Sep 20 2011

Credit Union Strategic Growth and Budgeting

Strategic budgeting sessions tend to be disappointing or unrealistic, and they are often both.

That’s not because of a dearth of good intentions from the board or a lack of budgeting expertise from managers. They are often disappointing because they work from a dangerous initial premise: The credit union ought to earn what it used to earn. Credit unions that break free from this historical loop are on the path to improvement.

As with several recent Filene reports, this one preaches the value of measuring and managing to return on equity (ROE), because it is a much better indicator of sustainable growth than ROA, which is subject to the whims of a shifty denominator (total assets). ROE, on the other hand, can only improve with disciplined management of operational expenses, superior underwriting, and, most important, a focus on top-line revenue growth. None of these need come at the expense of the credit union’s members. To the contrary, done correctly, each aspect represents a deepening commitment to serve all members well.

The author may take aim at sacred cows, but he does so with sound logic and a model that individual credit unions can use to turn the strategic budgeting process from the same-old into an exercise that promotes realistic goals and good strategic thinking.

Report Number 246