Not‑For‑Profit Risk Management Framework

Risk management is the application of risk analysis to strategic, systems, human and organisational problems in order to improve performance. Z/Yen Limited, the UK's leading risk/reward management firm, believes that the intelligent management of risk is the basis of significant reward. By recognising, understanding and managing risks, more risks can be assumed and performance increased. In the 1990s commercial organisations were compelled to adopt visible frameworks for understanding and managing risks. It was inevitable that the not-for-profit sector would follow and SORP 2000 introduced a specific requirement that charities demonstrate "..the major risks to which the charity is exposed, as identified by the trustees, have been reviewed and systems have been established to mitigate those risks."

Z/Yen has worked with many different organisations to implement a meaningful framework for managing risk. This enables them consistently to:

• identify, assess and manage organisational risks;
• assign clear responsibilities for risk management;
• monitor and track individual, departmental and organisational progress on risk;
• support the overall charitable objects and strategic plan.

Z/Yen's risk management framework is based on a viable systems model. The viable systems model states that all successful systems in complex environments have seven identifiable elements working together, viz: the implementation elements - input, process, output; the intelligence elements - feedforward, feedback; and the management elements - monitoring and governance. The overall risk management framework must take account of each of these elements.

Z/Yen works with not-for-profit organisations to implement a tailored risk management framework which will enable them to assess and manage risk throughout the organisation. Each framework is specific to the organisation, but is likely to include common elements, including a manual, risk management forms and procedures, a risk register, policy register, insurance schedule and links to operational plans. The structure is based on Z/Yen's problem-solving methodology, Z/EALOUS which examines the environment and objectives, analyses the risk issues, examines the likelihoods and impacts, establishes the opportunities and promotes risk understanding and sharing.

For instance, working with a global environmental charity, Z/Yen implemented a risk management framework to make the charity and staff aware of emerging and existing risks. Using the framework over time enabled the charity to spot key external risks, including the potential of losing some crucial funding, so they could re-address their funders' needs in time to avert a crisis, while simultaneously looking to new types of funding.

Z/Yen's risk management framework allows charities not only to meet their legal requirements for risk management, but also to make risk and reward management an integral part of their organisation, and ultimately to improve performance.