As stated in the article “Increasing Risk Awareness for Mission Critical Objectives of Nonprofit Organizations” published by the America Institute of Certified Public Accountants (AICPA), “greater risk awareness is becoming an expected best practice in overall governance of an organization. Knowing that organizations, including nonprofits, must assume risks if they want to further their mission, executives are now seeing the strategic value of being more informed about those risks that might positively or negatively affect their mission goals and objectives.”
Evaluating and forecasting risk is no longer a compliance role and should be viewed as an integral part of strategic decision making. Completing opportunity and risk forecasting successfully provides an environment in which your nonprofit organization can continue to strive towards its mission statement and program goals.
The following outlines a few selected tips for successful opportunity and risk forecasting for consideration:
- Document your forecasted opportunities and risks as narratives to facilitate discussion amongst your organization’s board members, executives and management teams. Relying too heavily on risk forecasting tools can bog down the exercise needed for your specific organization.
- Your opportunity and risk reporting should surround required actions to meet those opportunities, potential successes after those actions, as well as potential failure results.
- Establish acceptable risk thresholds for each opportunity.
- Opportunities identified should correspond directly with the mission statement, strategy and program goals of your organization. Ignore the noise around “must-do” nonprofit objectives and focus on the individual resources and objectives of your organization.
- Looking beyond internal data sources can provide an enhanced view of future opportunities and risk.
- Consider potential funding means available to your organization, whether private contributions or public grants. Ensure grant requirements can be met.
- Effective and realistic budgets based on current and projected operations will help drive how the goals will be achieved with the appropriate risk tolerance. Allocation of resources by opportunity should be performed, including both direct and indirect cost.
- Once your opportunity and risk forecast is established, consider a rolling forecast that can be updated and used periodically. Due to the rapidly changing business environment, updated opportunity and associated risk forecasts are needed.
Effective forecasting discussion and execution will provide a clear and specific vision for your organization’s future.
Article written by:
Brendan McCausland, CPA