Managing Risk – Excerpt from Nonprofit Risk Management Center E-News

The following excerpt is provided, by permission, from Melanie Herman, Executive Director of the Nonprofit Risk Management Center, Leesburg, VA:

In Jeffrey Rosenthal’s fascinating book “Struck by Lightning: the Curious World of Probabilities, Rosenthal explores the science of probabilities. He compells his readers to remember that risk management is accompanied by “randomness”. Many aspects of our lives are governed by events not completely within our control and uncertainty is here to stay. Nonprofit leaders have two options regarding uncertainty: #1 – Let uncertainty get the better of us and our tax-exempt organizations or #2 – Learn to understand and perhaps appreciation randomness and act accordingly.

According to Rosenthal, “by thinking logically about the likelihood of various outcomes, we can better make decisions and understand our lives more deeply.”  So what does thinking logically have to do with governance and managing risk?

According to Herman, nonprofit leaders committed to coping with and even embracing uncertainty must, however commit to estimating the probability of various outcomes and making adjustments in those estimates on an ongoing basis (sounds like an accounting policy to me!). Predictions about the future should, and will, change as the future unfolds and (management) needs to be flexible in adjusting policies, procedures, staff training protocols and management oversight to reflect insights from experience (including losses) and the availability of data which confirms or discredits our worst fears. Over the course of years or decades, few if any risk management strategies will remain relevant (without adjustment or timely assessment/monitoring) in a dynamic organization. Management should be eager to update policies to make certain they suit the organization rather than clinging to time-worn policies and procedures.

Risk management is ever changing. Reviewing policies/positions, etc., are critical in moving forward and evaluating the budget and operations for 2010.

The above used by permission from Melanie Lockwood Herman, ED of the Nonprofit Risk Management Center.  Carlye Christianson, Senior Counsel and Director of Special Projects, also contributed to the article. For more information about the Nonprofit Risk Management Center, see www.nonprofitrisk.org.