Basic Risk Management

Introduction to the Risk Management Process

What is risk management?

Risk is anything that threatens the ability of a nonprofit to accomplish its mission.

Risk management is a discipline that enables people and organizations to cope with uncertainty by taking steps to protect its vital assets and resources.

The risk management process provides a framework for identifying risks and deciding what to do about them. Of course, just making a laundry list of all possible risks is not enough. It is easy to quickly become overwhelmed by the huge list of risks the organization faces.

But not all risks are created equal. Risk management is not just about identifying risks; it is about learning to weigh various risks and making decisions about which risks deserve immediate attention.

Risk management is not a task to be completed and shelved. It is a process that, once understood, should be integrated into all aspects of your organization's management.

Let's take a closer look at how this process works.

  • Establish the context — It's important to begin a risk management program by setting goals and identifying any potential barriers or impediments to the implementation of the program. In the goal setting exercise, ask, "What are we trying to accomplish by integrating risk management into our operations?" Some common goals for nonprofit risk management efforts include: reducing injuries, avoiding costly claims, preserving the nonprofit's reputation in the community, freeing up resources for mission-critical activities, and ensuring adequate risk financing.
  • Acknowledge and identify risks — In this tutorial we will categorize risks according to four major categories of nonprofit assets: People, Property, Income and Goodwill. There are many ways to undertake risk identification; the key is using a framework or strategy that allows you to identify all major risks facing your nonprofit. By the end of this tutorial, you will have had the chance to identify the important risks to these critical assets.
  • Evaluate and prioritize risks — The third step in the process helps you keep things in perspective and establish a list of action items in priority order. The risk of an asteroid crashing into your organization's annual Black Tie Event is remote, so it probably makes more sense to work on a more likely risk - that someone could slip and hurt themselves on a waxed dance floor.
  • Select appropriate risk management strategies and implement your plan — We'll discuss four risk management techniques that can be used individually or in combination to address virtually every risk facing your nonprofit.
  • Monitor and update the risk management program — nonprofits are dynamic organizations that constantly face new challenges and opportunities. Risk management techniques and plans should be reviewed periodically to make certain that they remain the most appropriate strategy given the organization's needs and circumstances.

Now that you've seen the process, let's look at some risk management techniques.