Risk management is a crucial aspect of any organization, ensuring that potential threats and vulnerabilities are identified and mitigated to protect the business. However, many organizations are still using outdated frameworks that are unable to keep up with the rapidly evolving risk landscape. In a recent blog post by Forrester Research analysts Cody Scott and Alla Valente, they highlighted the shortcomings of the traditional Three Lines of Defense (3LOD) approach and called for a modernization of risk management practices.
The Three Lines of Defense (3LOD) framework was originally developed to address segregation of duties requirements under the Sarbanes-Oxley Act (SOX) in 2002. While it was later promoted by the Institute of Internal Auditors (IIA) as a solution to enhance risk management, Scott and Valente argue that it is not suitable for managing the complex and dynamic risks that organizations face today. They emphasized that the 3LOD model focuses too heavily on compliance and does not adequately address emerging risks, technologies, or threats.
According to Ian Amit, founder and CEO of Gomboc, the 3LOD framework is not adaptive enough for modern organizations where reporting lines and hierarchy are more fluid than they were in the past. Brian Betterton, practice director for risk and strategic services at GuidePoint Security, also noted that the 3LOD model is more suited for audit purposes rather than comprehensive risk management.
One of the key criticisms of traditional risk management programs is their tendency to prioritize compliance over actual business risks. Many organizations focus on passing audits and meeting regulatory requirements, rather than proactively identifying and addressing potential risks. This compliance-driven approach can lead to a false sense of security and leave organizations vulnerable to unforeseen threats.
Heath Renfrow, CISO and co-founder of Fenix24, emphasized the importance of understanding and quantifying risks in order to make informed decisions. Compliance-driven risk management programs often lack the depth and granularity needed to effectively manage risks and protect the organization from potential harm.
In order to modernize risk management practices, Scott and Valente proposed three pillars for a more dynamic and continuous approach to risk management. They emphasized the need to address systemic risks external to the organization, ecosystem risks within varying degrees of control, and internal enterprise risks. This holistic approach allows organizations to adapt to evolving threats and opportunities in real-time, rather than relying on static risk assessments.
Furthermore, the analysts highlighted the importance of collaboration between the Chief Risk Officer (CRO) and Chief Information Security Officer (CISO) in implementing a modern risk management framework. By aligning their efforts and sharing insights, organizations can develop a comprehensive risk strategy that enhances resilience and reduces vulnerabilities.
Forrester’s continuous risk management model was also praised as a blueprint for holistic risk management. This approach, which focuses on gathering frequent data points on internal controls and external threats, enables organizations to practice more continuous and effective risk management. By leveraging tools and technologies to enhance risk management practices, organizations can better protect themselves from potential threats and vulnerabilities.
Ultimately, the key to successful risk management lies in understanding the dynamic nature of risks and taking a proactive approach to identifying and mitigating them. By modernizing risk management practices and adopting a continuous and collaborative approach, organizations can better protect themselves from evolving threats and ensure the long-term success of their business.
