Study Urges Nonprofits to Practice Risk Management

A recent report from Oliver Wyman and SeaChange Capital Partners has sobering news for the nonprofit sector.  Alarmed by fiscal turmoil at longstanding organizations like FEGS and the New York City Opera, the consultancy and the bank surveyed nonprofits across New York City and found many ill-equipped to weather financial distress.  Ten percent of surveyed groups (18 percent in health and human services) were technically insolvent, while as many as 40 percent lacked cash reserves to fall back on in an emergency.  Researchers found more than 70 percent of organizations to be financially weak—often unbeknownst to their trustees.

What can we do?  The study goes on to recommend concrete steps for adapting successful private-sector risk management practices to nonprofits.  Scenario planning, benchmarking, self-rating, and setting explicit financial stability targets are all useful, as is frank and frequent engagement with trustees.  As nonprofits face new uncertainty brought on by rising interest rates, the move to value-based payments in healthcare, and increased real estate costs, systematic and rigorous risk management protocols will only grow more crucial.  Read more in a recent Chronicle of Philanthropy story, or view the full report here.