What is Risk Management?
When you see the words “risk management,” what comes to mind? Does it bring up thoughts of uneasiness or fear? Does it inspire?
Risk management is simply this: “The forecasting and evaluation of financial risks together with the identification of procedures to avoid or minimize their impact.” Risk management is an important tool that every Not-for-Profit board, and management team, needs to have in their kit.
So, how do you start? What do you consider? The most logical beginning is to list risks to the Organization that would have a financial impact, such as: changing economic conditions in the specific area of operations, credit risk (no-pay or slow-to-pay customers), personnel issues, liquidity risk (cash flow), information technology failure and/or data breach, and lawsuits, etc. Once you have identified the risks, you can begin to develop plans to minimize the impact. Plans could include securing a line-of-credit to help with cash flow issues, purchase of insurance for technology/data breach issues, business interruption insurance, employee relationship building, etc.
2020 was certainly a year that shook many. There was no way to fully forecast what was to come. We all had to react, but consider this: Do you believe it is likely that Organizations with a risk management strategy in place fared better than those that didn’t?
Invest the time. Develop a plan. Need help? Contact us to take the first step.
Carol A. Burley, CPA
NFP Niche Chair