Charity Risk Management: A Delicate Balance

Running a charity requires careful management of risks to ensure the organization’s financial stability and sustainability. A recent report highlights the importance of striking a balance between holding sufficient reserves and not over-extending the charity, warning that too little reserve can put the charity at risk while too much can deter funders.

The Importance of Reserves Management

According to experts from the Charity Excellence Framework (CEF), a well-crafted reserves policy is essential for charities to manage their finances effectively. A good reserves policy should outline:

• How much the charity needs to hold in reserve
• Why these reserves are necessary
• When these reserves can be spent

The CEF emphasizes the importance of regularly reviewing the reserves policy to ensure it remains relevant and effective.

Risk Management: A Crucial Aspect of Charity Governance

Charity trustees are responsible for managing their organization’s risks, but having a risk management policy is a good way to do so. The policy should include:

• Details on the types of risks identified
• Criteria for adding or removing risks from the register
• Who will review the register

The CEF provides toolkits to help charities assess their financial sustainability, reduce costs without impacting services, and maintain cash flow in an emergency.

Key Risks for Charities

Charities face a range of risks, including:

• Financial risks (e.g., securing income, safeguarding)
• Strategic risks (e.g., changing government policies)
• Operational risks (e.g., natural disasters)

The CEF offers guidance on identifying and mitigating these risks to ensure the charity’s long-term sustainability.

Reducing Risk: Strategies for Charities

The CEF recommends four main strategies for reducing risk:

• Avoidance: eliminate or minimize the risk
• Mitigation: reduce the impact of the risk
• Insuring against risks: transfer the risk to an insurance company
• Transferring responsibility: transfer the risk to another organization

By taking proactive steps to manage risks, charities can minimize the likelihood of adverse events and protect their financial stability.

Expert Guidance and Resources

The Charity Excellence Framework offers a range of resources and toolkits to help charities manage their risks and ensure long-term sustainability. These include:

• Funding finder tools
• Policy templates
• Comprehensive resource base

For more information on charity risk management, visit the Charity Excellence Framework website or register for free access to their comprehensive resource base.