Enterprise Risk Management (ERM) is a proactive approach to running your credit union. It is an organization-wide view of how any company is operating. As your credit union grows the ability of any one person knowing what is happening on a day-to-day basis becomes more difficult and eventually impossible.
ERM is a way of having a central repository of all business processes, risks, controls and performance measurements. This can make the difference between success or failure in meeting your business goals and objectives.
Why Implment ERM Now?
* Increased risk due to the economic environment.
* Delinquencies and charge-offs have significantly increased.
* More scrutiny from regulatory examiners.
* Margins are eroding and fee income is becoming more important.
* It is a proactive approach to managing risks and opportunities.
* To protect and create value for Stakeholders.
All of these factors increase the challenge of identifying where the gaps are that could be causing risks and potential losses while also trying to determine how to make up for this through additional sources of income or decreased expenses. Enterprise Risk Management can help guide you through these challenges.
What can you do to implement an effective ERM program?
Suggested Steps To Take
* Obtain senior management understanding and buy-in.
* Know what and where the risks are by conducting process inventories.
* Conduct and process risk identification through risk assessments.
* Implement process risk rating/ranking (impact & likelihood of an adverse risk event).
* Set risk tolerances or risk appetite thresholds (risk verses reward, cost verses benefit).
* Create risk tracking and monitoring tools.
* Have a process for ongoing measuring, monitoring and managing.
Patty Graves is director of risk management services with the Paragon Group, Olympia, Wash. Ms. Graves can be reached at email@example.com.