The top five risks for charities
- Charities face major changes to their revenue streams and operating environment
- There are many new challenges, opportunities and risks
- Zurich has identified five major risks facing the charity sector
Everything has changed for charities since 2008. When the British economy took a dive, non-governmental organisations (NGO) were suddenly faced with the double whammy of declining public donations and a decrease in government funding.
As a result, Zurich has identified loss of funding and financial instability as the top risk in the sector.
The total sum given to UK charities fell by 20% in real terms, from £11bn to £9.3bn during 2011-12, according to a survey by the Charities Aid Foundation and the National Council for Voluntary Organisations.
Although this has now risen slightly, an updated survey shows it is still not yet back to pre-crisis levels.
Meanwhile, Government austerity cuts have hit funding from local authorities and these are predicted to continue.
However, while income might be dropping, demand for services has been going in the other direction, making continuity and crisis response challenges the second major risk identified by Zurich.
Crisis recovery stretched
As wage freezes, poverty and Government cuts drive more and more people to seek services, charities’ crisis recovery capacity is being severely stretched.
As a result of these financial challenges, charities are being forced to re-evaluate everything they do, adapt to their new operating conditions the best they can and identify new opportunities.
One of these has been the changes to local government strategy that has shifted towards outsourcing more services, and in the process providing new opportunities for charities that can learn to function on a more commercial basis.
But NGOs that were founded as charitable organisations must be careful not to erode their traditional values as they commercialise operations, which is the third major risk facing charities, according to Zurich Municipal
The fourth risk is the inherent difficulty of negotiating the tortuous commissioning environment of new payment frameworks and public service delivery models.
To do this, charities have had to rapidly adapt and develop new commercial skills in successful bidding, relationship management, contract management and the related financial due diligence, cash flow and insurance challenges.
But, as with any rapidly acquired skill set, the risk of mistakes rises in tandem with the complexity of the new environment, and charities need to do all they can to make sure that new commitments are properly and professionally risk managed at every level.
All of these fundamental strategic changes would be hard enough to manage without the rise of social media, the fifth major risk identified by Zurich.
Charities now have to operate under a level of scrutiny they have never known before, with the potential for any mistake they make to be immediately broadcast to a huge audience, damaging their brand and reputation in the process. They need to make sure they have measures in place to deal with these risks and review them regularly.
It is important not to forget that new technology also offers opportunities for communication with supporters as well – and the chance to challenge mainstream media on its errors – but doing this successfully requires advanced skills.
Everything is moving incredibly fast, imposing an immense evolutionary pressure on charities. The challenge is keeping up with the opportunities, while keeping your risks in focus.