Are you trying to explain to a friend how nonprofit risk management relates to sound governance? Try this approach.
Think of it this way. Let us say you are at the court of an ancient King. The King gives you 10 talents of gold and instructs you to transport as much as possible across the desert to another city to help that city’s residents.
How would you prepare for such a journey? Would you make sure you have adequate provisions and adequate security? Would you purchase maps and guides? Would you ensure that you have personal protection against the heat and glare of the sun?
Or would you simply wander off into the desert?
Nobody with any semblance of awareness and responsibility would do that. Any reasonable person entrusted with a stewardship obligation would take steps to safeguard himself and the treasure in his trust.
Safeguarding the nonprofit is not the same thing as transporting valuable cargo across the desert. But running a nonprofit is full of perils. The business model is challenging in the best of times. Nonprofits run with very few safety nets, and they deal with vulnerable and sometimes risky populations. Trying to ensure that the nonprofit has a reasonable chance of achieving its mission includes investing in critical safeguards, including risk management. It’s really that simple.
In more modern terms, risk management is part of the exercise of fiduciary responsibility. A fiduciary is supposed to act in the best interests of another person or entity. Part of that duty involves becoming reasonably aware of things that could go wrong and opportunities that might arise that would help your beneficiary.
Numerous standards around the United States describe risk management as an important nonprofit function. These standards put board members and staff on notice that they should have a risk management process in place.
Why? Because risk management increases the effectiveness of an organization. By reducing the possibility of unforced errors, by increasing the ability of an organization to see and deal with threats before they become crises and capture opportunities before they passed them by, risk management increases the likelihood that a nonprofit will meet its mission.
P.S. A version of this post originally appeared in BeST, our curated online group for nonprofit leaders. To find out more about BeST, including the benefits of office hours, webinars, and resources, click here.