Risk management for nonprofits

Nov 26, 2018
Nov 26, 2018
0 min. read

Nonprofit entities are unique in many ways. Sources of revenue, access to capital, workforce composition, and ownership structures are significantly different between for-profit and nonprofit entities. These differences, among others, make risk management more difficult, but also more important for nonprofit entities.

Risk management activities should be planned and ongoing. All nonprofit organization should develop and implement a risk management program. So, what are some of the key considerations your risk management program include?

First, it should include buy-in and participation from your board of directors and executive management. It should include regular risk reporting and review and it should include participation from key insurance, legal, accounting and financing partners. However, just as importantly, your risk management program should include input from, and communication to, employees and volunteers. Valuing input from these key constituents sends the message that their input is important. It also drives home the point that at the end of the day if employees and volunteers are not thinking about risk management, then your program is not going to be nearly as effective.

Another key element for organization to consider for its risk management program includes determining which of your organizations assets are at risk. Generally, these assets classes would include people, property, income, and reputation. Even more specifically, determine which of your assets are key to your organization.

Volunteers and donors are two key elements that distinguish a nonprofit from a for-profit enterprise. What are some of your organizations activities that put these key elements at risk? Volunteers can sometimes play a greater role in your organizations daily activities than executives. What impact could a poorly trained volunteer have?

Think about the value of your organizations reputation. Warren Buffett famously said, “It takes 20 years to build a reputation and five minutes to ruin it. It you think about that, you’ll do things differently.” Damages to your organization’s reputation could have severe impacts of your organization’s mission and its ability to effectively fundraise. Does your organization have steps in place to handle an event that negatively effects your reputation? Modeling what a severe negative reputation event would have on your organization financially, and planning on how to deal with that negative impact is an important part of risk management.