Managing Risk Versus Managing Reward

Balancing risk and reward is critical to good stewardship and long-term organizational sustainability.

Nonprofits take their responsibility to their donors seriously. Because some or all of the funding for a nonprofit comes from donors (institutional grants or individual gifts), nonprofits rightly feel like they are spending other people’s money. Minimizing risk is one of the ways to manage that responsibility.

However, too much risk avoidance stifles growth and limits the nonprofit’s ability to serve the people the donor is hoping to help. Fortunately, donors understand the challenge and only ask that nonprofits be prudent. Where is the balance?

The balance is created by starting with the reward. What is the reward that must be created to better serve the mission and the clients (increased capacity to serve, offering new services, venturing into a new market, etc.)?

What are the risks associated with pursuing the reward? What are the steps that can be taken to minimize the potential effect of each known risk? What are the costs associated with each of the known risks?

Once you assess the risk, it is time to build a plan and begin pursuing the rewards. The clients need the rewards you have envisioned and everyone wants the clients to have them.

Next Step:

Envision a better future for your clients and determine what your nonprofit can do to enable your clients to experience that future (rewards)

Determine the risks associated with adding the new rewards to your existing rich offerings

Create a plan that will deliver the rewards and mitigate the risks

Share the plan with your donors and help them understand how the rewards fit with the donors’ vision of a better future for the clients

There are two points to consider. First, it is impossible to conceive of a plan that incorporates all possible risks. Therefore, every plan needs a small reserve for the unexpected.

The second point is that letting risk determine what is prudent stops progress. A lack of progress hurts your clients, reduces the potential value of your mission, and lowers the sustainability of your nonprofit.

You have the skills to manage the risks your nonprofit faces. You also have the skills to reward your donors by maximizing the value of their gifts.


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