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A Nonprofit's Simple and Brief Guide to Risk Management

By February 9, 2018 April 1st, 2019 No Comments

Proper risk management has three parts: identifying the risks, evaluating and prioritizing the risks, and controlling them. As a nonprofit entity, it would be virtually impossible and incredibly expensive to identify and mitigate all risks simultaneously. Fortunately, though, there are steps you can take to identify the prominent risks and mitigate them to your best ability.

Pinpoint the Risks

There are several types of risks that are common among non-profit organizations. These risks include:

  • Governance risk
  • Financial risk
  • External risk
  • Regulatory and compliance risk
  • Operational risk

Perform Risk Analyses

Once you have pinpointed the risks for your organization, you will want to analyze them and determine their likelihood of happening as well as the impact they will have on your non-profit. The risks that will have the biggest impact will need to be addressed first. Levels of impact should be categorized according to the following levels:

  • Insignificant
  • Minor
  • Moderate
  • Significant
  • Major

Define Your Appetite for Risks

If you are going to operate a non-profit entity, you will need to define your appetite for risks. Any non-profit organization will face risks, you just need to decide how much you are willing to face before you fold. By developing an outline for your defined appetite for risks, you can then better determine which risks are worth addressing and which ones need to be left alone. It is not uncommon for your risk appetite to fluctuate from one risk to another. The purpose of your organization will largely influence your ability to diminish certain risks. With this in mind, there is no set-in-stone risk appetite level to follow. Each non-profit will need to assess its individual preferences for risk.

Control the Risks

Once you have decided which risks you want to focus on controlling, you will need to speak with the employees who own the risk. Mitigating risks is fairly simple. You identify which risks you want to mitigate and then implement appropriate control measures; this can become costly but mitigating the risks are worth the investment.

Monitor and Review Risks

Once controls have been put in place to mitigate risks, you will need to monitor them on a regular basis to make sure they are properly performing their control functions. At each board review, risks should be discussed, including what they are and how they are being mitigated.

The Takeaway

By following the five steps outlined above, you can be on your way to mitigating risks. No two non-profits are the same, so keep in mind that not all risks can be mitigated in the same manner. You will need to find what works best for your organization as well as invest in nonprofit insurance to mitigate risks to your best ability.

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