Risk management for boards: Protecting your organization
Protecting an organization from risk is one of the most important responsibilities of a non-profit board. When one agrees to serve on the board of a non-profit housing corporation, assuming some level of personal risk is involved. It’s important to keep the level of risk in perspective, assess risk and take reasonable precautions to reduce it.
Read on to learn more about risk management and the steps involved in creating an effective risk management strategy.
What is risk?
Risk can refer to anything that threatens the ability of your non-profit corporation to accomplish its mission and preserve its reputation. We measure risk in terms of consequences and likelihood.
Types of risk include:
- slip and fall
- natural disaster
- human rights complaint
- loss of property or life
- inability to meet legal contractual obligations
- tenant dissatisfaction
Handling issues of liability and risk is part of overseeing operations.
What is risk management?
Risk management means taking action to prevent loss and planning how to respond when loss occurs. It includes the culture, processes, and structures that are directed towards the effective management of potential opportunities and adverse effects.
There’s a difference between pure risk and speculative risk. Pure risk exists when there is only the chance of loss but no chance of gain – theft, for example. Risks that involve the chance of gain or loss, such as investments, are speculative risks. Risk management deals with pure risk.
Creating a risk management plan
The board, senior management and staff all have a part to play in managing risk. The board has a legislated responsibility to protect the assets of the corporation and should set policies that do so.
A good risk management plan is both an organization-wide set of policies and procedures and a process to regularly review a checklist of materials, activities, and required documentation that addresses and minimizes risk.
Creating a risk management plan requires a great deal of forethought. Listed below are some steps that can help you start your planning process.
Step 1 – develop a policy statement. Outline the mission of the risk management program, thinking about:
- how the risk management program contributes to the overall mission of the non-profit
- actions the staff and volunteers can take to manage risk
- roles – who will oversee risk management efforts, and their responsibilities
Step 2 – identify risks. Use tools such as reports, questionnaires, surveys, or checklists to identify the risk affecting the non-profit.
Step 3 – manage risk. Start with identifying potential and predictable activities or actions that pose a threat to the organization.
These activities are often referred to as risk events. Staff, consultants, tenants, board members and other volunteers can all help to identify potential risk events.
Step 4 – measure risk. Assess the chances of the event happening and how it impacts your organization.
A simple method to help you measure risk is to take your list of identified risk events and plot them on a chart based on the likelihood of the event occurring and what its impact would be on the organization.
Some risks are measured by attaching a dollar figure to them. You could, for example, look at the replacement costs for your organization’s property. You may also wish to estimate potential defence, settlement, and judgment costs for liability risks.
Step 5 – control the risk. Identify the most appropriate option for each of your priority risk events and create procedures to implement them.
Step 6 – monitor the risk. Risk management is a process and is never really completed. Review your organization’s experience with claims and losses periodically – this will give you information regarding potential areas of further risk reduction.
Want to learn more about risk management strategies and the fiduciary pillar of governance? Register for ONPHA’s newly updated and modernized Governance essentials course to learn more about the foundations of good governance, finance, strategic planning, and more.
Need resources for your board? Check out our recently-released Governance essentials suite of resources to help guide you through governance best practices so that your current and future boards are set up for success.
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