Standard A7 Explained

What is risk? Risk is anything that could prevent a nonprofit from achieving its mission.¹ An organization’s risks can be considered in terms of its four primary assets:¹

1. People (board members, volunteers, staff, clients/participants, donors, etc.)
2. Property (buildings, facilities, equipment, contents, important papers)
3. Income (grants, contributions, contracts, investment earnings)
4. Goodwill (reputation, ability to raise funds, stature in the community, appeal to prospective volunteers / board members / staff)

Definition: Operational Risks²
Operational risks are risks arising from the organization’s people, systems, strategies and processes or from external events which have a negative impact on its assets, including physical, financial and human resources, programmatic content and material and its integrity and reputation. It also includes other categories such as fraud risks, legal risks, and physical or environmental risks.

Definition: Strategic Risks²
Strategic risks are associated with the strategic direction of an organization. Strategic risks are often a function of uncertainties that may be driven by government policy, competition, court decisions or a change in stakeholder requirements.

Why is identifying and planning to minimize risk important? Assessing and mitigating the risks facing a nonprofit or charitable organization is one of the primary responsibilities of the board of directors.³ Every nonprofit faces risks, and risks can never be completely removed.⁴  What is most important is that your organization is aware of the risks involved in its programs and activities and that it takes reasonable action to avoid harm to its board members, volunteers, staff, clients, property, or reputation in the course of its operations.

Effectively managing risk will help your organization to:

1. Prevent or reduce harm to your people or damage to their property
2. Prevent or reduce damage to your nonprofit’s reputation and public image
3. Help you attract and maintain the confidence of your stakeholders
4. Increase peace of mind
5. Keep regulators happy
6. Reduce the chance of a lawsuit
7. Help obtain (or keep) strong insurance coverage at a competitive price
8. Assist in clearly defining insurance needs, particularly as needs and activities change
9. Save nonprofit resources by preventing loss of time, assets, income, property, or people
10. Lessen the chance of disruptive investigation
11. Inform decision-making
12. Reduce uncertainty by knowing what could happen
13. Risk management can be a valid defense in a lawsuit
14. Risk management can be a valid defense in a lawsuit even if an employee or volunteer did not follow your policy (by demonstrating that your organization took reasonable steps to mitigate risks)

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Key Risks & What To Do About Them,” Imagine Canada, 2009.
2. “Standards Program Definitions,” Imagine Canada, May 2011.
3. “Primer for Directors of Not-for-Profit Corporations: Rights, Duties, and Practices,” Industry Canada, 2002.
4. “Developing a Risk Management Strategy: Five Steps to Risk Management in Nonprofit and Charitable Organizations,” Karen Six and Eric Kowalski, Imagine Canada, 2005.