5 Non-Profit Risk Management Mistakes
Boards Stay Mission-Focused by Avoiding these Critical Errors
Non-profit leaders can survive crises if they avoid the mistakes that cause a panic reaction. By understanding and avoiding these five common pitfalls, your organization can remain focused on mission and service amidst any type of crisis:
Lack of a formal risk management process
No integration between risk management and strategic planning
Catastrophizing and minimizing in risk assessment
Failure to set a risk-conscious tone for the organization
Narrow and shallow assessment of known risks
With over twenty years of experience working with non-profit boards, I've seen many led astray by these common errors. Learn from their mistakes and take steps to ensure that your board stays informed and prepared to address any type of crisis.
Lack of a Formal Risk Management Process
Most non-profit leaders recognize obvious risks and maintain some level of preparedness and adequate insurance policies.
However, they often undervalue a formal risk management process. The board has a duty of care to the organization and therefore must clarify how it maintains oversight of efforts to identify, assess, prevent, and manage risk. In our fast-changing world, even the smallest non-profits need to define and implement this process.
Non-profit boards that embed a proactive risk management process into their schedules are more likely to stay resilient against both common and unforeseen challenges.
No Integration Between Risk Management and Strategic Planning
Many non-profits approach risk management and strategic planning as separate entities.
A regular review of the inherent risks in your goals is an essential part (but not the entirety) of risk management. Even in a familiar context, pursuing a goal still involves hazards that can be mitigated or prevented. And even when your goals stay the same year-to-year, the environment around you can change and bring new or increased risk.
Developing an integrated approach to strategic planning and risk management will ground your non-profit’s operations in a culture that is both goal-driven and secure.
Catastrophizing and Minimizing in Risk Assessment
Boards often struggle with either underestimating or overestimating risk.
This imbalance can lead to inadequate preparations or overly cautious strategies that stifle operations, innovation and growth. A balanced approach evaluates the likelihood and impact of risks without succumbing to fear or complacency, allowing for more measured and effective responses. It is essential for boards to adopt a realistic perspective on risk that neither minimizes nor exaggerates threats.
Finding this balance is key to maintaining both vigilance and progress.
Failure to Set a Risk-Conscious Tone for the Organization
The board's approach to risk management influences organizational culture.
Neglecting risk management at the board level encourages a similar attitude throughout the organization, leading to vulnerabilities. But, a board that prioritizes risk awareness promotes a culture of preparedness and proactive management. This tone-setting from the top is crucial for fostering an organizational ethos that values and practices effective risk management.
By prioritizing risk management and giving it serious attention, the board communicates its significance to the executive director, who will then model this mindset for staff and volunteers.
Narrow and Shallow Assessment of Known Risks
Surface-level risk assessments are a common shortfall in many non-profits.
Focusing only on obvious risks, such as financial or compliance issues, can cause boards to overlook other critical areas, such as technological, ED succession, or reputation risks. Comprehensive processes should explore risk across the organization, with enough detail to develop effective prevention and mitigation strategies. This depth and breadth are vital for developing a robust risk management strategy that provides real value, rather than just ticking a box.
For a complex organization or those new to risk management, it’s better to spread out risk assessment over time instead of tackling all areas at once.
More than just a necessity, effective risk management is a strategic advantage. By understanding and addressing these common mistakes, your non-profit can enhance resilience and readiness for any crisis. The goal is to support long-term stability and success by turning potential weaknesses into strengths. A proactive approach not only prepares your organization for the challenges of today, but also for the uncertainties of tomorrow.
Do you have questions about best practices in risk management for non-profit boards? I’ll be covering this topic in-depth in a future article. Comment below or DM me through Substack and I’ll try to incorporate responses to your concerns.