Risk is an important matter for voluntary management committee members to consider. A business plan should include an assessment of the risks associated with the project to see if there are any weaknesses and if there are any threats to its viability.
There are many ways of assessing the potential risks to a project such as completing:
- a risk register that identifies the potential risks to your project or organisation, the probability of them occurring, the likely impact on your project if the risk occurred, and the ownership and management of the risks identified.
- a SWOT analysis is a list of all your organisation’s strengths, weaknesses, together with the opportunities and threats which you perceive in the external environment
- a PEST analysis considers how you operate in the light of political, economic, social and technological developments.
Good risk analysis and management is particularly important if your organisation has staff and volunteers, or takes on premises .
Managing financial risk can be a difficult area for voluntary management committees. They are responsible for ensuring public money is used for public benefit, and for ensuring that the good name of their organisation is not tarnished by financial mismanagement or malpractice. Yet virtually any form of growth and development carries an element of risk, and failure to adapt to changing circumstances is a major risk in itself. With tight internal procedures and effective planning, unnecessary risks can be minimised, and risks necessary for growth and development can be managed with confidence and care.
The following explores some potential financial risks and looks at how they can be minimized.
Risk of fraud or mismanagement
Responsibility for minimising this risk lies with voluntary management committee members, who must understand their financial responsibilities and:
- ensure proper budgetary control as part of strategic management
- ensure staff to whom financial authority has been delegated have sufficient skills and training to fulfil their remit
- ensure effective procedural checks are embedded in day-to-day processes and are regularly reviewed. Many organisations develop a financial procedures manual and associated training for this purpose .
Risk of loss of income
Planning can alleviate this risk, for example:
- diversifying income sources to minimise the impact if one source dries up. Consider not only a mix of funding sources but also of funding types. Also consider long-term risks to funding, and how you will prepare to address them
- contingency planning for loss of specific funding, developing reserves
- staggering funding applications and re-applications, to ensure that these do not all happen in the same year
- managing fixed costs. If your operation is vulnerable to external change it is wise to keep fixed costs, such as permanent staff, low
- planning for a flexible organisational structure that can scale up and down, as circumstances require.
Risk of unexpected costs
Such risks can often be transferred by taking insurance . It is important to check the terms of cover carefully, review all insurance annually and ensure cover is adequate for the level of risk for your organisation. Some kinds of insurance are compulsory, in particular buildings insurance and employers’ liability insurance. It may also be wise to insure:
- equipment – against fire, flood, theft
- advice – to address the risk of legal action for negligent advice
- key people – where you are depending on the skills of specific staff to carry through business plans and generate income.
Risks in your wider operating environment
Changes in the law, change of government and social, environmental and economic change can all have a financial impact on your organisation. Such risks are best anticipated and managed through strategic planning.
Risks to the personal finances of the voluntary management committee
This is minimised by ensuring an appropriate organisational structure. If the financial risk is high, incorporation should be considered to limit liability.