You’ve implemented an Enterprise Risk Management (ERM) program at your credit union, and it’s been in place for about a year or more. You re-assess your risks periodically, you’ve developed reporting, and you’ve created a Risk Management Committee (RMCO) that meets regularly to review your risk profile. But how do you measure your program’s effectiveness?
You need to know how you’re doing in the ERM process, and to be able to demonstrate that to senior management, the board, your auditors and regulators. Without some benchmark to measure your program’s effectiveness, your credit union may be susceptible to greater losses (or opportunity costs) than you anticipate, resulting in lost time and money and missed opportunities.
Your car has various benchmarks built into its computer systems. When something gets out of line relative to those benchmarks, you get a warning. For example, if your oil level falls a certain amount below the recommended level, a warning light comes on. So what can you benchmark your ERM program against?
We at Rochdale Paragon Group (RPG) work with a large number of credit unions in implementing ERM programs, providing ongoing support and periodic facilitated updates, and providing industry-leading software for credit unions to use in maintaining a robust ERM program. As a result of our ERM work, we periodically compile client average data that can be used as a benchmark to identify whether your risk assessments may be too optimistic or pessimistic.
But first, we have to assume your ERM program actually quantifies risk. Most ERM approaches do not. Instead, they assess risks as “low/moderate/high,” or “green/yellow/red.” Unfortunately, that doesn’t tell us much. Sticking with our car analogy, let’s say you ask a mechanic how much it will cost to replace your worn gaskets, and he says, “The cost will be moderate.” How can you determine whether you can afford the repair, or how the cost compares to another shop?
For additional information on how Rochdale Paragon can assist with your planning efforts, please contact Jeff Owen at (913) 890-8011, jowen@rochdaleparagon.com.