I like to periodically play craps. Over the years I’ve seen a lot of newcomers try out the game and have noticed certain trends in how they approach it. Most people who step up to the table have no idea of the probabilities – or implications – associated with their decisions. They place low-probability bets because they are the easiest to understand. At the same time, they avoid bets that would help hedge or maximize the chance of winning because they fear losing an additional dollar.
I can’t help but draw certain parallels to managing a business. It doesn’t matter what business you’re in: if you take no risk, you get no reward. And if you don’t understand the risks, you’re bound to suffer from them. I think of risk management as a decisioning framework that gives me the best opportunity to make more right decisions than wrong decisions. It’s no different than when I step up to the craps table.
It’s the difference between playing to win and playing not to lose.
When you play to win, you do what’s necessary to advance. You aggressively put points on the board, you out-maneuver your opponent, you act with certainty. And you have the confidence to deal with issues that have the potential to put your outcomes at risk. When you play not to lose, however, you’re overly cautious. You avoid making big moves and hold back. Rather than using your resources, knowledge and influence to tilt things to your advantage, you wait. You act out of fear of loss rather than a desire to win.
In the credit union world, risk is a loaded topic, and one that carries with it a lot of fear. From the uncertainty of not knowing the risks or understanding their implications, to not properly leveraging it, the mishandling of risk is rampant without a strong risk management culture. If we make the shift from seeing risk through the lens of fear, to understanding how powerful of a tool it could be in creating the outcomes we desire, we could effect change on a grand scale.
In our world, the stakes have never been higher. In order to remain relevant and find success in an evolving technological landscape and attracting members that have more options than ever, we must see risk as a tool to be used to our advantage – not as an adversary.
Risk doesn’t have to be a dirty word
Risk is not a new concept, and managing risk is not foreign to organizational leaders. Traditionally, however, risk has always been used to describe the stuff that scares us, the problematic stuff. Since 2008/09 risk management has carried the stigma of being just another regulatory effort, and as such we’ve worked to simply negate regulatory pain. Over time, the complexities of managing a financial institution have grown exponentially, requiring greater mechanisms for insightful decision-making. These pressures have given rise to the development of risk-intelligent cultures and enterprise risk frameworks with the purpose of delivering holistic and predictive insights, which effectively enables leaders and directors to focus resources and capital on those things that truly matter. Today’s risk management programs help to determine whether organizations close their doors, maintain the status quo or thrive in times of uncertainty.
While this can seem overwhelming, I’m personally excited for what the future brings because I know it will force us to change the way we make decisions in our businesses for the better. It’s more than doing what the auditors request of you. It’s about leveraging a strategic risk framework that protects your core vision and also opens the door to opportunity. The pursuit of any opportunity is always accompanied by an element of risk. How effectively we deal with these risks ultimately defines the extent of our success.
We have to shift from the idea that risk management is just a set of operation and compliance tasks to be mitigated, to a thinking that risk management is a core business function that allows the organization to think dynamically about strategy, relevance and excellence.
Changing the conversation
Changing the thinking around risk is not an easy subject to broach. But then again, my team and I have never shied away from difficult conversations. In fact, we’ve made a living of it. While everyone else tries to simply minimize risk, we are asking ourselves and our clients, “How can we better leverage risk? What are you willing to do in pursuit of your objectives?” Our goal is to move the conversation from simply conducting risk assessments to leveraging risk to enable better decision making. At Rochdale, we help our clients see that risk is necessary in order to optimize the risk-return tradeoff for organizational growth and exceptional performance. How effective we are at rapidly identifying and contextualizing potential issues determines our ability to deal with risk. And how effectively an organization deals with risk will shape its success.
Right now, the industry is clinging tightly to the traditional definition of risk management which carries a connotation of “bad things” and “extra work”. It’s going to take time to shift the thinking to looking at risk-enabled activities that actually determine the long-term success of an organization. But we’re willing to put in the work. We move our clients from a tactical approach regarding process to looking at comprehensive risk programs as core business functions and enablers of success across the organization.
Are you ready to reimagine risk and identify opportunities for your credit union? We work with clients all over the U.S. to build strategic roadmaps that leverage risk to meet organizational objectives and find success. To learn more, talk to us today.