Ongoing Challenges for Risk Leaders. The pandemic, increased cybercrime, fraud, and potential deterioration of your institution’s asset quality are all part of Enterprise Risk Management (ERM) and need to be on your shortlist of items to address going.
My simple definition of ERM: An enterprise-wide continuous process to protect all your organization’s assets while allowing you to fulfill your vision.
The time has come for community banks and credit unions to start or complete their Enterprise Risk Management program. How do you start? By creating awareness. When I teach our ERM Workshops, I ask participants what their biggest challenges are to start or complete their ERM program. In Part 1 of this article we discussed some of the top challenges starting with the lack of support from senior leadership. Below is a summary of additional challenges risk leaders face that I thought would be good to share with risk leaders. I also provide you with some steps you can take to overcome these obstacles:
- Lack of Awareness: It all starts with awareness. At the top of the biggest challenges risk leaders face is the lack of awareness and support from the Board of Directors and senior leadership. Therefore, what you need to do is create awareness of what ERM is and why it’s important for your institution to have a formalized program. It is crucial for community financial institutions to complete and formalize their ERM program to ensure you’re identifying and mitigating all potential risks that can impact your institution.
- Culture: Transitioning the culture to a “risk aware” culture throughout the entire organization comes next as one the top challenges risk leaders face today. The best way to transform your culture to a “risk aware” culture is by forming your internal ERM committee with employees representing every area of the organization. You can have one person representing more than one area, but every department must be represented.
- Team: Gathering the right team members to be part of the internal ERM committee is essential for the success of the ERM program implementation. A byproduct of forming your ERM committee is team building and cross-training amongst departments. The right ERM committee members are not necessarily the department leaders but the everyday users of systems and those working with accountholders.
- Silos: The little awareness of ERM that exists in institutions right now is siloed. Individual departments may understand their own risks but no one else in the organization is aware of them. Breaking the silos across the institution so everyone is watching out for each other’s areas is a challenge for risk leaders. Understanding that the institutions’ risks can come from any area and that all areas are important will help your institution succeed in ERM.
- The Job: The “Risk Leader hat” is added to someone’s already full plate not understanding that this is or may become a full-time responsibility. The risk leader responsibilities start typically part-time in institutions under $500MM in assets and evolve to a full-time position as the institution grows. The complexity of the organization also plays a part whether the position should be PT or FT.
Based on my experience, the best candidates to lead the ERM effort come from the compliance and internal audit areas. However, these positions are already overloaded and adding the risk oversight responsibilities can be overwhelming. The best approach is to designate a risk leader first with the understanding that the position will become full-time within twelve months. Some institutions are investing in the full-time position from the start and those seem to be the most successful at implementing their ERM program as they now have a dedicated person for the job.
- Lack of Time, Resources, and Training. Because the role is added to an already full-time employee, there isn’t enough time to perform the duties of a Risk Leader. In addition, the appropriate resources are not allocated to this function such as the proper software solutions and/or training needed. To meet this need we designed a curriculum to help you be successful from the start in implementing your ERM program: (You can see the program descriptions and future events on the Malzahn Strategic Training and Education page)
- Creating the Right ERM Program for Your Institution
- Characteristics of Strong Risk Assessments and Tools to Monitor and Report Results
- Three Key Risk Assessments: ERM, IT, and Internal Controls (includes COVID-19 Risk Assessment)
- Vendor Management – How Model Risk Fits In
- How to Incorporate Business Continuity Management into Your ERM Program
In addition to training, utilizing the right solutions to help you manage your ERM is essential to your success. For instance, Ncontracts offers several integrated solutions that can help you such as Nvendor, Nrisk, Ncomply, and Nfindings.
- Accountability: If senior leadership is not involved and it’s hard to get their buy in, there is no accountability for risk at this level. Therefore, no time is allocated to the risk area. The way to resolve this situation is by assembling your ERM committee with all areas participating. As you identify the top risks of the institution, you assign accountabilities to the various team members throughout the organization and naturally some of them will be assigned to senior leadership.
I hope sharing these ongoing challenges for risk leaders will help you move forward in implementing a complete ERM program for your institution.