Takeaways for not-for-profits: Foundational concepts for long-term success with ERM governance

Baker Tilly recently hosted a webinar, Foundational concepts for long-term success with ERM governance, as part of a four-part enterprise risk management (ERM) webinar series. The third installment focused on advancing governance by integrating various frameworks to sustain effective risk management practices. Here are some key takeaways that not-for-profits should consider from this session:

The importance of enterprise risk management (ERM)

Governance provides the type of consistent oversight, accountability and checks and balances that can ensure not-for-profit organizations both reach their goals and remain sustainable for the long-term. In these organizations, this crucial role to ensure effective governance and risk management is most often filled by the board of directors.

Enterprise risk management is a systematic process designed to identify risks that could impact your organization and determine how to proactively manage and mitigate those risks effectively. It considers both the upside and downside risks associated with an organization's activities. Upside risks represent potential positive deviations from objectives, while downside risks are potential negative deviations. Effective ERM aims to both seize opportunities associated with upside risks and mitigate or avoid losses associated with downside risks.

To build an effective ERM governance structure, organizations should focus on advancing governance by considering how to advance and strengthen risk management practices. This involves managing disruptions, empowering decision-making and optimizing performance.

It is crucial to have a dedicated position, function, or department responsible for risk management activities. The individual should be well-versed at navigating the board, board committees, department heads and be actively involved with strategic conversations, so they can effectively support risk management decisions and strategies. Their role involves coordinating all aspects of risk management across the organization ensuring alignment with the organization’s culture and practices.

Enterprise risk management is crucial for not-for-profit organizations as it helps ensure their long-term sustainability and mission success. Unlike for-profit entities, not-for-profit organizations often operate with limited resources and face unique challenges such as fluctuating funding sources, resource limitations, regulatory changes and reputational risks. Implementing ERM allows not-for-profits to proactively identify and manage these risks, thereby safeguarding their assets, enhancing donor confidence and ensuring compliance with legal and ethical standards. By integrating ERM into their governance structure, organizations can better navigate uncertainties, make informed decisions and maintain the trust of their stakeholders, which is essential for their continued operation and impact.