Financial risk assessment and contingency planning

All charities are now required to consider the risks facing their organisation and confirm in their annual report that they have done so. Many groups will have done this in a rush when the Charity Commission introduced this rule.

You should revisit the issue again now.

It is important to consider the major risks that would prevent your organisation from achieving its objectives. Do not be overwhelmed by minor risks. You should consult widely because people in different situations will know about different risks faced by the organisation. Talk to trustees, all staff, volunteers, users and funders. Conducting a SWOT and PESTEL (link to section 6) will be part of that risk assessment but financial risk assessment and contingency planning should also be considered in detail.

The CASH-Online Risk management fact sheet (see useful links below) highlights a good system for measuring risk which considers impact: how devastating an occurrence of the event would be to your organisation and the likelihood that the event will occur. This will help you decide what action to take.

Mitigation

There are six ways of responding to risk:

  • Reduce: use policies, procedures and training. Fire drills and inspections reduce risk of fire and death
  • Avoid: stop doing the activity. Do not take on onerous contracts. Avoid writing comments that could put you in court
  • Accept: a charity taking on a short-life license on office premise is accepting that it will have to leave the building sooner rather than later
  • Transfer: insure and/or contract out some activities, for instance a sponsored bungee jump where someone else deals with the health and safety implications
  • Price: increase the charge to the funder to cover additional insurance/staffing. This could be relevant when working with violent clients
  • Exploit: a charity rescuing child slaves could exploit the risk factor it’s volunteers face in its fundraising

Of course, a number of these approaches could be combined.

It is very important that you consider your own organisation and its particular services, its uniqueness and the risks that are associated with it. We cannot produce a list of all the risks that would cover every organisation. The CASH-Online risk management fact sheet however contains many helpful pointers.

Useful links

CASH-ONLINE
This excellent site aims to provide people with the basic financial skills needed to run successful charities and voluntary organisations. CASH-ONLINE is published by Community Accountancy Self Help. Their fact sheets are particularly useful.

Cash-online – Risk management (financial) [pdf 432kb]

Cash-online – Reserves policy

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