The Value of Asking "What Happens If?"

August 25, 2023

To exist means to face risk. Every day we encounter risk events, and organizations like credit unions are not exempt from that reality. While some of these events are unique to each credit union, and that means how they handle them is adjusted as well – the building blocks of risk programs remain the same.

ViClarity’s VP of Strategic Initiatives, Erin O’Hern, provided perspectives on this topic in an article called “The Value of Asking ‘What Happens If?'” that appeared in the August 2023 issue of CU Management. O’Hern sees credit unions taking several different approaches to their risk programs – some view risk management as a check on a list for examiners and others take it further to consider potential problems and develop solutions to them.

And as risk continues to be a hot topic in the industry, the National Credit Union Administration (NCUA) is moving to address what credit unions can do better to avoid, respond to and handle risk events as they arise.

Simplify Processes & Focus on the Big Picture 

Even though intervention from the NCUA seems to be necessary, many industry leaders are finding that the heavy attention is leading board members to stop looking at the bigger picture and instead dive into minute details that complicate risk management.

As a whole risk management remains quite simple. Credit unions need to learn to ask the right questions and take ownership of their risks, which can then help them respond to those risks faster and more efficiently – and it can help the board focus on the bigger picture.

Equip Your Team with Resources

Executives can provide access to education regarding risk to their board and team members to help reassure them, or even provide access to peer groups that understand similar operational challenges. These peer groups can help credit unions get started or tackle obstacles by sharing experiences. However, O’Hern warns credit unions to remember that risk is unique to each individual organization.

“You have to consider your own individual risks that apply to your particular field of membership, your particular products and services, and the way you are structured,” she said.

Keeping that in mind, credit unions can benefit from peer groups, particularly from talking with bigger organizations, because as credit unions grow their risks change. A smaller credit union may not be equipped to handle or understand the risks they will encounter as their membership grows.

Another resource credit unions can use to simplify risk management is technology. Many organizations are handling their processes through spreadsheets, which is a risk in itself.

“I always get so nervous when folks are emailing spreadsheets around,” said O’Hern. “You hear so many stories about things getting deleted. You don’t know who added what. What was the last version? Or staff turns over, and you don’t know what they were working on. What were their responsibilities?”

Technology solutions can help centralize risk assessments and track activities, keeping everything visible and controlled.

Reap Technology Benefits Like Board Reporting

Risk management technology solutions also enable credit unions to report to their board and audit committee(s) with information presented in colorful, highly visual formats.

“The information you’re giving them is critical and making it digestible – making it easy for them to understand and appreciate – is vital,” said O’Hern.

Opening a dialogue with your board and delivering compelling reports paves a path for clear communication of pertinent information, enabling the board to effectively share their risk tolerance levels and expectations with the credit union leaders and staff – leaving nothing up to chance.

“If the board sets a risk tolerance, the staff really needs to know that as they’re working through their risk mitigation steps and monitoring their risk,” O’Hern said. “We’ve seen boards be very willing to take reasonable risks to reach new markets, to provide products and services – and others that are much more conservative when it comes to risk-taking. It’s critical for the staff to have that information as well.”

For more insights from O’Hern and other industry leaders, read the full article here.