Risk management provides strategic techniques and approaches needed to recognize and confront any possible threat faced by organizations in attaining their objectives. Business organizations face many challenges, and they have to make tough decisions. In the current times, prioritization of risk management by both for-profit and nonprofit organizations is essential ( Barbeau, 2019) . It is observed that both for-profit and nonprofit organizations have to account for several same risks. However, nonprofit organizations often apply different levels of protection, which are not applicable in for-profit organizations. Thus, risk management is more multidimensional, complex, and dynamic for nonprofit organizations than for-profit organizations. However, risk management has been missing in most of the nonprofit organizations' management deliberation and governance. Most nonprofit organizations view risk from a fiduciary administration perspective, which provides risks management strategies as strategic, generative, or fiduciary.
There are many potential risks faced by nonprofit organizations, which can be different from those faced by for-profit organizations. The first risk relates to a violation of cybersecurity wherein data breaches may occur, leading to donor names, addresses, credit card information, or bank account information. Secondly, nonprofit organizations face the risk of fraud impersonation. In this context, nonprofit organizations fall victim to scammers who use existing logos and pose as a particular nonprofit organization to make profits. Thirdly, nonprofit organizations face the risks of theft and compliance. Nonprofit organizations are subjected to rules and regulations that do not apply to for-profit organizations. Thus, adhering to all the rules is part of the risk’s management plan for nonprofit organizations. Mitigation of risks is only possible when appropriate strategies and implemented on time.
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Risk management is a challenge to most nonprofit and for-profit organizations. Often, it is difficult to plan for potential risks without identifying them first. A good risk management strategy should approach risks proactively but not reactively. In other words, sound risk management strategies should identify risks and take actionable steps capable of offering solutions and preventing possibilities of risk reoccurrence. Risk management in both for-profit and nonprofit organizations is the staff's, the management's, and the nonprofit board's responsibility. Risk management leadership oversees the day-to-day risk management while the board identifies the appropriate risk management strategies and serves as an oversight committee. Nonetheless, it is noted that boards should participate in risk management planning right from the start to ensure they establish thoughtful and systematic approaches before risks become emergency or urgent issues.
The risk management process should not wait until adverse events occur. On the contrary, it should be a year-round process established to prevent the occurrence of adverse events ( Barbeau, 2019) . Effective risk management becomes challenging when organizations chose to protect themselves against everything. It is noted that identifying potential risks should be followed by risk prioritization, which involves ranking risks based on the levels of difficulty in solving them, the required resources in solving them, and how vital the solution results can be to the organization (“Be prepared: Why enterprise risk management is essential for nonprofits,” 2019). Besides, both nonprofit and for-profit organizations should define their comfort levels by understanding that some risks are inevitable.
In some cases, risks are worth a reward, and organizations can find it fit to engage in riskier behavior. Organizations should understand they are taking the risks and assessing all the consequences associated with them. Organization executives and the board should be considerate on how to effectively prepare the board to drive more constructive results from its participatory work in risk leadership and risk management.
Capacity Building
| Dimensions of Non-Profit Capacity | Aligned? | |
| Vision and impact | Risk control and management | No |
| Governance and leadership | Ensure the construct of risk management, and satisfy the shareholders’ expectations while managing risks | No |
| Program delivery | ||
| Resource generation | Building of trust and credibility with stakeholders, communities, donors and clients | No |
| International operations and management | Facilitate risk management discussions, and handle the risk management as a team. Risks are not left to management as operations matter | No |
| Evaluation and learning | The management, stakeholders and board should learn how to handle risk-embedded tasks at all NGO levels | Yes |
| Strategic relationship | Create boards of management that are more inclusive | Yes |
References
Barbeau, J. M. (2019). Enterprise risk management—What it is and why it matters. Risk Management in Transfusion Medicine , 1-7. https://doi.org/10.1016/b978-0-323-54837-3.00001-8
Be prepared: Why enterprise risk management is essential for nonprofits . (2019, 18). Featured Articles | Nonprofit Accounting Basics. https://www.nonprofitaccountingbasics.org/be-prepared-why-enterprise-risk-management-essential-nonprofits
