A note on risk in the philanthropy sector
In its summer 2017 edition, Stanford Social Innovation Review (SSIR), published a supplement called “Navigating risk in impact-focused philanthropy, in which diverse philanthropic and non-profit organizations’ leaders highlighted the importance of risk management. According to SSIR, the lack of common risk-management practices is a weakness of the philanthropy sector, that can vanish the impact of projects, and potentially waste billions of dollars. Surprisingly, even though funders of social projects, know that the 20% of their projects would likely be negatively affected by unexpected events, only 17% of those funders reported that they set aside funds for such contingencies.
We all have heard the dictum ‘Prevention is better than cure”, but why philanthropic organizations do not put those words in practice? Many reasons can be argued, one of them is that many organizations do not recognize the need for risk management, some other organizations recognize the need, but they consider it a lower priority so it is rarely done, mainly because most philanthropic organizations are busy attending their daily activities.
It is important to understand that the aim of risk management is to forecast and evaluate risks with the identification of procedures to avoid or bring down the risk exposure within acceptable threshold limits. It is critical to recognize that risk management is a continuous learning process that involves identifying, mitigating, planning for contingency, and then monitoring and reassessing risks as projects move forward. Taking into consideration this information, it is important to choose the risk management practice that better fits the organizational needs, in this process a two-way conversation between funders and grantees is critical.
Finally, it is essential to take risk into consideration, specially nowadays that we are living in a fast-changing environment, and non-profit organizations are facing complex and dynamic scenarios. Having a risk management plan could avoid serious harm in your finances, safety and even in your organizational reputation.