New initiative measures nonprofit risk vulnerability in a high-risk year marked by natural disasters and uncertainty about federal budget, ACA, and immigration reform
November 14, 2017
New Digital “Fitness Test” Will Help Nonprofits Measure Risk and Understand Vulnerability to Internal and External Threats
Community Resource Exchange (CRE), a nonprofit consulting firm for the social sector, today released significant research on risk management in the nonprofit sector along with a first-of-its-kind online risk assessment “Fitness Test” designed to help leaders of nonprofit organizations assess both internal and external threats to their mission and sustainability.
The year-long project, which engaged a diverse range of nonprofits, found that external events, like this year’s hurricanes and floods, along with deep uncertainty around the possibility of federal budget cuts, the future of the ACA, and the status of immigrants represent unexpected external threats to many organizations; these risks align with the highest category of vulnerability of nonprofits today.
“Traditionally, risk management has focused primarily on identifying structural or financial risks to a nonprofit. While these remain important areas of vulnerability, we found that many organizations have become skilled at preparing for internal risk issues like governance and compliance,” says CRE CEO Katie Leonberger.
“However, in all of our conversations with nonprofit executives, we found that many nonprofits are more likely to be vulnerable to risks from external events like the natural disasters we’ve seen this year, or unexpected programmatic events that would require a crisis communications plan.”
“In response to these findings, we’ve developed the CRE Fitness Test – or CREFT – which organizations can use to identify vulnerabilities and plan for both internal and external risks in a more holistic way. In addition, CREFT encourages nonprofits to move from risk management to risk engagement – a more proactive approach that allows organizations to take on opportunities in a smart and informed way,” adds Leonberger.
Executive Directors of participating nonprofits are available to discuss the impact of the assessment. “Nonprofits and their Boards of Directors like ours are more conscious of identifying known and unexpected risks that can undermine the ability to serve its community,” says Christopher Hanway, Executive Director of Jacob A. Riis Neighborhood Settlement, an organization that took CREFT earlier this year.
“Community Resource Exchange has created an extraordinary tool in the CRE Fitness Test, and its findings, particularly the big lesson to strategize for unexpected external risks, and frankly for any potential risk, provide valuable insights for strategic planning.”
Why Study Risk? Recent nonprofit closures and collapses illustrate that executives and boards need to identify and assess, prioritize, and then manage and mitigate risk that can undermine the sustainability of the organizations they lead, and thus threaten the communities they serve. Although all organizations operate in an environment inherently characterized by risk, nonprofits in particular are vulnerable given requirements for their operations and constraints on their funding. The sector as a whole has had limited exposure to intentionally and holistically assessing and engaging with risk, although groups have been doing it informally over time.
Initiative Findings To-Date. CRE found that nonprofit groups generally have lower risk in the areas of compliance, finance, governance, and strategy, although executive-level succession planning has emerged as an area of greater vulnerability (this vulnerability is critical given the generational leadership change that the sector has been experiencing in recent years). CRE also found that organizations tend to have higher risk vulnerabilities in the areas of personnel and administration, programs and services, and external threats.
Digital Fitness Test. The year-long research culminated in CRE’s Risk Management Practice’s creation of the risk assessment tool, the CRE Fitness Test (“CREFT”), which launches online tomorrow. CREFT is the first risk assessment tool that enables nonprofits to look at risk vulnerabilities from multiple angles, and to solicit input from multiple layers of leadership to ensure a more holistic picture of risk that an organization can then address.
The CRE Fitness Test is for U.S. nonprofits of any size, location, issue area or age. It’s designed to help nonprofits assess their risk vulnerabilities and strengths across six comprehensive operational and performance categories. The purpose is to help organizations build an awareness of potential sources of risk so that they can work towards risk management and mitigation with proper planning.