Fundamentals of risk management

Heim breaks down risk into its ‘basic building blocks’

by Ron Jooss, CU Magazine

Brian Heim, founder of IRR-analytics, broke down the fundamentals of risk management during a breakout session at the 2018 CUNA CFO Council Conference in Austin, Texas, on Monday.

Those fundamentals included:

  • Policy. “Policy is the mechanism for communicating the risk appetite for of the credit union,” Heim says. “We really encourage our clients to use language that doesn’t use jargon that non-technical folks can understand.” Credit unions should avoid letting policies accumulate. Examiners will focus on risk limits, he says.
  • Technical model elements. Most credit unions use vendors to help them build their technical model element. Credit unions gather their core data, which is integrated into the model while applying certain assumptions. The No. 1 issue that Heim’s firm encounters with credit unions is overly optimistic assumptions. “The point of the modeling is to get an idea of what your risk exposure is,” Heim says. “It’s not to produce the most rosy and optimistic results you can come up with.”

 

continue reading »