Manage your charity's risks

  • by Tony Haren
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Do we really know our risks and how to manage them?

Manage your charity’s risks. The Importance of a Comprehensive Risk Policy in Charities: Safeguarding your Mission and reassuring your stakeholders.

Charity Objectives and Risks

In the world of philanthropy and charitable organisations, the mission is paramount. These organisations strive to make a positive impact on society, address pressing issues, and so help to uplift communities.

However, navigating the landscape of risks inherent in your operations is crucial to sustaining your charity’s mission effectively.

When multifaceted risks do arise it can jeopardise your charity’s ability to fulfil its objectives.

So as a trustee you need to ensure that you manage your charity’s risks effectively.

And by developing and implementing a robust risk policy it becomes not just best practice but a necessity.

In this blog, we delve into the significance of having a comprehensive risk policy in charities, exploring its benefits, key components, and best practices so you can benchmark against your charity’s practices.

Understanding Risks in Charities

Like many other organisations, charities operate in an environment characterised by uncertainty and volatility. They often depend on donations, grants, and other sources of funding, which may fluctuate unpredictably. Additionally, they often engage in diverse activities, ranging from humanitarian aid to advocacy, each accompanied by its unique set of risks. Some common risks faced by charities include financial mismanagement, regulatory compliance issues, reputational harm, cybersecurity threats, and operational disruptions.

Importance of a Risk Policy

A risk policy serves as a guiding framework for identifying, assessing, managing, and mitigating risks within your charity’s operations. It provides clarity and direction to stakeholders, thus ensuring that the practices you follow to manage your charity’s risks are integrated into organisational decision-making processes.

Here are some good reasons why having a robust risk policy is crucial for your charity.

1. Protecting Mission and Impact

The primary purpose of a charity is to fulfil its mission and create a positive impact. A comprehensive risk policy helps safeguard these objectives by proactively addressing potential threats that could impede your progress. By identifying risks early on and implementing appropriate controls, you can minimise the likelihood of mission derailment and so ensure continued effectiveness in your charity’s work.

2. Enhancing Organisational Resilience

Charities operate in dynamic environments where risks can evolve rapidly. A well-defined risk policy fosters organisational resilience by enabling proactive risk management practices. It empowers charities to anticipate and adapt to changing circumstances, thereby reducing vulnerabilities and so enhancing your ability to withstand external shocks or crises.

3. Strengthening Stakeholder Trust

Trust is paramount in the charitable sector, and so any perceived lapse in risk management can erode stakeholder confidence. A transparent risk policy will demonstrate your charity’s commitment to accountability, integrity, and responsible stewardship of resources. Communicating your approach to risk management will help to instil trust among your donors, beneficiaries, volunteers, and other key stakeholders, thus fostering long-term relationships built on transparency and credibility.

4. Optimising Resource Allocation

Effective risk management is about making informed decisions regarding resource allocation and prioritisation. A well-articulated risk policy will help your charity to identify areas of greatest exposure and allocate resources appropriately to address them. Aligning risk management efforts with strategic priorities will enable your board to optimise the use of limited resources, thus maximising your impact and sustainability.

Key Components of a Risk Policy

Developing a comprehensive risk policy requires careful consideration of various components tailored to the specific context and needs of your charity. While the exact structure and content may vary, a typical risk policy should include the following key elements:

· Risk Governance Framework

Outline the governance structure responsible for overseeing risk management activities, including roles, responsibilities, and reporting mechanisms. Specify the involvement of the board of directors, executive leadership, risk management committee, and other relevant stakeholders so everybody is clear who does what.

· Risk Appetite and Tolerance

Define your charity’s risk appetite – the level of risk it is willing to accept in pursuit of its objectives – and tolerance thresholds for key risk categories. Ensure alignment with your charity’s mission, values, strategic goals, and legal/regulatory obligations.

· Risk Identification and Assessment

Establish a systematic process for identifying, assessing, and prioritising risks across the organisation. Utilise tools such as risk registers, risk matrices, scenario analysis, and risk heat maps to capture and evaluate potential threats and opportunities.

· Risk Mitigation and Controls

Develop strategies and controls to enable you to mitigate identified risks effectively. This may involve implementing internal controls, policies, procedures, and risk mitigation plans tailored to specific risk profiles. Consider both preventive measures and contingency plans to address potential adverse events.

· Monitoring and Reporting

Implement mechanisms for ongoing monitoring, measurement, and reporting of risks and risk management activities so you and your board can maintain oversight. Define key risk indicators (KRIs) and performance metrics to track progress, evaluate effectiveness, and facilitate timely decision-making and course correction.

· Continuous Improvement

Promote a culture of continuous improvement by encouraging feedback, learning from past experiences, and incorporating lessons learned into future risk management practices. Regularly review and update the risk policy so you can reflect changes in the internal and external environment.

Conclusion

In an increasingly complex and uncertain world, you need to manage your charity’s risks proactively so that you can safeguard your mission, trust, and impact. A comprehensive risk policy provides the framework and discipline necessary to identify, assess, mitigate, and monitor risks effectively.

10 Reasons for Good Charity Governance

By integrating risk management into your organisational DNA, you can enhance resilience, build trust, optimise resource allocation, and thus achieve sustained success in advancing your noble causes. Embracing a culture of risk awareness, transparency, and continuous improvement is essential for navigating the challenges and opportunities that lie ahead. In doing so, your charity can fulfil your mission with confidence, integrity, and lasting impact on the communities you serve.

So if you’re on the board of a charity, make sure you manage your charity’s risks in a robust and structured way. And develop not only a policy document but a broader framework that includes a risk policy, a risk register and clear procedures that embeds risk awareness at every level in your organisation.

Follow the above Good Governance Tip 4 suggestions to ensure you manage your charity’s risk more effectively.

Read our Blog on Top Tips for Board meetings.

If you would like guidance on how to review your charity’s overall governance arrangements, contact me here: tony@admorbusiness.com

Meantime you can watch this short explainer video on how to review your charity’s governance arrangements.

#governance #tipsandadvice #charitysupport #trustee #chair

Risk management is just one element of a good governance framework and if you want to consider risk in the context of a wider corporate governance, check out our Charity Governance Reviews.

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