The essentials: Reducing the risks

Risk usually relates to accidents or bad weather, but there are more risks that can be a threat to a charity's financial health

Simon George
Simon George

Handling risk isn't just a matter of taking out insurance against accident, fire and theft. Charities face a number of threats to their income streams, from negative stories in the press to sudden changes of political fashion in grant-making. Simon George highlights the dangers organisations face and suggests a few solutions.

Articles on risk usually relate to the importance of insuring against accidents, bad weather or cancellation. Although the Sorp now requires charities to report annually on key aspects of organisational risk, little relates to fundraising. Yet in my work I see charities exposed to all manner of fundraising risks that can be a threat to their financial health.

1. HIGH DEPENDENCE

The classic high-risk approach to fund-raising, often seen in smaller charities and local organisations, is to depend on one type of income or a single funder.

Typically this will involve statutory funding streams, which are subject to political interference. The risk is plain - if the funder changes criteria, if budgets are cut or if new political masters have different ideas about how taxes should be spent, the plug can be pulled and charities can fold.

Although the solution to this scenario might be obvious - diversify your income streams - organisations caught in this particular trap often have little or no external support base. Fixed in a culture of grant dependency, they cannot suddenly raise significant funds from the public. Accordingly, their first step should be to look at income streams similar to their existing ones. For example, where funding has previously come only from statutory sources, the charity should initially look at charitable trusts and perhaps corporate foundations. In the medium term, further diversification can be sought, for example, by developing a public support base or by exploring social enterprise as a means of earning income for the organisation.

2. TO BOLDLY GO

Ironically, the need to diversify brings its own risks. Fundraisers, often pressured by trustees or senior managers, are encouraged to move into new areas without fully researching or testing activities before budgets are committed. The pressure is on to fund new projects or to meet higher targets, and this can lead to poor decision making. Typically, this could involve moving into an area such as corporate fundraising without testing the water or taking advice first. Only later does the charity discover that its cause is not so interesting to companies and that this is a very competitive area where newcomers can struggle to succeed.

The way to address this is to plan for diversification. Speak to other charities. Read all you can about the area you are considering moving into. Invest in training and consider obtaining expert advice. Then, by going in with your eyes open, you can manage the risks you have identified - and get them before they get you.

3. HIGH COST BASE

The recent debate in the sector about fundraising costs and ratios highlights a further area of risk. As charities are required to become more open and accountable, carrying high fundraising costs could become more of an issue with the public. This is already a concern for some institutional funders, such as charitable trusts, which take a keen interest in how funded organisations spend their grants. When they see poor cost-to-income ratios, this is as much a barrier to funding as high reserves or running in deficit. At its most extreme, of course, sustained high fundraising costs and poor results can lead to a Charity Commission investigation, with all the associated damaging impact on the charity, its reputation and its ability to raise funds.

The solution is to analyse each area of fundraising in detail and identify the returns generated by each activity. If some are not performing, are there good reasons (for instance, is it a new venture, which has yet to reach profit?) or does action need to be taken before things get out of hand? It could be a question of reforming or even deleting some activities and identifying alternative ways to raise funds.

4. DATA DANGER

Data storage is another significant area of risk for many charities, often linked to inadequate software. There are several likely scenarios.

One, for instance, is that data cannot be analysed and used effectively, because it is either stored in a poor quality or obsolete package, or because staff have not been trained properly to use it. The risks here are that fundraising results will be poor, that costs will be higher (because proper segmentation is not possible) and that key information (such as giving trends among donor groups) will not be recognised and fully exploited.

All this hits the bottom line.

Another common risk is that run by organisations that have commissioned bespoke software from a supplier who might go bust or hold them over a barrel to service the product. Off-the-shelf products probably provide a lower risk for most.

Some charities do not take adequate steps to protect their data, such as ensuring regular backups are made and stored off the charity's premises to protect against fire or theft. How much would it cost to replace your donor file, in terms of time, money and lost donations? This scenario would sink some organisations.

The lessons are clear. Buy a well-supported package, used and recommended by other charities; invest in proper staff training and treat data like gold dust.

5. STAFF DEPARTURE

Just as valuable data can disappear, so can key staff.

How would you cope tomorrow if your best fundraiser fell under a bus or left to work for another charity? It is bad enough to have lost skills (possibly to a competitor), but if the person had been in their post a long time the chances are that he or she mentally retains a lot of valuable information that might not have been written down anywhere.

This takes us back to the issue of data. To mitigate against the loss of key staff, it is important to establish a culture of information-sharing and recording within the organisation. Background details on key donors, the best way to approach X, who is the best person to contact Y - all this needs to be stored before the key member of staff heads for the exit.

Another way to insure against such loss is to keep fundraising strategy, reports and work plans fully up to date. Then, when departure day comes, it is easier for the next person to pick up where the last fundraiser left off.

6. PR DISASTERS

We have all seen how bad press can damage fundraising income. Although it is not always possible to prevent scandals or disputes reaching the media, it should be possible to control the everyday messages a charity is sending. Senior fundraisers need to ensure that these messages are supportive of, and not damaging to, the fundraising effort. Is the charity doing or saying anything that could lead to negative press? If so, the senior fundraiser needs to make clear the implications for income generation.

Where damaging stories have already hit the press, the charity needs to have an existing policy for dealing with them. This is vital if it is to reassure the public and its donors and reduce the impact on fundraising income. Dealing with the media always carries some risk, but to some extent this can be mitigated by good planning.

7. HONESTY PAYS

Linked to negative stories is the importance of honesty and integrity in dealing with grants and donations. Issues such as double funding, project shortfalls and use of designated funds all need to be handled with great care if funders are to retain confidence in the charity.

The risk is that any sniff of dishonesty in the handling of funds (whether real or perceived) can quickly spread, because funders talk to each other.

In contrast, by being open and honest about such issues, fundraisers can earn credit that will be remembered and stand the charity in good stead for the future.

8. KEEP AN EYE ON THE WEATHER

So far, we have looked at typical internal dangers. However, serious risks can just as easily come from outside the organisation. It is helpful to use the familiar 'PESTC' analysis to review the position (where P = political factors; E = economic factors; S = social change; T = technological developments and C = competitor activity). For each organisation, the specific risk factors will vary, depending largely on their funding mix.

So how can you tackle external risks? There are three sorts of organisation: those that anticipate change and can influence it; those that realise change has happened and manage to catch up; and those that do not realise anything has changed. Most organisations fall into the second category, but some organisations could be falling behind in key areas without realising.

This is risky in fundraising terms, because it allows competitors to steal a march.

The answer is to keep up to speed with events, especially in areas that are critical to your organisational prosperity. Good fundraising managers need to network effectively, receive regular training and read widely on fundraising matters. They need to be aware of changes in the economy and in society. This is all time well spent and can help the charity to anticipate and adapt to any changes. Risk management is in part about keeping alert and reacting quickly to change.

9. MAKE PREPARATIONS

So how can risk management be built into fundraising planning? A good place to start is with a risk audit. This will look at the key areas and seek to assess whether the charity is particularly exposed. Because risks are dynamic, this needs to be a regular exercise and not a one-off task.

The audit then feeds into the fundraising strategy, where key actions can be built in to address particular risks. At regular monitoring points, the charity can review what progress it is making in each area of risk, and spot new ones before they become real threats.

For organisations without experienced fundraisers, or for those who have been in post so long they cannot see the wood for the trees, it could be worth seeking external advice to identify and address key risks.

10. THE ROLE OF TRUSTEES

As they bear overall responsibility for the governance of the charity, trustees need to be made aware of any significant fundraising risks.

In such cases, they will need to establish a policy, which could range from withdrawing from an activity altogether to putting additional controls in place to monitor and manage the risk.

Trustees need, of course, to be aware that not all risks have to be removed.

What is needed is to identify what are acceptable risks and to review these over time, with relevant information from fundraising staff. The responsibility of fundraisers is to ensure that they have accurate and relevant information, as well as informed advice, in order to make balanced decisions.

- Simon George is a director of Wootton George Consulting, an NCVO-approved consultant. He has been fundraising since 1987 and founded the Institute of Fundraising's Trusts and Statutory Special Interest Group. He is also listed on the National Business Link Register of Consultants.

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