Which Risks?

Deciding which risks are worthy of your board’s time can be difficult.  It is tempting to focus on operational risks because many board members are familiar with them.  However, those are the risks that the staff is also familiar with and already handling well.

The board needs to focus on strategic, competitive, and reputational risks.  Some risks have a low probability of occurring and a minimal impact if they do occur.  Those risks can be ignored but only if the board has identified the risk level and impact associated with the risk.

We all know about the risks covered by insurance.  Those risks can easily be identified and handled by calling your insurance agent.  They are also operational risks that the staff is well capable of handling.  The other risks are harder to identify and quantify.

A risk range must be multidimensional and include several factors.  It is misleading to say that risks range from high to low.  It is hard to place something with a high probability of occurring and a low probability of doing much damage on such a simple scale.  In addition, an inexpensive problem to fix that has a high impact on reputation can be more damaging than an expensive problem that is invisible to the public, clients, and donors.  It is tempting to judge a risk based upon its immediate financial impact even though a reputational impact can reduce sustainability and have a far greater, but harder to measure, financial impact.  In addition, a reputational impact reduces opportunities to pursue the mission because clients, donors, referral sources, advocates, and the community become reluctant to engage.  Factors that should be taken into consideration when assessing risk are financial impact, reputational impact, visibility, number of people affected, strategic impact, and types of people affected (clients, donors, staff members, community members, volunteers, vendors, other nonprofits, etc.).

There is also a temptation to assess risk based upon the problems arising today.  It is better to assess the risk based upon the assumption the problem will arise at the worst possible time.

There are several types of risks that every nonprofit should be concerned about.  They include reputational (brand, employment, financial management, business conduct, etc.), health and safety (staff, volunteers, visitor, and clients), and security (building, information, travel, etc.).  There are also the risks that are unique to your nonprofit.  Those risks might include strategic risks (such as a change in legislation affecting a key part of your process like making abortions harder to obtain), operational risks (the loss of a key employee and their skills or knowledge for instance), competitive risks (a new competitor entering the market for example), and anything that might have a long-term impact on your nonprofit’s sustainability (the loss of a major donor for example).

Next Step:

Ask each of your board committees to assess the risks associated with their area of responsibility

Ask each board committee to assess how its area of responsibility will be affected by the other committees’ risks

Use the assessment results as a foundation for creating a viability statement

A viability statement is simply a proactive plan to eliminate or mitigate risks.  It is a plan that will increase the strength of your nonprofit, improve its sustainability, and give your donors and other supporters confidence that your nonprofit will be serving your community for many more years.

Contingent plans tell the world what you will do when something goes wrong.  If it works the way it is expected, sustainability will be maintained.  A viability statement tells the world what you are doing to ensure everything goes smoothly.  Almost every viability statement that is put into action improves a nonprofit’s sustainability.  Your nonprofit needs a viability statement and a variety of contingent plans.

Take It Further:

Engage your key supporters in risk assessment and in drafting the viability statement (they have a unique and objective perspective that will help expand the breadth and depth of your analysis and planning)

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