Nonprofit Risk Management Center A source for tools, advice and training to control risks ... so you can focus on your nonprofit's mission

June 30, 2010

Near, Clear and Substantial

By Melanie Lockwood Herman

Human beings are more generous with their time and money—and more willing to help victims who are in close proximity, with whom they feel a sense of kinship, and when they feel that their generosity will be more than a “drop in the bucket.” In contrast, we tend to be less generous when the cause involves distant, unfamiliar victims or a large group in need. These observations are among those in Dan Ariely’s new book, The Upside of Irrationality. Ariely explains the factors—closeness, vividness and the “drop in the bucket effect”— as three separate issues, while explaining that they “often work in combination and it is not always clear which one is the main driving force.”

As I read The Upside of Irrationality, it occurred to me that the same influences on human empathy also influence perceptions of risk in the nonprofit sector. During conversations with nonprofit leaders across the country I’ve observed that leaders seem to me more comfortable with: (1) risks that seem imminent, (2) exposures and losses they have experienced in the past, and (3) risk management strategies that promise a “substantial” payoff. Despite the fact that every nonprofit is exposed to mission-impacting events with which the organization has no prior experience, many leaders choose to focus their risk view and risk response framework on a dangerously narrow field of study. By looking at the close-up and familiar leaders may miss potentially devastating but unfamiliar risks that may be gaining speed and headed on a collision course with the nonprofit’s mission and survival.

Another downside of this too-narrow focus is the dogged commitment to the same-old, worn but un-working strategies and approaches. Examples include:

  • The use of an antiquated application for paid or volunteer positions requesting information for which the nonprofit has no practical use;
  • The use of a standard, one size fits all volunteer training program, despite evidence that the expectations, backgrounds, and skills of the volunteer workforce have changed over the years, or evidence that the training or orientation fails to adequately equip volunteers for their roles in the nonprofit;
  • An undisciplined board agenda with discussion that continues until “there’s nothing left to talk about,” versus a pre-determined schedule that makes it clear the length of time allotted for key topics and the estimated time at which the meeting will adjourn;
  • Reluctance to ask long-time donors to step up their support by providing greater support that will enable the nonprofit to break new ground in its service delivery.

In a highly personal chapter of The Upside of Irrationality Ariely examines biases in his personal life. The author explains “the status quo bias,” noting that “Generally speaking, we tend to want to keep things as they are; change is difficult and painful, and we’d rather not change anything if we can help it.”

Pointing out the price of this approach, he comments: “If we keep following our gut and common wisdom or doing what is easiest or most habitual just because, well, things have always been done that way, we will continue to make mistakes—resulting in a lot of time, effort, heartbreak, and money going down the same old (often wrong) rabbit holes. But if we learn to question ourselves and test our beliefs, we might actually discover when and how we are wrong and improve the ways we love, live, work, innovate, manage, and govern.”

Ariely’s observation about the lure of the habitual is provocative, timely and wonderful food for thought for risk managers and nonprofit leaders.

Melanie Lockwood Herman is Executive Director of the Nonprofit Risk Management Center. She welcomes your feedback on this article and questions about the Center’s resources at or (202) 785-3891.

Melanie’s most recent books include Ready…or Not: A Risk Management Guide for Nonprofit Executives. Information on this book and other recent Center publications can be found at

ERM Webinar

Nonprofit Risk Management Center partner Risk Wise, Inc. will host a complimentary webinar featuring John Fraser and Betty Simkins the editors of the new book Enterprise Risk Management: Today's Leading Research and Best Practices for Tomorrow's Executives. Join the President of Risk Wise, Diana Del Bel Belluz, and her special guests to get answers to your ERM questions. Click here for details and to register.

View from The Top

The 2010 Risk Management & Finance Summit for Nonprofits will be held at the Loews Hotel Philadelphia, this October 10-12. The hotel is located in the architectural landmark PSFS building, the nation’s first modern skyscraper. The Summit hotel is conveniently located within walking distance of shopping, theater, eclectic South Street, and historic as well as cultural attractions. While at the Loews you’ll pass the building’s impressive bank vault on your way to the conference registration desk. Pause in front of a bank of safe deposit boxes to sign in and pick up everything you’ll need to begin your Summit journey. If you plan to attend this year’s conference you can “bank” on:

  • Entertaining and thought-provoking keynote sessions, including a kick-off keynote by Randy Park, author of The Prediction Trap;
  • Fast-paced and informative education sessions covering topics ranging from Managing Reputation Risk to Financial Risk Management, Cyber Risk and the 10 Biggest Legal Risks Facing Nonprofit Organizations;
  • An exhibit area hosted by leading providers of insurance and financial services products. Meet representatives from firms that specialize in serving nonprofits;
  • Easy access from transportation hubs. The Loews Philadelphia is 20 minutes from Philadelphia International Airport and 10 minutes from Amtrak’s 30th Street Station; and
  • A memorable experience from start to finish in an historic building in the center of Philadelphia’s vibrant business and historic districts.

To see the detailed program, click here. To reserve overnight accommodations at the Loews, click here. If you’re ready to register, click here.

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