Organizational Risk Management

Last week, I examined essential inquiry around assessing Strategic Risk Management in a complex nonprofit. It’s equally important for senior leadership to assess and establish a protocol for managing day-to-day Organizational Risk Management. Successful organizational risk management requires its own set of analysis as described below.

1. Do we have an integrated, firm-wide, risk management process?

Effective risk management is achieved through comprehensive risk reporting, governance policies and limits, escalation procedures, action triggers, and dynamic and integrated firm-wide processes.  As a pre-requisite to all of these issues, nonprofits must possess an analytical system capable of properly identifying, measuring, and aggregating all risks across the enterprise.

Equally importantly, an appropriate, “risk mindset” must be adopted throughout the organization. The goal should be that every employee feels they are a risk manager and are responsible to manage the risks that occur on their jobs every day. Once this mindset is in place, risk exposures and the risk analysis of key business initiatives must be routinely and intentionally discussed. Senior Management must also ensure that relevant risk measures are among the key metrics monitored by program managers on a daily basis. Finally, senior management must ensure that risk issues are handled proactively, and communications across program units are open and effective. Red flags to be watched and immediately addressed include 1) excuses that specific risks do not lend themselves to quantitative measurement, 2) that certain risks are the “nature of the business” and therefore should not be monitored or managed, and 3) phrases like “don’t worry,” “this is a low probability event,” or “local managers have it all under control,” need to be stricken from the organization’s vocabulary.  Instituting a rigorous firm-wide risk process also ensures that directors do not start questioning senior managers about risks that the corporation has undertaken only after it is too late.

 

2. Are professionals at all levels empowered and expected to manage risk?

 For the risk management of a large, complex nonprofit to be effective, it must be built not only into every part of the decision-making process, but also every into control mechanism throughout the organization. Common risk management language must be established throughout the organization, along with clearly delegated responsibilities for managing risk at all levels. Finally, leadership and risk management structures must be correctly aligned with the not-for-profit’s business model, and the right balance established between competing priorities and constituencies.

 

3. Do we have an appropriate risk management culture?

There are specific signs that we are on the right track, and that risk management has become part and parcel of a nonprofit’s DNA.  First, leadership must assume the ultimate responsibility for risk oversight responsibility, clear measures of success, using well-understood metrics for risk appetite, and risk limits.

Risk training and awareness programs must also be in place throughout an organization, with senior line managers and risk professionals responsible for formal postmortems of major mistakes. Senior management ensure that management incentives encourage responsible and value-added risk taking, and emphasize the importance of embedded risk management processes in the organization’s decision-making and communications.

With such a risk culture in place, silos will be broken down, open communication will be encouraged, and risk successes will be publicized and imitated. And when this happens, employees will make better decisions, keep their not-for-profit out of harm’s way, and reduce potential legal liabilities and reputational risks.

What is your protocol for both strategic and organizational risk? As always, I welcome your comments.

Are We Serving or Solving a Problem?

We’re always on the lookout for candidates who have a “learner” mindset rather than an “expert” one. Learners are interested in new ways to solve problems. Experts can’t wait to tell you the answers.”

                                                                                           Tim Jones, Director of Strategy, 72andSunny

Each year, between $3.6 and $3.9 billion dollars are spent in the child welfare system specifically for foster care. These monies are distributed in three ways—as maintenance payments that cover the cost of shelter, food and clothing for eligible foster children; as foster care placement services and administrative costs; and for staff training and some training for parents. These billions of dollars serve those in the foster care system. The money is used to maintain and implement the system. It is essential to the running of the programs.

In the meantime, 74% of youth leaving foster care end up homeless, in prison or pregnant as opposed to 36% of their peers who are not in foster care. By all measures, these 74% are not succeeding.

Every day I think about ways to solve the problems that challenge the populations that we serve as they strive to achieve equity. Sixty-three percent of individuals leaving the prison system are re-arrested within three years. Ninety-five percent of individuals of working age with disabilities are unemployed. Like the foster care systems, billions of dollars are spent each year serving these populations.

What if we were to rethink the way we serve populations, and instead focus on finding the interventions that can significantly shift the track for many of these individual, ultimately, making a huge inroad in solving the problem?

For example, we took at close look at the issues facing youth aging out of foster care. We asked: what if we could find a way to help foster children aspiring to go to college? Attending college could significantly impact that 74% cited above. Then we asked: Why don’t more youth in care attend college? The research shows that youth are most apt to attend college if there is someone at home encouraging them to help with applications and the often complex system of financial aid and testing and admissions guidelines. And so we worked on a solution which ultimately became our PrepNow! program, designed specifically for foster parents to help them navigate the college admission process so that they can help their college-age youth apply and attend college. And we are finding that those who participate are indeed attending college and while we are tracking the precise statistics on long-term success, we know that youth who attend and graduate from college have more choices about the type of work they do, get jobs that have a career ladder, earn more money over their lifetime, and ultimately achieve equity and are more apt to contribute significantly to their communities.

Sometimes, all it takes to solve a problem is not a huge overhaul of a well-established system, but a precise and powerful intervention. It means asking the questions that get to the heart of the matter—what is in the way? Often the answer lies not with the individuals, but with the environment or the system or the process or the structure that is intended to support them. And once we solve one problem, we can move on the next and the next and the next. Each small step can ultimately lead to huge changes that are relevant, that are sustainable, and that ultimately have a huge impact on removing the barriers that caused the problem in the first place.

Are you serving the problems that you are working on, or are you solving them?

As always, I welcome your thoughts.