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Why Your Nonprofit Needs Nonprofit Risk Management

The nonprofit business model is challenging. At best, you operate with low or negative margins, supplementing your revenues with grants and donations that must be sought year-round. At worst, you’re totally dependent on the generosity of friends and strangers.

You work with needy and sometimes risky service populations, providing goods and services that your local government or people in your community don’t have the time, interest, or ability to provide. You have volunteer board members. You may even use volunteers to provide basic services. Your staff may feel overworked and underpaid.

Where for-profit organizations seek “redundancy” in important business areas to provide for resilience in times of high workload, you don’t even have “dundancy” in the first place for many core processes.

All of those aspects of a nonprofit business model present risks. And that’s in the best of times. Add a pandemic, political unrest, a natural disaster, or some other misfortune, and organizations like yours are placed in immediate peril.

Experts speculate that 8 to 10 percent of nonprofits in the US will fail during the pandemic and its aftermath. Survivors will be under substantial strain.

In light of these realities, nonprofit risk management processes are critical. Most nonprofits have some basic elements of risk management – like insurance, contingency plans, or an employee handbook with basic policies. However, our research across the US shows that most nonprofits do not have a simple, scalable, clear risk management strategy in place to identify risks and prioritize and act on their most pressing nonprofit challenges.

Indeed, even though best-practice standards across the US say that organizations should implement risk management processes, a large portion of those responding to our survey research fail to follow that recommendation. Many don’t even know about the standards themselves. With respect to particular elements of risk management, the situation is even more dire. A large portion of nonprofits say they don’t have a business continuity plan in place, or a crisis communication plan ready and available.

Given those statistics, the nonprofit sector needs to work on risk management. The sector provides direct and supportive services to our most vulnerable citizens. or opportunities to participate in arts and culture that would otherwise not be within reach. If nonprofits themselves are vulnerable, they may be unable to meet the needs of their beneficiaries in times of crisis.

It’s striking, then, that while most organizations have a strategic plan, most do not have formal nonprofit risk management processes. In fact, our research shows that many in the sector don’t even know the basic vocabulary of risk management. If you can’t talk about risk management, how can you deal with it?


Risk Alternatives sponsors and curates an online group for nonprofit leaders who want to build resilient organizations. To stay informed about this group, called Nonprofits Build Strength Together (BeST), visit www.riskalts.com/nonprofits-best/.