Hallmarks of a Risk-Aware Nonprofit

Hallmark #3: Guided By Reality, In Addition To Scary Headlines

The Challenge

It is easy to be led astray by scary headlines about all sorts of things that can go wrong. Yet in a nonprofit that is guided by reality, ordinary risks receive priority before out-of-the-ordinary risks. An effective risk management process considers the probability that an event will occur as well as the cumulative impact on the organization of probable risks over time. For example, nonprofit organizations are much more likely to suffer losses due to “slip-and-fall” accidents or complaints alleging wrongful employment actions than to be a target of a terrorist threat or to lose a roof due to a catastrophic weather event.

Nonprofits that are guided by reality are more likely to spend risk management resources (dollars, human resources, etc.) wisely and in the process demonstrate prudent stewardship of financial assets. Nonprofits that are guided by reality place emphasis on measures to prevent the most common problems. They recognize that doing so is a more efficient use of resources than spending resources on measures to control risks that are unlikely to happen.

The Process

To demonstrate that your nonprofit is guided by reality in addition to scary headlines, your nonprofit will:

  1. Maintain records of losses and claims.
  2. Create a “loss profile” which is a snapshot of the historic risks experienced by the nonprofit. Create the loss profile by reviewing loss data from your nonprofit itself. (The most helpful loss data would be drawn from the history of past losses and claims made against the nonprofit.)
  3. Conduct a self-assessment of the types of risks that your nonprofit faces day-to-day and also those risks that are less likely to occur, but have occurred in the past.
  4. From time to time, engage an objective third-party to conduct a “risk assessment” for your nonprofit.
  5. Develop policies that will focus the organization on providing a safe environment and safe operations.
  6. Require employees and volunteers to report any unsafe (or suspected to be unsafe) condition immediately to supervisors or through the appropriate channels so that the condition is brought to the attention of the management of the nonprofit.
  7. Complete a risk management plan that emphasizes preventative measures and safety procedures and reflects the industry or specific environment for the organization’s mission and the programs/services provided.