Role Of The Nonprofit Leader In Managing Risk

6781 words - 27 pages

Role of The Nonprofit Leader in Managing RiskThis chapter of the handbook will examine the role of the nonprofit manager in managing risk. Risk management is a traditional function of business management in general. The chapter will first examine the traditional view of risk management in business and then compare that business view with the unique concerns of managing a nonprofit organization. In particular, the chapter will focus on the unique aspects of controlling risk as related to the individuals who receive services from a nonprofit organization. Also, the chapter will focus on the more prominent functions of anticipating risk and risk reduction in the management of nonprofit organizations as compared with a simple insurance model. Finally, we will present an outline for the process of developing a risk management plan.To consider the nonprofit manager's role in managing risk, we need to examine the traditional business concept of risk. The Merriam Webster Online Dictionary defines risk as the "possibility of loss or injury." This first definition is supplemented by the insurance related definition: "the chance of loss or the perils to the subject matter of an insurance contract; also: the degree of probability of such loss" (http://www.merriam-webster.com/dictionary/risk). This second part of the definition represents the classic, for-profit business concept of risk management: to anticipate and control for the loss of assets of the company. In this business mind-set, the major activities for a manager involve evaluating the cost and probability of loss and using this information to estimate the appropriate level of insurance to protect against such loss. In a traditional business model, loss is a cost of doing business and a company needs to determine what types of loss can be met with normal operating expenses and what types of loss require an insurance policy (and thus the ongoing cost of an insurance premium).For example, for a company that manufactures pens, the cost of routine maintenance and repairs of its machinery is considered an inherent cost of business. The company would likely pay for these costs as part of its normal operating expenses. However, a critical failure of its overall assembly line would likely engender a very large expense. Many corporations would consider carrying an insurance policy to protect against such an occurrence. The insurance company will charge a premium based on the expected likelihood of such a fatal failure of the equipment. The cost of the insurance premium is then calculated into the cost of doing business.Overview of Risk Management in a Nonprofit OrganizationIn a nonprofit organization, the management of risk entails a wider range of responsibilities. Surely, a nonprofit leader has a fiduciary responsibility to manage and maintain the tangible assets of the organization. But for a nonprofit leader, the responsibility for managing risk neither begins nor ends with the financial resources of the...

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