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Risk Management

Key Areas of Focus
Dr. William C. Crothers | posted 11/02/2007
This article provided by the Engstrom Institute

Risk management is a major responsibility of the administration of nonprofit organizations, but it is seldom considered beyond simply having insurance coverage. Over the last two decades the need for more formal risk management program has become apparent. Risk might be categorized as operational, legal, financial, and image. While the examples given tend to focus on colleges and institutions, the principles apply regardless of type of nonprofit.

1. OPERATIONAL RISK

Property loss can result from many national events (e.g. weather, fire flood, and earthquakes), from theft or other crime, from machinery failure, or even from technology breakdowns. In addition to property loss, the operation can be shut down by civil unrest, chemical exposure, or utilities disconnect. Planning for the inevitable crisis should be well documented and procedures, well rehearsed.

2. LEGAL RISK

In today's litigious society, risk management is essential. The diversity of issues to anticipate is almost endless and would include for colleges, for instance, litigation by students and/or employees regarding student discipline, hazing, grades, failure to grant tenure, violation of academic freedom, and discrimination regarding religion, gender, race, or disability. Safety requirements can be an area of exposure, including liability during construction. There is also legal exposure regarding land use, contamination, and other aspects of real estate. It is important to be aware of federal, state, and local laws. Having access to good legal service is fundamental. Some firms conduct a formal legal audit. For example, the legal audit questionnaire by Gammon and Grange is comprehensive (over 100 pages) and costs just a few hundred dollars including one hour of consulting regarding the questionnaire. Follow-up reviews require a larger fee, of course, but can be helpful. However, one should note that an institution needs to be serious about fixing any problems discovered in the audit. If an organization knows there is a problem and does nothing, any lack of compliance becomes "knowing" instead of nearly " negligent" with correspondingly greater penalties. Of course, the objective is to both know what is right and to do it. One area related to legal risk of particular concern to faith-based colleges is employment regulations. There are religious exemptions at the federal and state level. Appropriate questioning during the pre-employment inquiry is very important and institutions need to train campus leaders who are involved in this process.

See also:

 insurance protection, legal risk, liability, Risk management