Risk Management Frameworks for Nonprofit Organisations - Maximising the success of their implementation

Standards Australia has been quite active in its delivery of resources to the nonprofit sector, regarding the management and communication of risk. 2010 saw the release of HB 266:2010 entitled “Guide for managing risk in not-for-profit organizations”. This was supported by HB 327:2010 entitled “Communicating and consulting about risk”. Both publications came off the back of AS/NZS ISO 3100:2009 entitled “Risk management - Principles and guidelines”.

Together, these publications focused on the core application areas of risk management, namely the principles for managing risks, the framework within which these operated, and the process that underpinned them. Communication was recognised as the key to successfully implementing a risk aware culture within the organisation, as part of the delivery of an effective risk management framework.

The message in these pronouncements is quite clear. There are a broad range of risk principles that your organisation needs to consider in order for risk to be understood in the broadest possible way. These principles need to be contextualised within a consolidated framework that must be well considered, well developed, and well understood. In order for such a framework to be effective, it must be supported by a process that caters for the identification, assessment, and treatment of risk. Additionally, this process must be supported by an effective and consistent communication methodology. Finally, and a very important point to consider when deciding on how to approach the design and implementation of a Risk Management Framework, is its workability. In other words, failure will be determined, in part, by the way staff within your organisation view the Framework and how they work with it and within it. Three key rules that I always say are a prerequisite for success in this area are: 

1.  SEAMLESNESS - The processes surrounding the Framework must be seamless. Staff must see it as merely another part of their day-to-day activities, rather than seen as yet ‘something else that needs to be done’; 
2.  TRANSPARENCY - The Framework must support transparency. Information captured within it must be largely available to all staff. The only caveat here may relate to a range of strategic risks, and 
3.  COMMUNICATION – Internal communications supporting the workings of the Framework must be effective and timely, ensuring confidence in the processes is maximised

This integrated approach to risk management should be the focus for your nonprofit when considering and assessing risk. In the context of nonprofit organisations, a wide range of risk categories combine to form an overall picture of the risk environment within which nonprofits operate. These can best be summarised in the following manner: 

• Asset risk – which relates to the ongoing management and maintenance of the organisation’s physical assets including buildings and equipment used by employees, volunteers, contractors, and clients; 
• Compliance risk – which relates to the external regulatory framework that the organisation operates within as well as the internal policies and procedures that are in place to govern behaviours of its internal stakeholders; 
• Environment risk – which relates to the management and sustainability of the built and natural environment that the organisation works within, and, from which services are delivered; 
• Financial risk – which relates to the operation, management and development of the financial frameworks within which the organisation operates in, and supported by its internal financial policies and procedures; 
• Liability risk – which relates to the organisation’s services, products, information or behaviours that results in legal action against the organisation or its officers; 
• Personnel risk – which relates to the safety, occupational health or well being of the organisation’s staff; 
• Service delivery risk – which relates to failures in the provision of its services and how these may impact the organisation, and finally 
• Technology risk – which relates to the security, safety, function and management of the organisation’s technology systems and processes.

A further aspect to consider is the extent to which the implementation of a Risk Management Framework represents challenges to your organisation in terms of implementation. This may require an effective change management strategy in order to maximse successful implementation.

OPTIMUM NFP has worked with many nonprofits in designing and implementing Risk Management Frameworks which respond directly to the unique organisational requirements whilst maintaining the important elements of the Australian Standards.

Further information regarding the work of OPTIMUM NFP in this area can be found by following this URL -  https://www.optimumnfp.com.au/services/risk-management.html

Contact David Rosenbaum of OPTIMUM NFP at drosenbaum@optimumnfp.com.au or 0411-744-911 to further discuss your requirements and how your nonprofit may benefit from the work we do in this very important area.

In response to the change management challenges that may be connected to successful implementation, keep an eye out for the forthcoming NFP Change Management Masterclass being held in Sydney on Wednesday 12^th September 2018, where participants will be introduced to NFP specific change management approaches which have directly resulted from this ground-breaking research. You can register your interest by following this URL - https://www.optimumnfp.com.au/masterclass.html

Build confidence in your future leaders - these are resources that must be invested in for the sake of sustainability

The 2014 Not-for-Profit Leadership Survey authored by OPTIMUM NFP and Growing People+Organisations, identified that 52% of respondent NFP CEO’s believed that whilst their management teams had strong technical capabilities, they lacked the leadership skills needed for the future.

The survey suggested that traditionally, managers were promoted or appointed into their roles for their technical or professional skills and they learnt to manage a team through trial and error. As suggested in the report, the high costs of staff turnover and the need to develop staff to achieve organisational goals meant that managers needed to have highly developed leadership skills more so than technical skills.

Emotional Intelligence, or EI as it is usually referred to, is very often seen as a necessity in leadership roles, especially when leaders are focusing on the implementation of change programs, where appropriate engagement with all staff is not only necessary, but also fundamental to the success of the change program.  EI has many facets including emotional self-awareness, emotional awareness of others, emotional self-management and control, emotional management of others, emotional reasoning, and expression.

Some authors suggest EI cannot be taught. Managers either have this skill or they don’t. Others suggest that whilst an innate leaning towards effective EI traits is prevalent amongst successful leaders, exposure to appropriate leadership and personnel development can either improve existing EI capabilities or at least expose potential leaders to a wide range of EI related attributes where in the right environment, and with the right mentoring, can over time, refine EI type skills.

In a potentially correlated issue, the Survey also found that 52% of respondents believed that their NFP’s inability to adapt to change was a risk to the sustainability of their organisation. A broader issue appeared to be the extent to which these organisations were change ready from a cultural perspective as well as from a technical preparedness level. In this regard the challenge for leaders is to understand what stage their organisation is at with regards its readiness to react to, and absorb change, identify the gaps, and then look to address them with a myriad of suitable approaches, before change is implemented. Of course when we talk organisational culture, be it for change readiness purposes or for general performance purposes, a leader’s EI becomes of paramount importance, given the role that the leader plays in both these issues.

Seeing the above issues in context, it becomes clear that leadership development training may become critical in addressing the challenging issues that face this sector into the future. Existing evidence suggests that traditional leadership development programs may have substantial shortcomings.  McKinsey and Co have identified four such shortcomings. These include:

• the fact that many of these programs overlook context by working on the invalid assumption that one size fits all;

• the fact that reflection is decoupled from real work, underpinning the absence of real-life application of acquired theoretical knowledge

• the fact that the need to change mind-sets which requires an associated change in behaviours is often overlooked, and finally

• the fact that such programs tend to overlook the Return-on-Investment aspect associated with the cost of such programs.

Alternatives do exist utilising an Action Learning framework. Action Learning as an approach for driving performance was originally proposed by Professor Reg Revans in the 1940s and over the years has led to significant international successes, especially in the NFP sector where the central focus on mission and values enables participants to develop relevant work-based solutions in their own organisations, whilst furthering their own personal and professional development. By doing so, the Action Learning process successfully addresses the shortcomings that McKinsey and Co has identified in existing leadership development programs.

OPTIMUM NFP is pleased to announce the launch of the Australian arm of UK based Action Learning international, which has successfully developed the Action Learning Question approach which is designed to aid leadership and personnel development, whilst focusing in the resolution of work-based challenges. These programs have been successfully running in the UK and Europe for the last 14 years in the commercial, public and NFP sectors, and have much to offer Australian not-for-profits.

Action Learning International is holding its public launch in Sydney on Wednesday 4^th June and limited places are still available to hear from the founders of the Action Learning Question program, Professor Richard Hale and Professor Joanna Kozubska from the UK. To register your interest in attending, please visit the OPTIMUM NFP web site and complete the online application, alternatively contact David Rosenbaum at drosenbaum@optimumnfp.com.au to indicate your interest.

Being a Not-for-Profit. Business vs Purpose - Is It Really a Contest?

I recently found myself embroiled in an online discussion that appeared to view the not-for-profit sector as necessarily being one that conceptually needed to be split two-ways. The initiator of this discussion appeared to be suggesting that on the one hand there were those NFPs who were larger and operated within a more corporate environment, whilst the other group of NFPs are those that are somehow more community based, potentially smaller, and are more ‘grass-roots’ orientated. 

The discussion centred on the perceived need for the ACNC, in the context of the current Federal Government’s recently introduced legislation which would seek to effectively close down the ACNC without necessarily identifying what, if anything, would replace it. The discussion centred on the pros and cons of the current ACNC in the context of what was needed, from a governance perspective, for the efficient running of this sector. A further dimension to this discussion was the role that consultants are playing in shaping the ongoing debate regarding the need for an additional regulator of the type and style of the ACNC.

There are different aspects to this discussion which are worthwhile further considering, especially in the context of a sector which everyone agrees, plays an important part in the economic and social life of the Australian community.

The importance of ‘community’ cannot be overstated. At this level it is worthwhile remembering that the role of this sector is important because of its very heavy focus on individuals. An American author writing about what is often referred to as the third sector (van Til – 2008), suggested that “society is best organized if voluntary organizations are numerous, effective, and thick in meaning”.  He further suggested that in a Western style democracy, there were only four institutional means of solving society’s challenges, namely governments, business, the third sector and finally, what he referred to as the “informal sector”, constituted by family and neighbourhood. This structure very much focuses attention on the distance between services design and delivery at a policy level and at a front-line service delivery level. 

The grass-roots service delivery approach that smaller third sector organisations espouse and are very good at delivering, must also be considered in the light of the economic realities that now face this sector, and will continue to challenge their very existence. 

A well known Australian academic who researched extensively the Australian nonprofit sector, the late Mark Lyons suggested that third sector organisations needed to carefully balance the need to maximise their financial bottom line without becoming purely bottom-line focused, indicating that profit was necessary to ensure sustainability and the ongoing provision of effective front-line services into the future. His call was for an appropriate focus on improving business performance within these organisations. His 2001 publication entitled “Third Sector” highlighted this business performance issue and the management practitioner conundrum when he stated “Over the past 20 to 30 years huge resources have been committed to developing understandings and techniques to improve business performance. But not all of the management techniques developed by and for business are directly applicable to third sector organisations. Third sector organisations have special characteristics that require their own solutions but little effort is put into developing best practice management for the third sector.”

The current and future economic reality within which third sector organisations operate necessitates the consideration and application of a wide range of commercial and managerial issues. These will not disappear in an attempt to change back the clock to an earlier era. The economy has changed and the social structures have changed. The challenge is to ensure that the changes required to be made by organisations in this sector are made in a way that focuses on the outcomes necessary to enhance the lives of those that rely on the services that this sector provide, whilst doing so in financially sustainable terms.

In this context, there is no substitute for sound governance practices and structures within third sector organisations. The ACNC could prove to be a very strong and effective tool for driving such governance frameworks across the third sector and its potential demise, in the absence of any realistic alternative is a negative for organisations operating within this sector as well as those who interact with it. If it is going to be replaced, the sector and those that involve itself with it should be given a detailed picture of what will replace it. Simply going back to what was in existence pre ACNC, may not suffice, especially given the challenging economic and social issues that Australia face and will face into the foreseeable future.

OPTIMUM NFP has been supporting not-for-profit organisations through the provision of strong nonprofit-specific governance related consulting assignments in areas of Risk Management, Strategic Financial Management, Strategic Planning, and Change Management. Contact David Rosenbaum for a free no-obligation meeting to discuss your not-for-profit’s requirements and how OPTIMUM NFP could assist.