Risk management is a hugely important part of future-proofing your charity, says Mike Rush, head of charity at Towergate Insurance. In this ‘beginner’s guide’, he explores five types of risk and ways to manage them.
Anything that could potentially stop your charity from achieving its aims should be seen as a risk. Identifying and understanding these risks will help you put the right measures in place to prevent them from happening – and ensure you know how to respond if they do.
Five types of risk
- Financial risk. This may have an impact on your ability to achieve your fundraising objectives. These risks include being dependent on a small number of donations as your main source of income or at risk of fraud through transferring money across currencies. Theft can also be an issue. As specialist charity insurance brokers, we’ve seen all too often the problems that a break-in or theft from a charity shop can cause.
- Cyber security risk. Breaches to cyber security, which are becoming increasingly common in all types of organisations, including charities. These might involve financial loss, data loss, operational disruption or damage to your reputation, caused by a cyber-attack. Investing in cyber security will help reduce this risk. To find out more, see ‘How to protect against cyber risks’ at https://www.towergateinsurance.co.uk/charity-insurance.
- Operational risk. This is a threat to your charity caused by a breakdown in internal procedures. This risk may come from your staff not having access to the tools they need to be effective, or being unable to communicate successfully. The operational and communication culture at your charity plays a huge part in your operational risk.
- Reputational risk. This refers to any threat to the name or standing of your charity. It may be caused by your employees, volunteers or donors. Reputational damage can have devastating effects on your charity, from a reduction in income to the need to close services.
- Regulatory risk. This refers to the risk of failing to comply with legislation. Following reporting rules and charity legislation carefully can help prevent your organisation from falling foul of regulations.
Ways to manage organisational risk
Rate your risk: Give each of the risks your charity faces a rating on a) the likelihood of it happening and b) the impact it would have if it did. Thinking about this with your team can offer insight into the potential risks and is a good training exercise which may help to reduce them.
Monitor regularly: Remember, risks change over time. Hold regular risk management meetings with colleagues to check how well your charity is dealing with them. Use these meetings to help you monitor whether the controls you have in place are still necessary and if there are any new risks to deal with.