Jean Roberts

Nonprofit Sector Risk Scenarios to assist Boards and CEOs to assess their risk management – and continuous quality improvement – activities

My website article Management and Leadership:  Risk and Quality – two sides of the one coin has proved popular with website visitors.  The premise is that effective and efficient risk management is a key component of continuous quality improvement.

This response has caused me to review my periodic surveys of the nature and extent of risk in the Nonprofit Sector in Australia through the past twenty years.  In 1989, I commenced a six year Victorian Government-funded project to assess the training and support needs of voluntary committees of management.  This project resulted in my writing a 300-page training manual for nonprofit boards and committees, presenting 6 Modules, 38 Units and 24 Training Activities.

The Modules were:

1. Why do Voluntary Committees of Management exist?
2. What are the functions of a Voluntary Committee of Management
3. Organisational Structure and Process
4. Policy and Planning
5. Financial Management
6. Human Resource Management

In Module 2, I provided a list of 22 critical success factors in a nonprofit organisation which, if not functioning or operating to the desired level of quality, effectiveness and performance, may place the organisation at risk.  I also emphasised that monitoring critical success factors was the core function of the governing body.

The likelihood of risk was then – and still is – present within each of these 22 Critical Success Factors: recognising this fact led to my introduction of risk scenarios in my work with nonprofit organisations:

1. Identifying scenarios through which risk potential can be assessed,
2. Brainstorming possible or likely risk associated with each scenario, and
3. Determining actions that would be necessary to either avoid or manage risk such risks: recognising that being able to avoid a risk is dependent upon the organisation having control over the situation.

The following list has been developed by Boards and CEOs of nonprofit organisations in Australia as possibilities for ‘worst possible scenarios’ for their organisation.

Working with these scenarios has been useful in assisting boards and their CEOs to separate cause and effect in such scenarios, and even more useful has been the fact that often the cause is identified as being in the realm of the governing body’s role, responsibilities or relationships.  This process has confirmed the quality maturity level of the Board and CEO, and the entrepreneurial character of the Board

These are listed in alphabetical order for ease of reference:

1. being involved in a legal wrangle
2. chairperson being too dominant and/or too involved with the day-to-day operation
3. chairperson lacking in leadership
4. conflict of interest not being addressed
5. debt
6. diminishing numbers in Board membership, eg operating with fewer numbers than the Constitution requires, or reluctance among members to accept Executive roles
7. dominant CEO
8. emotional blackmail
9. financial mismanagement – among Board members, and between Board members and others
10. fraud or financial mismanagement
11. imposed growth
12. inappropriate or inadequate funding
13. insensitive expansion of the organisation’s activities
14. lack of an active membership base
15. lack of communication between individual Board members (or the whole Board) and the CEO – or further down the line
16. lack of planning
17. legal action against the Board by one or more service-users
18. losing a key person in a key position
19. losing credibility in the eyes of the local community, service-users or funding sources
20. loss of confidence by the Board
21. takeovers by association members recruited at the last minute prior to the annual general meeting
22. tension between long-serving and new members of the Board
23. two factions on the Board with equal numbers
24. unexpected gift of untagged millions of dollars

The beauty of working with ‘worst possible scenarios’ is the opportunity for free thinking, for example, No. 24: unexpected gift of untagged millions of dollars. This is an interesting scenario to start with, as it involves examining values, priorities, growth options, safe and secure short-term investment options, whether to fund current volunteer effort, how this would impact on current funding sources and donors, how to manage community and sector perception of what you intend to do with this gift – and of course, if you are willing to share it!