliance and reducing risk posture. This approach provides valuable and reportable insights into enterprise-wide risk and compliance posture (KRIs). Whilst tracking the performance of stakeholders and teams as part of the 3 lines of defense operating model (KPIs).
The IRM function fundamentally serves as a reporting and control instrument. In a manual-driven organization, the IRM operating model can significantly increase the administrative workload due to top-down information ‘requests’ (3 lines of defense). To address this, a business imperative is needed to maximize automation and data capturing. This minimizes the additional workload generated because of risk and compliance practices.
The digital transformation roadmap should therefore be oriented towards the ultimate vision: achieving a total digital enterprise capability. This will lead to 4 major benefits for the organization:
A total digital capability serves as an executive instrument to make informed decisions and steer the organization. It prioritizes and balances investments toward:
– Underperforming business domains
– Organizational domains at risk
– External market factors that may have a negative impact of the competitive advantage of the enterprise
In conclusion, the integration of Risk, Compliance, and Audit workflows in the digital enterprise is crucial for achieving efficiency, collaboration, and informed decision-making. Embracing digital solutions and automation enhances the organization’s ability to manage risk and compliance effectively while minimizing administrative burdens and costs.
GRC Platform Consultant
+31 (0)30 76 02 670
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