Not-for-profits have at least one thing in common with for-profits: Only the strong survive.
The not-for-profit sector is extremely competitive and even a relatively small shift of fortunes can threaten an organization's future. When events such as the death of a major donor or the loss of grants, organizations turn to their leaders to minimize the damage and restore stability. But all too often there is no plan in place to tackle risks.
Astute not-for-profit leaders don't wait for a storm. By making a risk analysis and confronting the possibilities ahead of time, they prepare their organization to weather rough times.
The not-for-profit consultancy's Nonprofit Sector Leadership Report, a survey of 1,000 nonprofit leaders, staff members, directors and volunteers, found that 77% of respondents said their groups had no leadership plan or program in place. In addition, 49% said they were operating without any knowledge of or access to a strategic plan.
This isn't the best position to be in for a sector that is particularly fragile. How fragile? A few examples illustrate:
The question, then, is how can you shore up your group? The first step is to become more strategic in examining your business model. Leaders and staff should develop a solid understanding of the group's dynamics: How do all areas of operation interrelate and affect the organization's mission? How can you maximize benefits without unduly jeopardizing the organization?
Identifying the main threats and developing strategies to abate them is critical for both the survival of the organization and the well-being of those it serves.
In 2015, the Federation Employment and Guidance Service (FEGS), which had an annual operating budget of about $250 million, filed for bankruptcy and closed its doors. As a result, 1,900 people were out of work, creditors were left holding more than $47 million in debt, and 120,000 households who relied on the supplier of mental health, disability, housing, home care and employment services in New York had to be transferred.
Soon after, the Human Services Council released a report calling for urgent reforms to prevent a looming crisis in the not-for-profit sector. The 45-page report, titled New York Nonprofits in the Aftermath of FEGS: A CALL TO ACTION, suggested that the not-for-profit sector itself wouldn't survive without fundamental changes in reimbursement models and regulatory burdens. It concluded that the failure of FEGS was symptomatic of "a sector facing a crisis."
The report made eight recommendations, including: reducing regulations, increasing reimbursement and warning providers to be more responsible and avoid city or state contracts that don't pay the full cost of services.
Similarly, early in 2017 the Open Road Alliance, a private initiative that provides grant capital, published a toolkit to promote best practices of risk management. The alliance pointed out four steps to take:
As a result of these and similar reports and recommendations, leaders in the not-for-profit sector are starting to change their perspectives from reactive to proactive. For example:
Reminder: Although this is a team effort, the organization will be taking its cue from its leaders. At its core, risk management is a security measure that should be incorporated into daily activities. As uncertainty continues and new threats emerge, the ability to engage in viable strategies becomes more important than ever. With that in mind, here are four practical suggestions for embracing this approach.
Creating this blueprint will help build awareness about numerous aspects that should be monitored and enables the organization to identify where and when it is most vulnerable.
It is then up to leadership to assess the potential effect of each identified risk. Follow up by mitigating the most urgent threats. Protect your organization by acting before its survival is threatened.
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