Enterprise risk management (ERM) is an effective way to increase efficiency, profitability, and financial performance. By focusing on operational decision making and management risks, credit unions can reduce or eliminate mistakes, errors, and other incidents that undermine the organization’s objectives. Reducing these mistakes will help the organization increase its efficiency and profitability. A well-designed and managed ERM program provides a way to achieve this goal quickly and cost effectively.
Most credit union executives intuitively understand the need to identify, quantify, and respond to risks throughout their enterprise. Unfortunately, many credit unions struggle to understand what ERM entails and most do not have the expertise and resources to implement it.
ERM helps executives avoid mistakes that trigger poor strategic decisions, produce operational problems, threaten new projects, undermine member service, and cause financial losses. It is not an audit or a compliance review. ERM gives organizations the ability to manage business uncertainty, protect assets, and increase operational efficiency using a comprehensive framework.
ERM programs have several key objectives, including:
- Identifying and evaluating the greatest risks to the credit union’s strategic objectives.
- Developing a standardized organization-wide risk assessment process.
- Developing management plans for the most significant financial, operational, and strategic risks.
- Monitoring the effectiveness of operations and the status of any needed changes.
- Ensuring the credit union maintains compliance with all applicable laws and regulations without incurring excessive implementation and support costs.
Credit unions can categorize their risks into three broad categories, including: strategic, financial, and operational. The risk management process includes reviewing strategic plans and process documentation, identifying and analyzing control measures, determining where deficiencies exist or processes need to be changed, and establishing standards and metrics for monitoring risks.
Many credit unions try to manage challenges reactively and independently. This can cause high costs, unmanaged or poorly managed operations, and loss of reputation. In extreme cases, it can threaten the credit union’s survival.
Take an in-depth look at Enterprise Risk Management by reading the whitepaper, “Using Enterprise Risk Management to Protect Assets, Avoid Mistakes, Provide Oversight, and Increase Competitiveness,” available at cues.org/erm,or achieve operational objectives with the help of CUES Enterprise Risk Management presented by Vital Insight.