Usually, non-profits operate in volatile and challenging environments; they are exposed to different kind of risks that can cause some type of undesirable effect. There are critical gaps in philanthropy’s definitions and approach to risk management, for this reason the sector needs a framework to design and adopt risk-management practices that allow them to better operate in this in volatile and challenging environment.
A risk scorecard can be a useful tool in philanthropy, a model that can allow the sector to measure and mitigate risks in an efficient way. In my opinion a good risk score card should have a strong financial perspective, but also it should contemplate different kind of risks, meaning non-financial points.
In order to build a solid financial perspective, we should include indicators based in the financial statements, like the balance sheet, income statement, cashflow statement, etc. Additionally, from my point of view, it is important to add some indicators related to the management quality, for example about the risk management, or cash reserve policies. Moreover, it can be interesting to know the organizations’ years of operations, their growth, their operating methodologies, and their partnership policies.
In addition, it is relevant to include some indicators related to the country risk, the regulatory risk, the risk of disruption to the organizations’ supply chain, the industry risk, and the political and macro-economic risks.
It is critical to monitor the risks that organizations are facing, we should measure financial, and non-financial risks, in order to get a better idea of the hazards institutions are confronting. It is true that no amount of planning can prevent disruption by unscripted events, but it is critical to to understand the importance of risk management and the relevance of its adoption throughout the philanthropic sector, in order to mitigate those risks, and to improve the impact of different philanthropic initiatives.