AUSTIN, Texas–You can’t talk about growth without talking about risk. Indeed, the biggest risk is not talking about it at all, according to one expert.
That message was at the heart of remarks on Enterprise Risk Management during CUToday.info’s CUTomorrow Conference here. The discussion was led by Jeff Owen, COO of Rochdale Paragon Group, who stressed that talking about risk does not have to be and shouldn’t be a negative.
“In your credit unions we have to make sure we are having discussions about risk in a positive manner, too,” said Owen.
What is ERM?
It’s improved organization decision-making through unobstructed knowledge, said Owen, who shared the quote, “It’s dangerous when leaders move from learners to knowers,” to sum up a risk to any organization.
He shared another potential risk for CUs to consider: “The reason organizations start to decline is they stop asking good questions.”
ERM Objectives
According to Owen, the objectives of a good enterprise risk management program is to:
- Identify and manage a broad array of threats, risks and opportunities surrounding the achievement of goals and objectives
- Establish a structure and process that engages personnel across the organization and creates space to identify, communicate and prioritize risks and opportunities
- Provide senior leadership with key information for risk-related decisions and allocation of resources
- Develop and implement appropriate risk response plans
- Encourage responsibility of all personnel to incorporate a balanced risk-reward analysis in everyday activities
- Maximize opportunities
- Protect and foster a collaborative, entrepreneurial and innovative environment (value preservation and creation)
“As we become more confident and capable of understanding and managing the risks of today, we are better positioned to navigate, exploit and leverage the opportunities and uncertainties of tomorrow,” said Owen.
Credit unions need to balance value preservation with value creation, even though as conservative financial institutions they naturally tilt toward value preservation, he said.
“If we have good processes in place, it should give us more confidence to take on more risk,” Owen told CUTomorrow.
The goal in ERM is to be in the Optimal Risk Taking stage, even though most CUs are in the Insufficient Risk Taking zone.
“You don’t need expensive software or a consultant to engage in ERM,” said Owen.
Instead, the components of ERM are governance, risk assessments, reporting, a Risk Management Committee (“which is just a bunch of people who talk on a regular basis about current risks and future rusks”), and appetite for risk.
Capital Adequacy
Owen said he frequently gets questions from credit unions around capital adequacy and the ability to use ERM as proxy for capital adequacy
Takeaways
The key takeaways when it comes to ERM, according to Owen, are:
- ERM is a process not a project
- Try to make it a small part of your day-to-day duties and thought processes
- Involves ongoing risk updates, reporting, and integration with planning and other risk management processes
- Information will be shared and must be useful in making informed decisions
- Use ERM to enable rather than impede actions
“Asking for feedback only works if you've done the necessary hard work of creating a space where people actually feel it's safe to give feedback you may not like,” said Owen.