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What's all the Hoopla about Enterprise Risk Management

by Tabitha Garvin, MCUN

Enterprise Risk Management (ERM) is a way of doing business that improves organizational decision making through unobstructed knowledge, yielding better organizational performance. To achieve this, everyone in the credit union -- management, staff, and volunteers -- is responsible for helping identify risks and responding to those risks appropriately, and, ultimately, creating a safer, growing credit union that meets the needs of its membership and community.

Tradition has been the main driver for many director decisions, not data-driven knowledge with an eye towards managing risk and improving performance. Having been present at several board meetings when members were discussing loan rates, the chairman often asks if anyone knew what other credit unions in the area were charging. After receiving only anecdotal information, the boards opted to lower their rates to match another credit union. While this approach may serve a purpose, it does not address the risk of lowering rates on year-end earnings.

NCUA has mandated ERM for corporate credit unions because financial institutions with ERM processes in place have demonstrated their ability to withstand a wide range of economic conditions and disruptive situations outside the normal course of business. NCUA Examiners and State Examiners also recommend that larger, more complex credit unions implement ERM processes.

Credit unions cannot eliminate risk. Eliminating risk is not the goal of ERM. ERM identifies the risk, determines the potential cost of the risk, explores the potential costs for reducing the risk, and guides the decision making process so that costs are controlled, risks are adequately monitored, and the credit union remains nimble so it can respond to the unexpected.

Several credit unions in Montana have begun integrating an ERM process into the way they do business. It is very easy to begin. Start with educating your board and management on the benefits of ERM. At your next strategic planning session explore when to begin an ERM process, determine the resources you have available for this process, set a timeline, and decide on measureable objectives. The Montana Credit Union Network can support your credit union through education (see below) and strategic planning, as well as our ERM consulting service.

ERM has been around for more than 30 years with excellent results. The ERM processes have been translated to the credit union business model with mostly larger institutions being the early adopters. Whether you are big or small, ERM will absolutely give directors more confidence as your credit union explores options and makes decisions. Directors have a big responsibility, and ERM can ease the burden of that responsibility. If I’ve caught your attention and you’d like more information, please feel free to contact me and also review the resources provided below. ERM isn’t hoopla -- it’s here to stay. Because it works!

Tabitha Garvin is the VP-Fee Based Services for the Montana Credit Union Network. She would welcome any questions or comments on this material. You can email Tabitha or call her at 800-745-5546, ext. 132.

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