Fall is in the air and so are spreadsheets. That means just one thing: it’s budget time.
If you’re lucky, management and the board understand the value of risk management software and are prepared to fully fund your proposed budget. If you’re less fortunate, you may find yourself having to argue your case, jostling with other departments and business lines to get the resources you need – especially at a time when budgets are tight.
To help you make a strong argument for why your institution needs to invest in risk management, here are seven reasons why strong risk management is worth the investment.
1. Regulatory expectations. Regulatory guidance addresses risk management in areas ranging from capital and credit to cybersecurity and third-party vendor management. Ignoring risk management is not an option. It’s downright dangerous.
2. Save money. Financial institutions that don’t embrace risk management systems and install proper controls face issues like errors, losses, failed business objectives, issues with systems and controls, compliance violations, and lawsuits. These problems can end up costing a fortune. It’s much more cost effective to have a strong risk management system than to pay for the mistakes of failed risk management.
3. Smarter growth. New activities and business lines are more than just potential profit centers. They are also potential sources of risk that need to be carefully identified, measured, monitored, reported, and controlled. They need to align with a bank’s overall strategy and business plan and give consumers fair access and treatment when it comes to financial services. A strong risk management system provides insights into new endeavors and prevents expensive missteps.
4. Increase efficiency. Decentralized risk management creates redundancies, inefficiencies, and discrepancies that waste money. Risk management overlaps areas including compliance, IT, vendor management, business continuity planning, operations, marketing, deposits, and lending. If there isn’t a strong risk management system, it’s likely these areas are duplicating each other’s work and even coming to different conclusions.A strong risk management program eliminates silos so departments can build on and leverage each other’s work—resulting in better oversight, greater efficiency and lower costs. It also makes it easier to understand what needs to be done and who best to do it.
Related: Congress is Rolling Back Regulations. Can You Roll Back on Risk Management?
5. Identify threats and opportunities. The best institutions are proactive, not reactive. A strong risk management system makes it easier to objectively identify and assess both threats and opportunities, allowing the institution to make quicker, more-informed decisions. Being the first to see an opportunity is a huge competitive advantage. Another advantage: Uncovering a threat and responding appropriately before it causes damage.
6. Improve resource allocation. You don’t want to play guessing games when it comes to budgeting. When you know where and how much risk exists, you can devote more resources to high-risk areas and spend less on low-risk activities.
7. Happier customers. Do you think Wells Fargo’s customers feel good about their bank when they open the newspaper and read about the latest snafu? I don’t think so. Risk management protects something priceless: your institution’s reputation.
Risk management delivers a solid return on investment, one that can be quantified. Use these arguments in the budget battle, and may the odds be ever in your favor.