Column: Risk Management for Nonprofit Boards Starting the Conversation
By Michele Braun
The leaders of every nonprofit organization know that they face risks: challenges to delivering services, ensuring sufficient funding, specialized staffing, facilities, technology, perhaps the local political environment, existing laws and regulatory changes, to name only a few. How do leaders, with their plates already full—or overflowing—address these risks and manage them accordingly? What tools are there for nonprofit leaders to decide which risks to take, which to manage and how to manage them?
In conversations about risk management, executives and board members for nonprofit organizations tell me about the challenges of balancing an organization’s mission while managing its risks. These risks, they say, come in many forms, encompassing day-to-day management challenges as well as potential unusual events. Alternatively, nonprofit leaders agree that they should pay attention to that, but they are just too busy.
Here is the thing: There is risk in every activity, and your organization should be taking some risks. Frankly, if you don’t take any risks, you will fail to achieve your goals. However, your organization should choose its risks, selecting those that are necessary to achieve its mission. These choices require being risk aware, and they are part of the process of managing risk and determining which risks to avoid and how to do so.
Four questions that members of nonprofit boards should ask:
What risks does our group face that could derail our mission?
Nonprofit organizations often refer to themselves as “mission based” or “mission focused.” As members of the Board of Trustees or as the senior leader of a nonprofit, you have undoubtedly spent considerable effort in discussing and identifying the organization’s goals, its raison d’être. Those mission-focused discussions help your group manage its risks because you’ve already done the hard work of knowing your goals, and this knowledge brings clarity to the tradeoffs necessary for running a successful organization.
What risks could our group take that would help us accomplish our mission?
Risks to take might include significant strategic initiatives, such as major expansions or investments. Risks to take also cover near-term and day-to-day activities, such as seeking employees with new or expanded skill sets, or investing in additional training for existing staff. They could also include a new outreach campaign to prospective clients or beneficiaries, or joining with other mission-based organizations to support shared goals.
What processes do we currently have in place for assessing and managing risks?
At least annually, the Board of Trustees should ask management to explain its operational arrangements for managing risks. It’s management’s job to implement risk management, and Trustees can support management by supporting the staff time (paid or volunteer) needed for proper procedures.
Why haven’t we committed to being a risk-aware and risk-savvy organization?
No leader of a nonprofit organization, of any size, will undertake a risk management review that feels like a paperwork exercise. Large organizations can and should make the case to institutionalize review processes and senior committee structures. With less formality, mid-sized and smaller organizations can also effectively use risk reviews.
Steps to take:
Once a year, ask senior leadership to have a conversation with all staff or representatives of all departments to identify internal and external factors that have changed and discuss whether these have introduced new risks or opportunities, or both. They should gather views from across the enterprise to illuminate risks that senior managers might not see. Ask external advisors and board members to raise issues from their experience that might undermine the firm.
Once a year, ask your insurance carrier to review coverage and services. Every so often—maybe every two to five years—ask another insurer to propose coverage to see if you’ve missed something. Finally, discuss the assessment and steps to address uncomfortable risks with your board of directors.
By being conscious of these risks, considering the tradeoffs and developing some risk management strategies (a topic for another day), nonprofit, mission-driven organizations can take steps to reduce potential downsides. Be efficient and leverage the wisdom of board members, staff, and shared-purpose associations to make your organization more risk-savvy.
On May 7, 2018, join the Manhattanville School of Business’s panel of experts to learn more about “Taking Risks & Avoiding Risks: Risk Management Hot Topics for Nonprofit Board Members and Executives” at the Not-for-Profit Leadership Summit hosted by the United Way of Westchester and Putnam.
Michele Braun directs the Institute for Managing Risk at Manhattanville School of Business (firstname.lastname@example.org) and is always ready to talk risk and payments as Managing Executive of The Crossway Group, LLC, a consulting and professional training firm (email@example.com)