Of all the lessons that should be learned from the year of bad news for the charity sector, certainly one should be that charities need good risk management. That does not mean that you should avoid all risk – far from it. Equally, not all risk-taking is good just because it is being done in the name of innovation.
Good risk management means that you choose where you take risk and where you avoid risk. One of the roles of the board is to set the risk policy – this should describe where an organisation should be prepared to take risks as well as where it should be risk averse. For example, a childcare charity will take no risks with the safety of the children in their care, whereas they may be prepared to manage their investment portfolio with a moderate degree of risk-taking to maximise returns.
Good risk management processes mean that you understand the risks and weigh them carefully. Having strong risk management processes in place and communicated through the organisation breeds confidence in taking risks. Regular reporting on risk and assurance processes allow the board to see how risks are being managed in the organisation, building confidence that the organisation can take on new activities. You need the right systems and culture in place to ensure that the organisation can innovate, secure in the knowledge that there are safety nets to catch you so you do not fall too far. By systems, I do not necessarily mean prescribed procedures or IT – I am using the term in a loose sense to include a range of tools and reporting mechanisms that should be present in an organisation. These are not themselves recognised as risk management tools, but do help us to manage risks. For example, piloting new ideas before approving full-scale activity, or making decisions in a structured way to ensure that risks and benefits are properly considered.
At a strategic level, you can structure your activities to hedge risks in a number of ways. Like selling Christmas cards and ice-creams to cover seasonality, think about your fundraising portfolio and your charitable activities to make sure that you have some balance. One of our clients knows that the demand for their services to help people get into work is higher when we are in recession. So they balance their service portfolio with training and development offers which tend to do better when the economy is stringer.
A commercial undertaking would not expect to succeed by publishing one book or running one training course, and it’s a similar story with innovation. To achieve success with innovation, you need to have many new ideas to increase the likelihood that one of them will be a success. Of course, this means that more of the ideas will be non-starters or will fail.
The typical risk register does not demonstrate all the ways you are managing risk. Integrating risk management into your strategic thinking is effective and part of the whole risk management toolkit.
Kate Sayer is a partner at specialist auditors Sayer Vincent