Are you focusing more on risk management than your actual job function?
According to the ABA Banking Journal, risk assessment is a trending topic and could grow out of hand if it detracts from other bank priorities. Risk assessments can be a lengthy, complex and ongoing process, which makes it difficult to discern when you should focus on managing risk and when you should focus on other responsibilities like building business or spreading loans.
Risk management typically requires these steps:
1. Risk analysis. This involves an in-depth look into all aspects of the organization—staffing, regulations, products, systems, etc.
2. Risk assessment. This requires assessing all risk, not in isolation, but rather involving the people on the ground who actually know where problems can occur.
3. Risk management reporting. After an often lengthy and time-consuming process of analyzing and assessing risk in your spreadsheet-based risk management practices, it is then necessary to prepare the report to present to management and the Board detailing potential holes.
Aside from time constraints and complexity, there are other limitations with this risk management process:
• Data integrity. Because the data is stored on a spreadsheet application, not in a database, it often requires manual entry, which leaves room for human error.
• Data volume. Spreadsheets are equipped to handle large amounts of data, but it can be crippling if your data volume for an entire portfolio slows down spreadsheet formulas or crashes the system.
• Data storage. Because data is not centrally stored, it is difficult for multiple users to access it at once, therefore making it difficult to verify that loan underwriting standards are consistently applied.
• Data integration. Many types of loans require a global cash flow analysis. Spreadsheets make it difficult to readily integrate from disparate data sources and can lead to many common mistakes.
These limitations require countless hours to be spent on managing risk within your institution. Now, more than ever, banks and credit unions are seeking out automated credit-risk management processes in pursuit of efficiency and to allow them to return to basic responsibilities that might otherwise be downgraded.
Instead of focusing on the tactics of risk assessments, banks that invest in automated, risk management solutions can spend time focusing on job requirements, business development and the results of risk management assessments.
For more information on risk management and balancing loan-customer service, check out this whitepaper on How to Balance Relationship-Based Lending and Risk Management.
By Elizabeth Davis, Marketing Associate at Sageworks
