July 3, 2013

Dangerous Risk Management Myths and Untruths

By Melanie Herman and Alex Ricketts

As the July 4th holiday draws near, fireworks stands have started appearing in shopping center parking lots here in Leesburg, VA. These seasonal sales operations come and go. In our work with nonprofit sector and insurance industry leaders, we frequently encounter myths and misconceptions. While some myths come and go with the times, others seem to stick. Like fireworks in the hands of a child or inattentive adult, some myths offer no entertainment value and do a lot more harm than good.

Risk Management Myths

1. The goal of risk management is to minimize risk. We’ve heard it and read it countless times: that risk management is ultimately about minimizing risk. We disagree! Mission-driven nonprofits must take risks to bring their missions to life. Our biggest beef with the clients we advise? Many organizations don’t take enough risks.
2. Buying insurance = managing risk. Purchasing commercial insurance coverage for your nonprofit may be an appropriate strategy for financing your insurable exposures. But doing so simply isn’t the same as managing risk, or managing your nonprofit in a world of continuing uncertainty.
3. Only large nonprofits can afford to manage risk. Although the clients of our consulting practice tend to be large nonprofits, many small and midsized agencies evolve their risk management capacities, too. Smaller clients use our cloud applications, sign up for AFFILIATE membership, or purchase recorded webinars. In our view, all nonprofits manage risk to some extent. The key is to figure out where you are today, and what your long-term vision and goals are for your risk management function. If you want to grow and evolve, we can help.

Untruths about Risk Managers

Over the years we have heard a lot of unfair and untrue statements about the role of risk manager. Three of the most common untruths are described below.

1. Risk managers are professional wet blankets. A recent workshop attendee told us that the nickname for his nonprofit’s risk manager was “Director of No.” Many people fear that risk managers are “dream crushers” who predictably repeat phrases such as “No, we can’t do that!” or “That’s out of the question!” A savvy, effective risk manager should be a go-to resource who helps peers figure out how to protect vital assets while bringing new programs online.
2. A good risk manager predicts the future. Expecting your risk manager or risk champion to be a fortune teller will lead to unhappy results. We’ve yet to meet a risk manager skilled at predicting the future. The job of the risk manager isn’t to predict the future; he or she should help the leadership team anticipate a variety of outcomes and plan accordingly.
3. A competent risk manager can tackle big and small exposures single-handed. Many nonprofit sector leaders wrongly believe that hiring a risk manager lets others off the hook. That just isn’t true. Even the most effective risk manager needs support from peers, superiors and subordinates to develop and sustain a comprehensive risk management program.

For more information on the qualities and characteristics of a proficient risk manager, check out our webinar on Risk Champions, www.nonprofitrisk.org/training/webinars/ webinar_detail.asp?id=313 or register for the upcoming 2013 Risk SUMMIT in Boston, and attend our brand-new workshop on CFO & Risk Manager Superheroes. Join Debbie Johnson from the American Diabetes Association to learn what it really takes to be a superhero in the worlds of nonprofit finance and risk management.

Melanie Lockwood Herman is Executive Director of the Nonprofit Risk Management Center. She welcomes your comments about inherent risks, ladder safety or your questions about the Center’s services at Melanie@nonprofitrisk.org or (703) 777-3504. The Center provides risk management Cloud tools and resources at www.nonprofitrisk.org and offers custom consulting assistance to organizations unwilling to leave their missions to chance.