By David Bull, Action Planning consultant
We all face risk choices. How should we invest our savings? Do we love to jump out of aeroplanes or are we happier sitting on the beach? Organisations face similar dilemmas. Should we embark on a new fundraising venture? Should we accept the public support of a controversial celebrity?
We need an organisational view to guide board and staff decisions.
Most charities have risk management processes, but these often don’t help us decide which risks to embrace and which to avoid. Risk management is about deciding which risks are worth taking and how to mitigate the risks we accept or can’t avoid. The process of clarifying our acceptance of specific risks defines our “risk appetite”.
An agreed risk appetite statement can provide a framework to inform and guide our judgements and decisions.
Attitude to different risks
There is no one-size-fits-all simple statement of risk appetite. Some activities may be inherently risky, while in others we may not tolerate even the smallest risk. If we are working with vulnerable service users, we don’t want to take any risks with their safety. However, if providing humanitarian aid in a war zone, some risk is unavoidable (though we take steps to minimise it).
We may not feel comfortable taking risks with financial controls, but the potential for first-mover advantage may encourage us to risk investment in a new fundraising technique.
It should be possible to summarise a broad organisational approach that takes account of these variations.
Things to consider
Our attitude to risk depends on many of considerations, eg:
- How far could we bear losses if the worst scenarios occur?
- What are the potential benefits to weigh against the risk of costs or harms?
- What mitigations could reduce the worst-case damage?
- Where would benefits and harms fall – how might the most vulnerable service users be affected?
- How far can we test risky ideas before committing?
- Can we afford short-term costs for long-term gains?
- How does our risk appetite relate to our ethics and values?
- Most importantly, how does our risk appetite fit with our strategy and ambitions – can goals be met without embracing a level of risk?
Review regularly
Risk appetite, like strategy, may change in response to the external context, so we’ll need to review our risk appetite statement regularly.
There will be different views among the staff and trustees. Trustees may feel more risk averse as, under UK charity law, they may fear personal liability if things go wrong. Legal advice may be needed. Training in risk management, in the context of their agreed risk appetite, can ensure the agreed approach is implemented effectively.
It may be worth adding to any organisational risk matrix a risk appetite column, indicating the degree to which that particular risk may be tolerated in return for potential benefits (eg high, medium, low or zero appetite).
These are key matters where Trustees need to be fully engaged and to define parameters for their staff to apply. The diversity of income streams and activities within and between charities can make this a complex endeavour and trustees may feel the need for consultant support to facilitate the gathering of views and the management of debate and dialogue, as well as the drafting of relevant statements and processes.
Action Planning can help define and review your risk appetite statement and bring all your key personnel on board. Call us on 0115 671 9551.