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Charities: What has the pandemic taught us about risk management?

Naziar Hashemi, Partner, Head of Non Profits
03/11/2020
Waves-arch

The world is more volatile, uncertain, complex and ambiguous than ever before, especially as we begin to navigate the economic, societal and financial impacts of COVID-19. Re-assessing strategic priorities and adapting to survive and thrive are just some of the changes that organisations must make in order to respond effectively to the challenges.

Understanding risk and the level of exposure to uncertainties is critical as charities work hard to achieve their objectives.

The key is understanding what could or must change and the known or recognised risks and opportunities, to ascertain the gap between the uncertainties and the risks. This requires looking beyond the obvious, and considering both direct and indirect factors to evaluate the short and long term implications.

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The pandemic has taught us that we need to focus on seven key areas:

  1. Known and unknowns - while most organisations and governments are good at capturing known/knowns and known/unknowns, they are less able to identify unknown/knowns and unknown/unknowns. From an organisational perspective, turning unknown unknowns into known unknowns is, while difficult, probably one of the best things the board and management of a charity can do.
  2. Systemic weaknesses in operations and systems - the pandemic has shone a light on systemic weaknesses in operations and systems which are now causing reputational, operational and financial risks.
  3. Linear /siloed approach - risk management should address the interaction of separate adverse events or the exposure to a portfolio of risks.
  4. Risk tolerance and risk appetite - charity boards and management need to revisit their risk appetites and make decisions based on their tolerance of perceived risks and consideration of what is deemed as an acceptable risk.
  5. Opportunity in adversity - there is now a greater need to look out for opportunities. Good risk management will lead trustees to consider the various options open to the charity in pursuit of its charitable objectives.
  6. Monitoring and reviewing risks - charity boards and management should revisit their risk registers to check it is up to date. There should be discussions on key learnings from the pandemic on management of key risks including the response to the pandemic as well as a review of the governance and decision making processes.
  7. Risk velocity - So while consideration of timescales has been a key element of capturing risks on a risk register, some consider that risk velocity should be introduced as a third dimension to the risk assessment process. Recognising that while some risks may have similar likelihood and impact ratings, they may take different lengths of time to impact the organisation and therefore an appropriate response should take account of the velocity of the risk.

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Naziar Hashemi
Naziar Hashemi
Partner, National Head of Non Profits
London