Thinking about fundraising as a risky business

 

Increasing scrutiny from the media and regulators about the fundraising activities of charities, the sources of their funds and even the pay-packets of their senior staff has made charities and fundraising organisations more and more conscious of the cost of poor reputation and breaching public trust.

The fallout of summer 2015 is still being felt across the HE fundraising sector in the UK, with most institutions reviewing their programmes and if needed, taking measures to ensure their full and demonstrable compliance with regulations and ethical practices. Before that, there was the Woolf Inquiry in 2011, with many universities hurrying to put in place standard procedures for the solicitation and acceptance of philanthropic gifts.

When public confidence falls in charities, so does public willingness to donate, and the good work that many charities do in our communities becomes harder. This is the reason many organisations are opting to fix what’s broken as quickly as possible. The National Council for Voluntary Organisations is already taking this a step further by attempting to equip charities with a “narrative” to help tell the positive and meaningful story of what they do. For the benefit everyone in the UK, particularly the vulnerable who rely on charity supported programmes, it’s important that our industry is well respected and held to high standards.

What will be next for charities in the press? 

Sans crystal ball, what I can offer is one simple tool to help anticipate or even avoid the gloomy path that led us here. As well as working on spreading those positive narratives, I propose that what happens next will also depend on how well we as individual organisations (and as an industry) identify and manage risk in the future.

How do we go about managing risk in HE fundraising?

The first step in risk management is to know your risks. Write them down and try to describe them in terms of what might happen, what would cause it to happen, and what the impact might be. For example, ‘there is a risk that philanthropic funds might be accepted from the tobacco industry, due to an assumed acceptance of all gifts regardless of source, resulting in national negative news coverage when this is announced, academic resignations and increased difficultly fundraising with alumni (financial losses) due to a damaged reputation.’

Given the nature of what we do, you will probably notice the below ‘risk types’ emerging (think consequences or impact when things go wrong):

  • reputational – potential for damage to the reputation of the university,
  • compliance – potential to breach regulation, either laws or industry standards, and/or
  • financial – potential to experience losses to potential funds raised, increased costs and/or incurring financial penalties

The second step is to estimate the likelihood each risk will occur, followed by the size of the potential impact should they occur. This doesn’t have to be complicated, you can do this by devising a simple scale for likelihood, such as a 5 point scale from rare (less than %5 probability) to almost certain  (90%+ probability). And impact can also be a simple scale, for ‘reputation’ risks this could be low impact (industry-only news coverage) to high impact (international news coverage). Multiplying the 1-5 rating of likelihood by the highest 1-5 rating of impact will get you the overall risk rating. You may only choose to rank these and focus your efforts on the highest rated risks.

The third step can get really creative. Now that you have this information – what are you going to do? You have a few options for each risk. The top three are broadly:

  • Mitigate – partly reduce the impact and/or the likelihood of the risk occurring by taking appropriate action. Remember to price up that action to make sure it’s not costing more than is sensible, e.g. are you really going to spend a day conducting due diligence on a £1 donor?
  • Avoid – change your operations or programmes to completely eliminate the risk. This may appear to be the most desirable option but it may come at a cost – an opportunity may be missed or a more expensive or less effective programme may be introduced to compensate. That’s OK, as long as this is acknowledged.
  • Retain – acknowledge the risk but take no action beyond producing contingency plans should the risk occur, e.g. prepared statements for the press, budget put aside to pay for any financial consequences.

Every institution will have their own ‘risk appetite’, i.e. the level of risk they feel comfortable with. It’s important however that the most senior person responsible understands and approves the risk assessment and strategy. Many of the risks that we manage in HE fundraising offices are on behalf of the university (not to mention the industry), and there could be consequences for other areas, such as student and staff recruitment, that require wider understanding and ownership.

Does your shop have a risk management strategy? And who takes responsibility for keeping it alive?

2 thoughts on “Thinking about fundraising as a risky business

  1. Tim Kitchin says:

    Holly,

    Very Interesting piece. There’s a big overlap isn’t there, between risk management thinking and the concept of ‘materiality’ – a stakeholder-led approach to prioritising sustainability initiatives…

    The critical thing you highlight here is the dimension of ‘likelihood’ which some strategists assimilate into ‘impact’ but others leave as a wholly separate dimension.

    http://www.sustainabilityreportingexaminer.com/how-to-conduct-a-materiality-assessment-to-isolate-important-sustainability-indicators/

    Your three areas of risk obviously interact – compliance hurdles rise up when reputation is poor; and bad reputation also increases financial costs – especially hiring and customer acquisition etc. Compliance failures can also impact reputation in either direction. And strong financial performance is a double-edged sword unless accompanied by clear ethics, robust operational governance and strategic leadership.

    Risk management as a whole feels like a huge area of improvement for not-for-profit institutions. And digital stewardship is going to be a big contributor…

    Like

    • hollypalmerconsulting says:

      Absolutely, Tim! Reporting on sustainability issues that are important to various internal and external stakeholders is a great way to proactively manage risk to reputation. Completely agree also with your points on crossover between different risk types.

      Like

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