What is the Purpose of Risk Management in Strategic Planning?
So you’ve developed your mission, vision, planning process, and budgets, what can go wrong? Now, the sky is the limit… well, not exactly. The old saying goes, “expect the unexpected.” That’s where risk management comes into play. Risk management is a critical component of the strategic planning process. By being prepared for what is to come, you’ll be a better leader of your organization, less reactionary, and come across as more authoritative when you already know what to do when a situation arises. It is also important to remember is that you cannot plan for everything. A good example of this is our own work at NMBL Strategies. We saw that when the economy was good we would do more work with nonprofits, and when the economy was tougher, we would do more change management work with commercial receiverships. What our own plans did not account for was a pandemic that would see nonprofits hold their budgets tighter, but also see government funding assisting companies in need while temporarily salvaging small and mid-size businesses that were going to fail anyway.
So how do we prepare our risk management plans in a strategic plan? Here are a few tips to making sure you have appropriately thought through the risks:
Budgets - this is an area that is a slippery slope and one that should be measured carefully. Has someone gotten too aggressive with their budgets such that the organization is susceptible to cash flow issues? Similarly, do the terms with vendors or clients provide cash flow problems?
Legal - Are your terms with vendors or clients atypical for your industry leaving you susceptible to having clients not want to buy from you or vendors not wanting to work with you?
Insurance - Are you carrying enough insurance coverage or are you leaving yourself open to unnecessary risk?
Staffing - Are you underpaying your staff? Expecting too much of them? Burning them out? Putting them in a position to fail? Any of these could lead to a team member(s) leaving.
Leadership - What happens if a leader leaves? Will this be catastrophic or do you have a legitimate succession plan in place?
Diversification - This one can be difficult for any small organization, but as a nonprofit are you too reliant upon one or two donors, or as a small business are you too reliant upon one or two customers. For nonprofits, our story on The Public Support Test is a good reference to understanding the need for diversification of donors, for small businesses look no further than lines of credit lending from banks where no one client will typically be allowed to count for more than 10-20% of the available credit line. Why does the bank do this? If that client slows down payment or worse yet closes its doors, your collections and new work will suffer. This is how banks hedge on risk.
Beyond internal thoughts here, it is important to listen to your public input to understand what perceived or real risks exist in the community and make sure you address them. If a perceived risk in the community is that you won’t be well enough funded to succeed, run stories/social media posts thanking major donors, eventually, the public will see the support coming in AND your donors will appreciate the gratitude.
Find our whole “Purpose of” series here:
You can also download our sample/template Strategic Plan Request for Proposal for free here, no sign up or anything necessary: Strategic Plan Request for Proposal Template
Developing a risk management plan can be done through a strategic planning process, which is the way we recommend doing it, but it can also be done as a standalone process. For help in developing a risk management plan contact NMBL Strategies today.
