How hungry are you? Re-thinking your charity’s risk appetite might be a chance worth taking

February 22, 2013 at 11:56

Does your charity have a fully-functioning ‘risk strategy’? Is it integrated into the decision-making process at all levels throughout your organisation? No? Fear not, for you’re not alone – in fact, you’re far from it.  When a similar question was asked at Crowe Clark Whitehill’s 2013 INGO Conference last week, not a single hand was raised. However, an informative session by Pesh Framjee of CCW and Gaynor Miller of Christian Aid, highlighted why, at a time when charities are having to innovate to survive and the one constant is change, rethinking approach to risk is arguably more important than ever before.

‘Risk’ certainly has a bad reputation – commonly associated with danger, losses and negative events, it’s often seen as something to simply avoid. Yet the threats arising from uncertainty offer us only one side of the coin; on the other side we may have opportunity – financial, reputational, and mission-related. Excessive risk aversion can therefore lead to missed opportunities, under-investment in potential growth areas, and spending to mitigate potentially tolerable risks. The risk of not doing something can be severe, and with a changing external environment, simply continuing existing practices could be just as risky a strategy as implementing new ones.

Embedding risk management in your charity can help in tackling these issues, enabling staff to make confident, informed decisions based on the charity’s risk appetite – the risks your charity is willing to take to survive and deliver on its mission. However, embedding risk in this way is clearly a complex undertaking, owing in part to the difficulty of defining organisational risk appetite and then supporting staff cross-organisationally to incorporate this into decision making.

On a basic level, appetite for risk varies between charities for a wide variety of reasons.  It could be influenced, for example, by a range of mission and resource-related factors.   Take the example one of one of the more extreme risks that international charities may face- whether to operate or not in a war -zone – some may seek these out in order to fulfil their mission, whilst others may pull out if conflict begins. It may also be too simplistic to suggest a charity has either a high or low risk appetite. For example, many charities invest heavily in fully training, preparing and equipping their staff, and then deploy them in highly volatile locations; and as circumstances change over time, so may a charity’s risk appetite.

So where to begin in developing a risk strategy? Far from being simply another set of spreadsheets, once formed, your charity’s risk strategy should eventually become embedded within the decision-making process throughout your organisation. This is commonly the element of risk strategy development that charity’s struggle with, with even highly evolved risk management processes operating largely in silo.  Usability across teams should also be kept in mind throughout the development process. Risk management often sits within the finance function, but forming a risk committee which includes other departments too can be worthwhile. This Institute for Risk Management guide is a great starting point for developing a risk strategy, and assessing how existing operations may fit with risk appetite can be useful.

With resource and time at a premium, developing a risk approach may seem like a tedious or unnecessary process. However, given time it can become an invaluable tool for driving your charity forward; a wide-reaching framework providing direction and guidance, helping your charity achieve on its mission in the most efficient and effective way possible.

With thanks to Pesh Framjee (Crowe Clark Whitehill) and Gaynor Miller (Christian Aid).

Douglas Hull    Post by Douglas Hull, policy and membership officer at CFG