E very charity needs to be in a strong position to deflect or minimise the likelihood of significant risks taking place. An effective risk management framework is a valuable tool that supports your organisation’s activities and provides assurance and oversight to trustees. Managing the risks surrounding the securing of funding and fewer public donations is a constant challenge. The recent closure of a high profile child care charity and the subsequent fallout is a pertinent reminder that the management of reputational risk, being responsive to changes in government policy and maintaining an open and supportive culture are all key components to ensure the longevity of an organisation. Risk management is a structured and continuous process across the whole organisation that is used to identify, assess, decide on responses and report on opportunities and threats that affect the achievement of your objectives. It is not a new concept, but managing risk will undoubtedly add value to your organisation. It is recognised as good corporate governance and is critical to all successful businesses. A sound system of internal control depends on a thorough and regular evaluation of risks and for the chosen approach to be supported by the Board of Trustees and an Audit Committee, where one is in place. For risk management to be truly effective it needs to be embedded into an organisation.
Risk management for charities – getting it right
A risk management framework does not have to be complicated and time-consuming. It offers a number of rewards to those that get it right:-
n Higher likelihood of achieving objectives
n Improved understanding of the key risks and their wider implications
n Greater management focus on the issues that really matter
n Fewer nasty surprises or crises
n Well-known risks - based on good existing knowledge
n Capability to take on greater risk for greater reward
n Hypothetical risks - based on uncertain or incomplete knowledge and ‘horizon scanning’
n More informed risk-taking and decision-making
n Unknown risks - based on an absence of knowledge. These often pose the most significant issues to an organisation. For example, it would be interesting to know whether the risk register of a well-known German car manufacturer included a risk relating to the reliability of their omission tests.
n It could also help to reduce insurance premiums!
There is a wealth of guidance available to assist in putting together an effective risk framework, so it may be useful to think about risks in the following way:
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