Practical tips to make cloud governance work for you

Cybersecurity threats, evolving regulations, and unexpected disruptions are just some of the complex web of challenges that organizations face. To keep from getting tangled, business leaders rely on robust governance to help clearly delineate and assign key organizational functions and roles.

Navigating across this web of interdependencies is vital, particularly in highly regulated industries like financial services, with organizations leaning into the Three Lines of Defense (3LoD) model to inform their cloud risk governance program. The 3LoD model provides a structured, repeatable approach to cloud risk management that can help with safeguarding assets, achieving resilience, and making informed decisions.

However, rigidly adhering to the 3LoD model can cause more headaches than you might expect. While implementing a governance program is crucial, a program structure solely focused on delineating the responsibilities among the three lines of defense can drive a siloed mentality and make it harder to accomplish critical business goals.

At Google Cloud’s Office of the CISO, we understand the inherent value of the 3LoD governance structure and its usefulness in accomplishing cloud risk management goals. To get more out of it, we recommend encouraging cross-team collaboration, especially in large organizations that have to consider legacy hierarchical structures, mergers and acquisitions, and various regulatory expectations in their cloud risk calculus.

Defining the lines of defense

The 3LoD, as outlined below, can be a powerful mechanism to help your teams achieve their shared, strategic goals.

• The First Line of Defense (1LoD) focuses on operational management. Business unit owners and managers are directly responsible for day-to-day operations. They assess, own, and mitigate risk.
• The Second Line of Defense (2LoD) provides advisory and oversight functions. These include specialized functions such as risk management, compliance, and legal. They provide subject matter expertise, advisory services to the first line, control monitoring, and serve as an independent “check and challenge” function.
• The Third Line of Defense (3LoD) audits the first and second lines of defense. This independent audit function provides objective assurance to the board of directors and senior management by conducting in-depth audits to evaluate the effectiveness of governance, risk management, and internal controls across the organization.

To bolster risk management, some organizations have also formed hybrid “1.5 LoD” functions, which are responsible for further enhancing risk management by serving as a challenge team embedded within 1LoD who support the execution of the first line controls. These lines of defense are intended to act in concert.

However, if not properly defined, this governance model can cause confusion and a lack of clarity on the respective roles and responsibilities, impacting the organizations’ ability to transform and reach its strategic goals.

How to make 3LoD work for you

Organizations have a significant opportunity to optimize risk management by carefully aligning the 3LoD model with their business unit hierarchies. Based on our experience and discussions with customers, we recommend paying attention to these four key factors when crafting a practical approach to implementing or revising the 3LoD in your organization:

1. Emphasize accountability and collaboration. Make sure that all relevant stakeholders who are partnering on a business use case are aligned on roles and responsibilities, ownership and accountability, and points of escalation to promptly and decisively address challenges when they arise. A natural tension exists between the 3LoD as they balance the need for maintaining independence with collegial cooperation. Providing opportunities for multi-stakeholder engagement can smooth the way and:
   1. Support the identification of potential risks as informed by multiple perspectives which may be missed if only 1LoD is engaged;
   2. Enable agreement at the outset to ensure a common understanding of the applicable regulatory requirements to consider in building or enhancing the product or service, surfacing potential 2LoD considerations to inform the design phases of the process; and
   3. Facilitate a common understanding of what goals need to be achieved and which controls apply, where they stem from, who owns them, how they’re monitored, and whether they’re applied uniformly or ad-hoc. This understanding in turn contributes to what constitutes acceptable evidence of control effectiveness.
2. Iterate and continuously adapt. Having a clearly-articulated use case can help drive the definition of deliverables, timing, and roles and responsibilities. The 3LoD governance model can thus be used to inform program management by prompting a check and challenge on the manner of achieving the use case’s objective, the risks posed relative to the organization’s risk appetite, what controls can be applied to mitigate those risks, and how to measure control effectiveness through a combination of operational and technical mechanisms.
3. Engage early, often, and transparently. Surfacing the above considerations and successfully operationalizing the work streams that are needed to bring them to fruition is largely dependent on trust and credibility. We’ve found that the foundation for that trust is supported by proactively including the second and third lines of defense early on in the business use case definition process and at key moments throughout the build phase.
   
   Taking this approach benefits everyone in the long run because it can help avoid the inefficiencies and delays that can arise later in the review and approval process. These delays are often caused by a misalignment of roles and responsibilities, an unforeseen need to expand the circle of stakeholders, and questioning of why certain decisions were taken.
4. Continuously assess your risk exposure. Consider the impact of changes to your ecosystem (the organization, its people, your products and services) on your risk footprint and regularly reassess the corresponding policies, procedures and controls’ scope and effectiveness relative to these changes. For instance, are you adding features to an existing product that may impact your risk profile based on its functionality, such as the addition of chat capabilities or interconnectivity with other services, or the new types of data that may now be collected, accessed or stored?

These types of changes can increase risk due to the cybersecurity threats they may pose, their impacts on the business processes and corresponding control environments, and depending on their prevalence, can ultimately affect the resulting risk posture of the organization.

Effective change management practices enhance organizational risk management capabilities and the successful implementation of the 3LoD governance model can proactively identify and mitigate potential risks to business processes associated with new initiatives.

Takeaways

The 3LoD approach can accelerate achieving a stronger cloud risk posture because it promotes good governance. It encourages a robust, risk-aware culture; accountability through independence and well-defined roles and responsibilities; and increased transparency that can foster open communication and escalation of risk-related issues.

Be mindful that the 3LoD model isn't a one-size-fits-all solution, but rather a principles-based model. When you tailor it to your needs, you can better address cloud implementation challenges and drive a more integrated and resilient enterprise risk management program.

You can check out more of our tips on how business and security leaders can navigate organizational complexity and enable successful cloud transformations in this blog.