The key to success for any organization (or demise, for that matter) rests on its ability to continuously learn and adapt to environmental changes. Mistakes in the financial services industry are no longer just financial losses.
Measuring and managing risk is central to competitiveness and survival. Success depends on your ability to identify, quantify, price, and manage risk better than your competitors do.
Adaptability to existing and emerging situations is paramount and remains the central role of credit union leadership.
It’s not about perfectly predicting the future but rather quickly identifying environment changes (internal or external) that pose risk to current strategies. It’s about continuously nudging your organization toward more appropriately aligned strategies and tactics. It’s this ability that creates strategic advantage.
World-class leaders advance this concept, establishing a culture and systematic processes. They implement enterprise risk management (ERM) programs to increase their view of potential risk events that threaten their strategic direction and tactical operations.
In the wake of the economic crisis, ERM receives a lot of attention, and for good reason. It is, after all, unanticipated risks and ignorance that shut the doors of many organizations.
ERM represents a set of systematic processes designed to create a culture of proactive identification, measurement, and management of risks. It enables credit unions to universally seize opportunities and quickly adjust to negative events.
Rapid adoption of ERM programs throughout the financial services industry is expanding the breadth and depth of risk management capabilities. This evolution brings a global perspective of an organization’s risks that go beyond the traditional concerns: credit, interest-rate, and liquidity risk parameters.
And as financial institutions implement more rules resulting from the Dodd-Frank Act, they’ll also need more robust risk management programs. These programs will monitor strategic, reputation, operations, information technology, and regulatory risks.
NEXT: ERM implementation