Charities need to take risks as well as avoid them, so trustees and managers should draw up a policy to put these in context. This is the second part to last week’s article by the Directory of Social Change.
While not a high-level strategic issue, boards do need assurance that this is being dealt with properly. Compliance is not simply a box-ticking exercise. For ABC Charity, the inspection of a children’s nursery school by Ofsted will be crucial to its reputation and will help the board understand whether quality standards are being maintained, providing assurance that the operational team is delivering planned services.
This relies heavily on other strategic risk areas. A charity that is failing to demonstrate impact may find it difficult to source funding, for example. And non-compliance may damage reputation and jeopardises funding. But financial sustainability also has other aspects: does the charity have a viable business model, or can funders see the value to them in what the charity does and are they prepared to continue paying for it?
If a charity delivers fantastic services, but the costs are so high that no one is prepared to pay the price, then it is not viable. And with scaling down, some charities are finding that their management and overhead costs are now too high in proportion to their size. So financial sustainability risks are not simply about future funding, but also about the structure of the charity’s finances.
Finally, the board needs to consider whether there is a risk area that is specific to the charity. This may well link back to the risk policy and amplify a particular area of concern that needs to be managed well. The charity may be part of a federation, for example, with risks arising from the actions of others who share your name. Or the charity may be a membership organisation, with risks that the members and management team fall out of step and conflict ensues.
These are the big picture issues often missed off a conventional risk register, because the process tends to focus on the detailed listing of risks in various categories. To manage risk well, your charity’s board needs to engage in regular discussions with senior managers about the big five.
Source: Directory of Social Change