Risk is part of life. Should your nonprofit be more risk accepting?
Nonprofit boards often try to avoid risk. However, risk avoidance can become risk creation.
Innovation is critical. One definition of innovation is an idea that saves time. Saving time is part of good stewardship. However, most new ideas are unsuccessful, which implies that every good idea involves a risk of failure. Enough innovations succeed to justify taking the risk but one must take the long-view and accept periodic losses (frequent failure).
Client needs evolve. Ignoring their evolving needs is a sure path to irrelevance. Even when evolving client needs are misunderstand, the organization still provides them with partial satisfaction and earns the opportunity to keep trying and serving the clients.
Every plan is flawed. While one is creating a plan, the world is changing. Therefore, the reality for which the plan was written is different from the reality the plan is faced with. The flaws in the plan are a source of risk. However, without a plan, success is based on luck which is much riskier. In short, there is less risk with a flawed plan than no plan, besides planning is an acquired skill (the more we do the better we become). With a changing future, it is a certainty that doing nothing is the wrong thing to do.
The reality is that for your nonprofit to survive your board must accept risk. There are ways to mitigate risk and make it easier to accept and less threatening. Long-term sustainability depends on innovation and serving the evolving client needs.
Risk Mitigation:
List the critical elements that could go wrong, key assumptions made, and external events that might affect success
Determine the probable state (expectation) of each of the preceding items (example – average personal income will rise 3% or more next year just like it has historically)
Determine the adverse consequence if your expectation is unmet (If personal income fails to rise then the fundraising goal will be missed.)
Establish a contingent plan for each missed expectation (If it becomes obvious that fundraising will fail to reach its goal then implementation will be delayed to compensate for the lack of funds.)
With a good risk mitigation assessment it is possible to ensure that your nonprofit is only inconvenienced rather than threatened by adverse events. The size and impact of the unexpected is minimized.
Next Step:
Create a plan for every change your board must approve
Present the plan and its associated risk mitigation analysis to your board
Give your board at least 30 days to review and deliberate before asking your board to vote
Focus the board discussion on the mission, client outcomes, and risks (especially risks board members may see that the risk mitigation analysis overlooked or understated)
With understood risks and contingent plans, it is easier to accept the risks and be enthusiastic about the future.
Good boards take risks because good leaders ensure everyone understands the risks and consequences.
