ELEMENTS OF RISK MANAGEMENT

Effective risk management is a pro-active, rather than a re-active, activity.

Too often, I see banks responding to risk rather than managing it.

They analyze their portfolios to see the most recent risk portfolio, and then they make some changes based on the results of the analysis. They set reserves, adjust capital, and perhaps issue some directives to employees about risk appetite, target markets, preferred practices, and so on.

That's like "managing" employees by seeing where they are at the moment, providing some rewards or punishments, and telling them what to do next.

Effective employee managers look at where their people are headed, and at what the company will need. And then they make sure their employees have the best tools, skills , and knowledge to make a contribution in the future. That takes a lot more work, a lot more forethought, and a much more sustained, systematic approach. But it produces much better results.

Similarly, banks that truly manage risk get way beyond the "respond to the analysis" model. They work continually to optimize their entire system of risk management.

And that means managing all of the elements that contribute to effective risk management.

The Big Picture

You create a pro-active, complete approach to risk management when you ensure

1. That you have the appropriate analytical model, and that it is crunching the highest quality input data;
2. That the skills and knowledge of your employees are up to the task of adding credits to the portfolio that will lead to safe growth; and
3. That you have a "tight" culture that ensures your "course corrections," based on your risk analysis, are implemented quickly and thoroughly throughout the institution.

Jeff Judy & Associates will help you with each of these elements:

• I can help you choose the most effective analytical model by reviewing your Portfolio Analysis Options.
• You can also get help in getting the best information out of your Risk Rating system, to ensure quality input.
• My team can guide you in making some challenging decisions about your input data, a key to Implementing Portfolio Analysis to good effect.
• Your employees' knowledge and skills can be strengthened by taking advantage of the Training Services I offer.
• And by addressing Culture Issues, perhaps through an assessment and additional consulting services, you can ensure that the strategies you formulate to manage risk are implemented throughout the institution.

Take any of the above links to learn more about specific services.

Why?

What is the broader goal of total risk management? There's more to it than just avoiding catastrophe.

Continue here to see what the "ALLL/Capital Sweet Spot" tells us about the true purpose of risk management.

If "risk management" is simply another way of saying "data analysis" at your bank, you may not be happy with either the risk or the growth that's in your future.