The management committee/board should understand and regularly review the risks to which the organisation is subject and take action to manage the risks identified.
(Supporting principle to Principle 2 of The Code of Good Governance)
Management Committees are responsible for safeguarding the organisation, its assets and third parties, including staff and volunteers. This requires being aware, not only of the current activities and circumstances of the organisation, but also being mindful of what could happen in the future in order to minimise any potential negative impact on the organisation. Assessing and managing these risks is key for any Management Committee wishing to demonstrate effective management and accountability. Under Accounting and Reporting by Charities - Statement of Recommended Practice (SORP), trustees are required to make a statement confirming that "the major risks to which the charity is exposed, as identified by the trustees, have been reviewed and systems have been established to manage those risks".
A Management Committee should be in a position to state that:
- They are aware of the major risks faced by the organisation;
- They are taking all reasonable steps to reduce the likelihood and/or impact of these risks; and
- They are satisfied that the remaining level of risk to the organisation is acceptable.
By doing so, they are demonstrating to funders, supporters and other stakeholders that they are taking a responsible, considered approach to managing the organisation and its assets. It should also be reassuring to Management Committee members themselves as they are able to identify developments that could threaten their ability to perform their role effectively or could expose them to liabilities.
What is risk?
Risk describes the uncertainty surrounding events and their outcomes that may have a significant effect, either positive or negative, on:
- operational performance;
- achievement of aims and objectives; and
- meeting expectations of stakeholders.
No activity is risk free. Every action we take, from crossing the road to trying something for the first time, is a calculated risk. Even with good planning it may be impossible to eliminate the risks from any activity. However if something does go wrong, the existence of an effective risk management strategy should help to lessen the impact.