Risk management is at the core of success for credit unions as they set their strategy towards creating, preserving, and realizing value (i.e., adding value to their members‘ lives!). However, it is easy for leaders to get caught up in terminology and other distinctions that can muddy the waters when working to achieve objectives. These next few paragraphs will give a framework to help credit unions understand and leverage risk management practices.
Enterprise Risk Management (ERM) and Operational Risk Management (ORM) are related but distinct concepts. ERM is a holistic approach to identifying, assessing, and managing all types of risks a credit union faces. It covers all areas of the organization, including strategic, financial, operational, and compliance risks. ERM helps organizations understand their overall risk profile, see their risks from a portfolio perspective, and make informed decisions to manage those risksin pursuit of their objectives.
On the other hand, ORM is a specialized type of risk management that focuses specifically onrisks associated with the day-to-day operations of an organization. This includes risks arising from business processes, people, systems and technology, and external factors. ORM is concerned with identifying and mitigating risks that could impact the organization’s ability to achieve its objectives.
Learn more: Redefining (and Clarifying) ERM & ORM
The Importance of ORM
ORM is important for a number of reasons. Some of the key purposes include:
1. Minimizing Losses: By identifying and mitigating operational risks, credit unions can minimize the potential impact of unexpected events or circumstances. This can helpprevent financial losses and reputational damage.
2. Compliance: The NCUA expects credit unions to have risk management frameworks to ensure that organizations are taking appropriate steps to manage compliance risks and protect the safety and soundness of the organization.
3. Maintaining Business Continuity: Operational risks can disrupt business operations, causing delays and disruptions. By managing these risks, credit unions can ensure that they can continue to operate effectively.
4. Building Resilience: By taking a proactive approach to managing operational risks, credit unions can become more resilient to unexpected events (such as a pandemic 🙂). This can help them recover more quickly and effectively when disruptions occur.
5. Improving Decision-making: By identifying and assessing operational risks, organizations can make more informed decisions when allocating resources and prioritizing activities.
6. Reputation and Brand: Operational risks can impact a credit union’s reputation and brand; therefore, managing them is important to maintain the trust and confidence of members, stakeholders, and volunteers.
Utilize and Leverage Technology
ORM is an essential process for any credit union, as it helps to minimize the impact of unexpected events and improves the overall efficiency and resilience of the organization. By identifying and assessing risks, developing a risk management plan, implementing & monitoring controls, continuously monitoring and reviewing those risks & controls, and communicating and educating employees, credit unions can effectively manage operational risks and protect themselves from potential losses.
Utilizing and leveraging technology to manage operational risks can increase quality, consistency, and efficiency. Our apogee iQ ORM module helps you better understand the risks your organization is exposed to while reducing administrative work. Contact us today to see how simple it is to keep an eye on what matters most!