Managing risk from the front line

Risk in review 2017: Canadian insights

While Canada has come closer to its global peers in the past couple of years when it comes to managing risk, there’s still a gap that needs to be addressed for Canadian businesses to develop the agility they need to continue to excel in the current economic landscape.

Companies excelling today have intuitively grasped that risk management must be shifted to the first line of defence—specifically the business units that undertake those risks. But that’s not to say that the second (risk management/compliance) and third (internal audit) lines no longer play an important role in this process.

“Only 40% of Canadian organizations are effectively managing operational risk. Shifting risk management to the front line will allow them to build the agility necessary to develop a stronger risk culture.”

— Kishan Dial, Partner, Risk Assurance Services

Canadian companies vulnerable to business disruption

Compared to their global counterparts, Canadian companies say they’re more liable to undergo disruption in a variety of business areas while being less successful at dealing with these disruptions.

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Canadian organizations catching up with global counterparts

Part of the issue here is that in most areas, Canadian organizations manage risks from the second or third line.

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The centre of any strong risk management program

Defining a risk appetite involves understanding and substantiating the amount of risk you’re willing to endure for various types of transactions or business deals.

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Canadian companies understand the value of shifting risk to the front line

Research indicates that when management (first line) is more aware of what the risks are, what their company risk appetite is and what they can do to manage risk, their decision making is faster.

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The three lines of defence model of tomorrow

By assigning the management of the right risks in the right places and providing each line of defence with the information and resources it needs, organizations will lay the foundation for a strong risk management program.

This approach creates the agility needed to rapidly respond to risk and disruption and, ultimately, to get ahead of risk. Canada has fallen behind in risk management, but the good news is the means exist for organizations to manage risk more effectively and produce a more agile company.