Walking a tight rope well: 5 ways progressive nonprofits can use risk management to succeed in uncertain times

By Jocelyn Harmon
On March 2, 2017 At 3:09 pm

Category : Latest posts

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“Organizations face internal and external actors and influences that make it uncertain whether, when, and the extent to which they will achieve or exceed their objectives. The effect this uncertainty has on the organization’s objectives is risk.”

Like it or not, the year ahead will be risky for all nonprofits with a progressive vision for change. At times, it will feel scary, like we are walking a tight rope with no net in sight. 

The 2016 election cast into sharp relief the intense challenges that the US faces as a country — soaring income and wealth inequality, racism and xenophobia, climate disaster, and threats to our democracy. More important, it put our ideological divides front and center. Are Muslims (all one billion of “them”) and immigrants the cause of our financial woes? Or did globalization, technological advancement and deregulation “steal” our jobs? Are we a post-racial country, where everyone has access to The American Dream? Or does past and current discrimination in the housing and financial markets still dictate who does and does not gets ahead? And, how will we navigate in a “post-truth” environment, where who speaks seems to be more relevant than data or fact?

The goal of this post is not to answer these BIG questions but rather to suggest a critical activity that can help us chart a path forward in these uncertain times, especially as we seek to stay in conversation with and engage our diverse constituencies. Let’s have a conversation about how to assess and manage risk. 

MANAGING RISK is something we must master, especially when it comes to funding decisions, because trade-offs are endemic to our work as nonprofits. Unlike for-profits, we have at least two bottom lines and work for diverse stakeholders whose interests are not always aligned. 

For example, some funders invest in us to protect their reputational risk. While they do care about our missions, they also care deeply about how their affiliation with our cause impacts their financial bottom line. Exxon Mobil exists to increase shareholder profits. While they may also feel a responsibility to reinvest in communities impacted by oil extraction, this is NOT their first or primary goal. 

On the other hand, our beneficiaries — the children, families and communities we are chartered to serve — invest in us to protect their livelihoods. They care deeply about our missions to help them achieve financial security, protect their health, etc. While they may also understand our need for diverse investments to fund operations and movement building activities, our solvency is NOT their first or primary goal. 

Here’s the point: When the interests of our diverse stakeholders align, it is a BEAUTIFUL thing! But when they don’t, it can be a real problem — and it’s up to us to get ahead of these challenges. 

Here are my tips for assessing and managing the risk inherent in working for multiple masters. I hope it helps you to walk the tight rope in 2017!

1. Define your non-negotiables. Before going into battle, know what is and is not negotiable for your movement and organization. This is not a platitude. You MUST define the two or three values or priorities that you will always hold dear. For example, if you cannot compromise on legislation that harms communities of color, name that. On the other hand, discern and walk away from activities that are not “must-wins.” By defining your non-negotiables BEFORE you seal the deal with any of your investors, you create a zone of safety for everyone. No one likes to be surprised!

2. Know what others expect of you. This is critically important. You must spend the time and gather the data to gain an intimate and honest understanding of WHY your stakeholders invest in you. You cannot assume that you know what makes your customers’ hearts sing. Survey your constituents. Clarify their goals and expectations. Use this data to inform your risk analysis.

3. Run the numbers. One of my favorite nonprofit maxims is, “No margin, no mission.” I hope this is obvious, but you cannot run an organization without cash, i.e. it is foolhardy to ignore the fiscal implications of any decision you make as a nonprofit leader. This is not to say that you should never walk away from a funding relationship or opportunity. (Successful — and solvent! — businesses walk away from unprofitable deals all the time.) Still, before walking away from revenue you must know the risk of exposure to funding variances and have a plan to address them up front.

4. Remember that your reputation has value too. It’s inordinately difficult to quantify, but your reputation may be one of your most important assets. While seeking to make tradeoffs between the demands of different stakeholders, don’t forget to include a valuation of your reputation in your risk management calculation. For example, a funding boon from the wrong investor may significantly compromise your integrity within your field. Remember: Without influence you will never achieve the impact you seek, and cash is not always king.

5. Your employees are another critical asset and key to your success. Good hiring practices should ensure that your people hold similar values and have clarity on your organizational goals. But a reminder of your values and priorities is always helpful, especially in a changing climate. You cannot run your operation if your employees are not aligned with your organizational values, and you should understand the risk of alienating this critical constituency. 

Working for a nonprofit is not for the faint of heart, especially in uncertain times. To manage the diverse needs and expectations of your various stakeholders, you must be able to assess and manage risk. Please know that risk management is an art and science and there is no way to predict the perfect path. That said, just as in any investment decision, you’ll have the best chances of success if you do your homework BEFORE taking critical steps. By working hard to discern the up and downsides of your actions and including all your assets in your calculation, you’ll be best poised to get to the other side and come out on top.

 

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Jocelyn Harmon (2 blogs on 101fundraising)

Jocelyn is the chief philanthropy officer at CFED, a think and "do" tank based in Washington, DC. She leads CFED's development team and helps engage major donors, corporations, foundations, and government agencies in closing the wealth gap and ensuring that all U.S. families, particularly families of color, can achieve their financial dreams. Visit www.cfed.org to learn more.


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