Question: Discuss how strategic planning Edit
Answer: Risk management (especially enterprise risk management) and strategic planning have traditionally
been treated as two separate streams of activities at credit unions. When discussed at all, risk
management is often at a cursory level and revolves mainly around credit and ALCO with interest rate,
market, and liquidity risk. Other types, such as strategic risk, are often given short shrift. The lack of
explicit consideration and discussion creates a risk profile for the institution that exceeds what boards
and management teams may be comfortable with — and they may not even know it.
For example, projections and financial objectives are key elements of a strategic plan. However, what is
the impact on the projections (both upside and downside) of a given strategy? If launching a new
product, what happens if sales don't meet expectations? How will that impact earnings and the
opportunity cost of people and capital? If entry into a new market is based on speed, are there
processes and capacity to support it? Want to double the investment in social media? What's the impact
if the investment is made or not?
These types of questions need to be answered — especially if the credit union's future hinges
significantly on it. In many respects, the CU should be stress testing key areas of its strategy and
business model, such as payments, delivery channels, etc.
The single most important risk management activity is to define the strategic objectives for the CU and
determine the risk appetite to achieve those objectives. To achieve a 1% ROA or serve the members a
very specific way, how much overall risk is the board willing to accept?
The risk appetite is a "lens" through which these types of questions and answers would be evaluated.
Unfortunately, most credit unions don't have a defined risk appetite, much less engage that depth of
discussion during planning efforts. Edit
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