What are the three common approaches to implement the defense risk control strategy?

Inhaltsverzeichnis Show

First Line of Defense – Management
Second Line of Defense – Risk Management and Compliance
Third Line of Defense – Internal Audit
External Auditors
Risk management strategy definition
Types of risk management strategy
Risk acceptance
Risk transference
Risk avoidance
Risk reduction
So which strategy should you choose?
What are three common approaches to implement the defense risk treatment strategy?
What are three common risk management techniques?
What is defense risk control strategy?
What are the strategies of controlling risk risk control?

The three lines of defense model provides guidance for effective risk management and governance. Each of the three lines plays a distinct role with the University’s control environment.

First Line of Defense – Management

The first line of defense lies with the business and process owners. Operational management is responsible for maintaining effective internal controls and for executing risk and control procedures on a day-to-day basis. This consists of identifying and assessing controls and mitigating risks. Additionally, business and process owners guide the development and implementation of internal policies and procedures and ensure activities are consistent with University goals and objectives. Mid-level managers may design and implement detailed procedures that serve as controls and supervise execution of those procedures by their employees.

Second Line of Defense – Risk Management and Compliance

The second line supports management to help ensure risk and controls are effectively managed. Management establishes various risk management and compliance functions to help build and/or monitor the first line-of-defense controls. Typical functions in this second line of defense include:

“A risk management function (and/or committee) that facilitates and monitors the implementation of effective risk management practices by operational management and assists risk owners in defining the target risk exposure and reporting adequate risk-related information throughout the organization.
A compliance function to monitor various specific risks such as noncompliance with applicable laws and regulations. In this capacity, the separate function reports directly to senior management.
A controllership function that monitors financial risks and financial reporting issues.”

Management establishes these functions to ensure the first line of defense is properly designed, in place, and operating as intended. The second line of defense serves an important purpose but because of their management function, they cannot be completely independent.

Third Line of Defense – Internal Audit

The third line of defense provides assurance to senior management and the board that the first and second lines’ efforts are consistent with expectations. The main difference between this third line of defense and the first two lines is its high level of organizational independence and objectivity. Internal Audit may not direct or implement processes, but they can provide advice and recommendations regarding processes. Additionally, Internal Audit may support enterprise risk management but may not implement or perform risk management other than inside of its own function. Internal auditors accomplish their objectives by bringing a systematic approach to evaluating and improving the effectiveness of risk management, control, and governance processes.

External Auditors

External auditors are responsible for expressing an opinion on the fairness (accuracy within a degree of materiality) of the financial statements in conformity with certain accounting standards. Additionally, external auditors may provide assurance to the Board of Trustees regarding institutional compliance requirements (such as Title IV funding of financial aid).

For additional information regarding the Three Lines of Defense, see IIA Position Paper: The Three Lines of Defense in Effective Risk Management and Control (PDF).

References:

COSO’s Take on the Three Lines of Defense

Leveraging COSO across the Three Lines of Defense, July 2015

Having an appropriate risk management strategy is critical to dealing with the many types of risk that your organisation could face. But what is a risk management strategy? And what risk management strategies can you use?

Risk management strategy definition

A risk management strategy is a key part of the risk management lifecycle. After identifying risks and assessing the likelihood of them happening, as well as the impact they could have, you will need to decide how to treat them. The approach you decide to take is your risk management strategy. This is also sometimes referred to as risk treatment.

There are four main risk management strategies, or risk treatment options:

Risk acceptance
Risk transference
Risk avoidance
Risk reduction

Choosing the right one will mean the difference between managing each potential risk effectively or facing serious consequences that could damage your business. Let’s take a closer look at what these four approaches involve and some examples of when you could use them.

Types of risk management strategy

Risk acceptance

Risk acceptance definition: A risk is accepted with no action taken to mitigate it.

This approach will not reduce the impact of a risk or even prevent it from happening, but that’s not necessarily a bad thing. Sometimes the cost of mitigating risks can exceed the cost of the risk itself, in which case it makes more sense to simply accept the risk. After all, why spend £200,000 to prevent a £20,000 risk?

However, this approach does come with a gamble. You will need to be sure that, if the risk does occur in the future, then you will be able to deal with it when the time comes. Because of this, it is best to accept risks only when the risk has a low chance of occurring or will have minimal impact if it does occur.

Risk transference

Risk transference definition: A risk is transferred via a contract to an external party who will assume the risk on an organisation’s behalf.

Choosing to transfer a risk does not entirely eradicate it. The risk still exists, only the responsibility for it shifts from your organisation to another.

An example of this would be travel insurance. You don’t accept the risk of a lost suitcase or an accident abroad and the costs that this would bring – you pay a travel insurance company to bear the financial consequences for you.

The same goes for the workplace. You may outsource work – and the risks that come with it - to a contractor. In finance, you may adopt a hedging strategy to protect your assets or investments.

Risk avoidance

Risk avoidance definition: A risk is eliminated by not taking any action that would mean the risk could occur.

If you choose this approach, you are aiming to completely eliminate the possibility of the risk occurring. One example of risk avoidance would be with investment. If, after analysing the risks associated with that investment, you deem it too risky, then you simply do not make the investment.

Treating risks by avoiding them should be reserved for risks that would have a major impact on your organisation if they were to occur. However, if you avoid every risk you come up against, you may miss out on positive opportunities. You never know, that investment you decided not to make could have paid off. That is why it’s important to thoroughly analyse risks and make the most informed judgement you can.

Risk reduction

Risk reduction definition: A risk becomes less severe through actions taken to prevent or minimise its impact.

Risk reduction is a common strategy when it comes to risk treatment. It is sometimes known as lowering risk. By choosing this approach, you will need to work out the measures or actions you can take that will make risks more manageable.

One example of risk reduction would be within manufacturing and the risk of products being produced to incorrect specifications. Using a quality management system can lower the chance of this happening, so this would be a method of risk reduction. In the finance industry, you may face risks associated with new regulations. Implementing a digital solution to help you manage regulatory requirements can mitigate the risks of non-compliance and would therefore also be an example of risk reduction.

So which strategy should you choose?

As you can probably guess, that depends on the risk. You will need to fully understand each risk your organisation faces so that you can choose the appropriate strategy to treat them – whether that’s through acceptance, transference, avoidance or reduction.

Now that you understand ‘what is a risk management strategy?’, discover how to choose the best risk management solution for your organisation. A risk management solution can help you make informed decisions quickly by providing greater awareness and visibility of risks, and more.

How to choose the best risk management solution

Is it time to improve how your organisation manages risk? Our handy e-book guides you through choosing a risk management solution that can help you face complex challenges head on.

Download now

Abbie Glossop

As Digital Content Executive at Ideagen, Abbie is responsible for writing engaging and educational content for Ideagen’s digital channels. With a background in writing and social media, Abbie is committed to understanding the needs of our customers and providing insightful and valuable content that helps them to achieve their objectives.

What are three common approaches to implement the defense risk treatment strategy?

What are the three common approaches to implement the defense risk control strategy? Answer: The three common approaches are the application of policy, the application of training and education, and the implementation of technology.

What are three common risk management techniques?

There are five basic techniques of risk management:.

Avoidance..

Retention..

Spreading..

Loss Prevention and Reduction..

Transfer (through Insurance and Contracts).

What is defense risk control strategy?

Defense risk control strategy occurs when a department or business tries to avoid the risk altogether by preventing the vulnerability that has been identified from being exploited.