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Why a well-run charity needs a culture of risk management

At a glance

  • Being able to cater for the issues that Community and Social Organisations face is every bit as important for brokers and insurers as it is when it comes to satisfying their clients in the commercial sector

Community and Social Organisations struggle to obtain their fair share of column inches on the business pages and all too often the issues they face play second fiddle to the coverage of companies in the commercial sector.

However, it is worth remembering that there are 160,000 charities in England and Wales that between them manage an income of £53 billion. These organisations, therefore, represent a very sizeable sector, and being able to cater for the issues they face effectively is every bit as important for brokers and insurers as it is when it comes to satisfying their clients in the commercial sector.

In the current economic environment, the nature of the risks faced by community and social organisations is evolving rapidly and the pace of change is forcing the agenda in terms of what these organisations must do to position themselves effectively for the future.

Whatever outlook Community and Social Organisations have on risk, their first priority should always be to understand it. From a position of knowledge, organisations can then make informed choices about the day-to-day activities they undertake, the strategies they put in place and how they can protect themselves from the inherent risks involved in each.

Risk management does not have to be restrictive

This is exactly where risk management fits into the frame, and rather than restricting the activities that are undertaken, good risk management identifies and mitigates the risks faced, allowing organisations to bear them more effectively.

Common risk management pitfalls:

During a series of risk workshops attended by CEOs, Zurich pinpointed some of the pitfalls that often undermine efforts to identify, measure and manage risk. These include:

  • A failure to consult, engage with and involve the board fully
  • Dismissing it as a once-a-year ‘paper exercise’, or just for compliance purposes
  • Not securing the commitment and buy-in of senior management
  • Trying to be too ambitious and complex
  • Introducing too much jargon that no-one understands
  • Lacking a clearly defined policy that shows the difference that risk management can make.

Unfortunately, the reality is that truly getting to grips with the risks faced is often allowed to slip down the priority list as other day-to-day commitments take precedence.

Indeed, in analysing some of the common pitfalls that organisations fall into, it appears many are prone to view risk assessment and management as nothing more than a once-a-year, paper-based exercise, while others overcomplicate the matter to such a degree that their efforts become ineffective and meaningless.

In light of this, Zurich has written a guide called, “Helping you through the maze of risk management”. Endorsed by AVECO, it aims to assist organisations to better position themselves in today’s challenging environment.

So what are these challenges, and how will community and social organisations need to respond? Coping with budget and funding cuts is now the biggest issue facing the charity and voluntary sector, and research Zurich carried out with Ipsos MORI showed this is something that concerned 87% of these organisations.

Working in partnership with local authorities

The sector is also being asked to provide more services for less, and as it does so it has to change many of its working patterns. Increasingly, there is a move to working in partnership with local authorities, and while this can provide significant opportunities, it also comes with risks.

Make risk matter to everyone

Here are some tips on how to begin making risk management count:

  • Keep it simple – a single-page summary of the risk view can often say more than twenty pages
  • Assign individuals to be ‘risk owners’ so they are accountable and could become ‘risk champions’
  • Work together with board members to develop a view of risk that is sponsored from the top down
  • Include risk in performance reports to the board
  • Add risk to the board and management team agendas as a standing item
  • Include risk in the organisation’s annual planning
  • Plan ahead for the long-term, as well as developing short-term solutions
  • Hold 1-2-1 discussions about risk at different levels
  • Include risk in the organisation’s performance management system.

The upside of such partnerships is a slice of the £12.8 billion cake that constitutes the work commissioned by the government from the third estate. This is clearly very attractive at a time when existing funding lines are under extreme pressure.

However, in going after these commissions, Community and Social Organisations have to be aware of the changes that such work will cause in the way they need to operate and the new type of risks they will have to face.

For example, working in partnership means the reputations of collaborating organisations immediately become tied up with one another, and this risk must be understood and managed.

Many of these new partnerships are being driven by government initiatives, and as such they are coming under intensive scrutiny from the media.

Knowing how to handle that attention, especially when things go wrong, is key to those that wish to protect themselves and prosper in this new environment. Failing to understand, mitigate and manage that risk when it rears its head can be disastrous for an organisation, and in today’s world of real time media reporting there is little breathing space for those caught unawares.

Elsewhere, on the rising tide of risks facing the charity and voluntary sector, liaising with and engaging trustees is becoming ever more difficult, while many organisations are struggling to tender their services effectively to public sector organisations. In many instances, this is because they do not have the requisite risk management frameworks in place to make them viable partners.

As Community and Social Organisations look to the future, being successful will mean understanding the changing nature of the risks they face and adapting their processes and strategies to mitigate them accordingly.

Similarly, brokers working with clients in this sector will need to help them through this process and offer more than an insurance-based solution to the risks that are evolving and growing in size.

From the extensive range of internal expertise Zurich carries, to the online tools and specific literature Zurich has created, it has developed a proposition that is about more than just the policies it offers.

In these difficult times it is this sort of added benefit that will really help clients build towards a stronger future, and which will help you deliver effectively for them.

Image © Getty

For more information, get in touch

Tilden Watson | Practice Leader - Strategic Risk | 07730 735 409

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