Strategic Risk Management for SACCOs | Ronalds LLP

Definition

Strategic risk is the current and prospective impact on earnings and/or capital and arises from Sacco’s inability to implement appropriate business plans, strategies, decision making, resource allocation, and its inability to adapt to changes in its business environment.

This risk, therefore, is a function of ;

  1. The compatibility of Sacco’s strategic goals.
  2. The business strategies developed to achieve the goals
  3. The resources needed to carry out business strategies both tangible and intangible
  4. The resources deployed in pursuit of these goals, and;
  5.  The quality of implementation They include communication channels, operating systems, delivery networks, and managerial capacities and capabilities. In strategic management, Sacco’s internal characteristics must be evaluated against the influence of economic, technological, competitive, regulatory, and other environmental changes.

Common Sources of Strategic Risk

The common sources of strategic risks in SACCOS are:

  1. Competition – through emerging industry rivals.
  2. Technology – shift in technology
  3. Over-reliance on a few Customers and priority shift in member priorities.
  4. Economic factors
  5. Regulations
  6. Adequacy of work processes and procedures
  7. Adequacy of information for decision-making.
  8. Uncontrolled investment in non-core business lines i.e land and building

Board and Senior Management Oversight

The board of directors and senior management oversight is an integral part of an effective strategic risk management program. The board bears the overall responsibility for strategic risk management. It is chiefly responsible for setting corporate strategy and reviewing management performance in implementing Sacco’s strategic plan. In turn, it is the duty of the senior management to ensure that there is an effective strategic risk management process by transforming the strategic direction given by the board through policy.

Policies Procedures and Limits

The board of directors of the Sacco should ensure the following are considered at a minimum when the strategic plan is being prepared and proposed strategies are being identified:

  1. The goals and objectives of the Sacco;
  2. Analysis of Sacco’s economic, social, technological, and competitive environment
  3. The current and anticipated member product and service needs;
  4. A comprehensive and realistic appraisal of the existing business model including analysis of Sacco’s income and expenditure and financial position,  membership and a common bond, competitive capabilities, governance arrangements  risk management, and operational capabilities;
  5. Independent evaluations and reports made by the external auditor, operational reviews, internal audit reports, SASRA’s inspection reports, and any other third party report.
  6. The regulatory framework including developments in legal and regulatory requirements and guidance;
  7. The risk tolerance of the Sacco and the risks that the Sacco is, or might reasonably be, exposed to.

Strategic Planning Considerations

 Plan A Sacco’s strategic plan approved by its board of directors shall at a minimum include:

  1. The objectives of Sacco’s activities for a specified period of at least 3 years
  2. The nature and scope of the activities to be undertaken,
  3. The strategies and policies for achieving those objectives,
  4. The targets and criteria for assessing the performance of the Sacco,
  5. The financial projections for the Sacco for a specified period of at least 3 financial years from, and including, the current financial year together with the supporting financial analysis and assumptions made, and
  6. The funding strategy proposed to support the projected balance sheet structure.
  7. The sustainable advantage is relative to the competition.

Alignment and Change Management

Before implementing its strategies, a Sacco should ensure that they have made proper alignment of internal resources and processes and, if necessary, managed all change issues (such as those arising from institutional or cultural changes) to facilitate the achievement of desired outcomes. Interdependencies between processes across departments (e.g. reconciliation of transaction information between front and back offices using a more advanced IT system) should also have been addressed so that they can be properly understood and accounted for during the implementation.

Measuring and Monitoring

Active board and senior management oversight with the support of the strategic risk management function will help ensure effective implementation and control of strategies. There should be adequate management guidelines and written procedures for implementing strategies and monitoring and reporting the progress of implementation.

To ensure an effective strategic risk management process, every Sacco should deploy a management information system that will enable management to monitor:

  1. Current and forecasted economic conditions, e.g. economic growth, inflation, interest rates, trends, etc.
  2. Current and forecasted industry and market conditions, such as Increasing competition by new market entrants Number and size of mergers and acquisitions  Changing customer behavior New products/substitutes
  3. Exposure to different sectors (e.g. agriculture, employed clientele), and associated sector risks

Internal Controls and Audit

A Sacco’s board and senior management should have in place a strong internal control system to ensure that it is not unduly exposed to strategic risks. Internal controls are required to ensure that:

  1. Sacco’s organizational structure establishes clear lines of authority.
  2. Sacco’s systems and structures provide for business continuity planning.
  3. The process of setting up and reviewing strategic plans is comprehensive and is adhered to.

Sydney Javan

Cyber Security and IS Audit Consultant at Ronalds LLP

Sydney Javan is an ICT Specialist with a over 12 years of experience in financial institutions, Investment companies and SMEs.

Comments (3)

  1. David Mwangi
    June 17, 2021

    Informative articles

  2. David Mwangi
    June 17, 2021

    Do you have webnars coming soon on risk management

    • Daniel Amisi
      July 22, 2021

      Dear David,
      Thank you for reaching out. We shall update you in due cause. Please continue to checking our website and social media handles for the latest updates.

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