What is Risk Management?
- Identifies threats and opportunities through ongoing internal and external examination, analysis and adjustment
- Plans organizational-wide strategies to manage risk filtered through the organization’s challenges, opportunities, capacity, practices and culture
- Assesses the nonprofit’s ability to:
- Respond to risk
- Determine its risk tolerance
- Understand its ability and capacity to mitigate risk
- Realize the training and learning needs of its personnel to implement the risk management plan
Risk management considers:
- The overall management framework
- Governance and accountability structures
- Values and ethics
- Operational work environment
- The current risk management culture and tolerances
- Existing risk management expertise and practices
- Human resources capacity
- Local and corporate policies, procedures and processes
- "Finance" risk means "to pay for the cost of risk"
Strategic Objectives
- Risk Identification and Mitigation
- Be ready to take advantage of opportunities
- Reduce uncertainty – confidence in future
- Be a good citizen
- Fulfilling legal and ethical issues reduces chances of being sued (downside risk)
- Fosters favorable public image – improves public support that attracts volunteers and funding
- Fulfills community service mission
Risk Identification and Mitigation:
- Significant risks to the operations identified and action taken to minimize their consequences
- No process is 100% effective
- Best practices: Manage risk through a systematic approach that minimizes the possibility that risk will go undetected
Risk Management Concepts
Risk includes three key issues:
- The frequency of loss occurring (how often)
- The consequences of loss (how costly/severe)
- The perception of loss (affect on stakeholders needs, issues, concerns)
Risk management activities:
- Go beyond buying insurance
- Prevent, control and manage losses
- Seek alternative approaches to finance risk.
Personal Risk Acceptance
- Degree of personal control: less accepting with no control
- Potential of an event to cause catastrophic consequences
- Less accepting of a painful death rather than quick – end result the same
- Distribution of risks and benefits:
- accept greater risk if benefit results from the activity
- less accepting of uncompensated loss
- Degree to which exposure to the risk is voluntary – NIMBY
- Degree of familiarity with the activity
- Accepts risk based on their perceptions of the consequences, not necessarily the facts
- Perceptions are influenced largely by their personal background and any previous exposure to the risk
- Values a risk differently depending on how the loss affects their needs, issues and concerns
