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2020 Risk Refresh: An Update to Our Forecast of Risk Trends Facing Nonprofits

Enjoy this timely update to the popular 2020 Risk Forecast we published earlier this year. Review our original article to explore additional risk trends including the need to:

  • Ignite a reskilling revolution (our prior #1), and
  • Contribute to climate action and other causes (our prior #5).

1. Master Contingency Planning

Elvis Presley famously said, “When things go wrong, don’t go with them.” Disciples of risk management know that things always go wrong; no matter how much a team reveres or reinforces Plan A, wisdom necessitates a Plan B. Conventional contingency planning often involves sifting through lengthy instructional documents, recording detailed response plans for events that might never occur, or developing an impractical written plan that never again sees the light of day. Reinvigorate contingency planning efforts using activities that prepare team members to make fast, informed decisions while in crisis mode, and that enable your team to shift gears when Plan A fails or proves impractical. Apply the philosophies of one of the best-known learning organizations in the United States—the US Armed Forces—which trains constantly, tests its own plans using techniques like Red Teaming, and consistently plans for multiple contingencies using models like PACE Planning. Also, practice scenario planning to anticipate and adjust to megatrends that might gradually influence the relevance and delivery of your mission. Like military leaders, nonprofit sector leaders must strive to cultivate a culture of learning across their organizations to ensure that when things go wrong, teams don’t make the same mistakes twice.

Forbes senior contributor Bill Conerly recommends simplifying contingency planning by developing a basic contingency plan for an upside scenario and a downside scenario, respectively. For example, when planning a fundraising event, draft a simple, one-page contingency plan for each scenario—when things go better than expected and when things go worse—but diminish your desire to add detail to the plan. As the fundraising event draws near, watch for signs that things aren’t going as planned, and determine the need to adopt one of the contingency plans. If you must move to Plan B, Conerly suggests “Look to your leadership team for the people who would have to implement the elements of your one-page contingency plan. Ask each of them for a one-page plan for their area of responsibility. You are still not going overboard, but this assignment does two things: It compels the team to review the contingency plan, and provides greater specificity. If signals start to flash red, these executives can push for more detailed plans further down in the organization.” The universe has an unmatched ability to surprise. Ready your team to adapt by exploring these resources on contingency and scenario planning:

2. Hone Hyper-Vigilance Against Cyber Threats

As data privacy breaches and acts of cyber terrorism continue to grow in complexity and prevalence, nonprofit cybersecurity controls and contingency plans must keep pace. Defining, quantifying, and adequately preparing for these nebulous exposures is arguably impossible. According to recent research by McKinsey and the World Economic Forum, “… most technology executives believe that they are losing ground to attackers. Organizations large and small lack the facts to make effective decisions, and traditional ‘protect the perimeter’ technology strategies are proving insufficient.” The research also indicates that poorly managed corporate responses to data breaches often result in more harm than the actual breaches, yet leaders continue to delay investing in technology solutions and other preventive measures. Another growing cyber risk to advocacy organizations is Internet vigilantism: when a person or group launches a targeted attack online against an individual or organization with whom they disagree philosophically or politically. Startling cyber statistics include:

  • Worldwide spending on cybersecurity is forecasted to reach $133.7 billion in 2022. (Gartner)
  • 62% of businesses experienced phishing and social engineering attacks in 2018. (Cybint Solutions)
  • 68% of business leaders feel their cybersecurity risks are increasing. (Accenture)
  • Data breaches exposed 4.1 billion records in the first half of 2019. (RiskBased)

The news isn’t all bad when it comes to technology. Nonprofits teams are beginning to adopt Artificial Intelligence software to streamline administrative processes, identify qualified job candidates, identify and prevent fraud and abuse, and more. Sector leaders must remain vigilant against cyber threats while reaping the rewards of innovative technologies. Learn more from these resources:

3. Double Down on Discerning Demographic Shifts

The call for increased diversity and inclusion in the workplace often fails to include a clear analysis of the changing demographics of the US population. The US is comprised of vastly different people and cultural groups than it was thirty years ago, but nonprofit sector leadership looks more or less the same. Aside from the challenge of cultivating representative leadership, the sector has long been challenged to effectively fundraise during demographic shifts, when community attitudes about philanthropy impact giving practices even more than economic fluctuations. While changing demographics influence the sustainability and reputation of most charitable organizations, all nonprofits currently face a crucial call to revamp their programs and services to better meet the needs and uplift the cultural values of the communities they represent. The communities you once knew intimately might now be filled with new faces, new personalities, new belief systems and values, new hopes and dreams for the future, and new struggles that define daily existence in America. Any nonprofit not yet invested in demographic research should thoroughly assess the changing needs and expectations of the community it serves.

4. Clash or Collaborate with Competitors

The rise of the B-corporation signaled an era of entrepreneurship focused on cultivating social impact and financial gain. As for-profits grow their CSR campaigns or participate in social and environmental causes, they further encroach on territory that was once reserved for nonprofit missions. The growing cadre of social-good for-profits represents substitutable competitors that fill the needs of the same communities many charitable organizations serve. This richer selection of service providers offers greater capacity to help those in need. Healthy competition will also serve to hold nonprofit leaders accountable, while encouraging programmatic innovation and disruption of any service models that demonstrate questionable community impact. In 2020 and beyond, be ready to prove your organization’s stewardship and impact capacity against that of your competitors, or be ready to turn those competitors into cooperative co-stewards of your mission. Be careful not to self-sabotage by relying on your nonprofit status as a differentiator.

5. Fortify Financial Health

The need to weather financial downturns might feel run-of-the-mill for unremittingly under-resourced charitable organizations, but a major economic disruption like COVID-19 could “become an extinction-level event for America’s nonprofits,” foretells John MacIntosh, managing partner of SeaChange Capital Partners. MacIntosh offers timely, tough-love advice for surviving COVID—or for dissolving sensibly “if hitting the wall is inevitable.” The end of days may very well be near for many mission-driven organizations based on a January 2018 analysis from SeaChange, The Financial Health of the US Nonprofit Sector, which estimated that:

  • 50% of nonprofits have less than one month of operating reserves and less than six months of cash
  • 30% of nonprofits have negative three-year net income margins (revenues are less than expenses over three years)
  • 7-8% of nonprofits are technically insolvent; restoring these organizations to solvency would require an injection of $40 to $50 billion dollars.

The report shares recommended actions for trustees, funders, regulators, and policymakers to foster improved financial health for the sector, including recognizing that, “consolidation, mergers and acquisitions, divestments, and orderly wind-downs are part of a healthy, evolving nonprofit sector” as described in #4 above.

Jeff Williams of the Johnson Center urges nonprofit teams to determine which of three financial threats will prove most disruptive in the wake of COVID and similar catastrophes:

  • Decreasing revenue from annual campaigns and gifts (most disruptive for small nonprofits that rely heavily on contributions)
  • Dropping demand for services and/or changes to contracts (most disruptive for large nonprofits that rely on program revenue—specifically those with $10 million or more in annual revenue)
  • Decreasing value in investments and stock market fluctuations (rarely the top concern unless the nonprofit is a foundation).

Exploring last-minute monetary maneuvers—such as these twenty emergency funding sources—could ensure short-term survival in the face of existential threats. Nonprofits struggling to survive the economic impacts of COVID-19 should also communicate closely with their funders who might authorize emergency funding, and watch for future publications from the Johnson Center, which continues to monitor the health of foundation endowments that will influence future grantmaking.

To fortify long-term financial sustainability, attend the virtual 2020 Nonprofit Finance & Sustainability Conference produced by Propel Nonprofits. Tickets are available for Day 1: April 14th, and Day 2: April 21st. Also,  review these related resources:

6. Ready for Reputation Unravel

Adjacent to every risk trend is the possibility of reputational damage careening a nonprofit’s mission and public approval into existential limbo. Martin Levine’s article, “You Choose: Gift Acceptance Policies Now or Public Scorn Later?” (Nonprofit Quarterly, January 2020) perfectly illustrates how “the environment is changing and becoming less forgiving of such moral relativism” that led university staff at MIT and Tufts to accept gifts from a convicted sex offender and a family made rich by opioid sales, respectively. Nonprofit leaders are being scrutinized left and right for their own questionable judgments but also for guilt by association—when a charitable cause is tainted by the actions of its partners, funders, and other external stakeholders. Facing the hammer after such judgment calls is a sure way to drain mission-driving support from the communities invested in your cause. As reputation remains the primary currency of any nonprofit, nonprofit leaders must choose between competing priorities (i.e., ethical standards versus fundraising goals) and empower staff to safeguard their organization’s lasting reputation over pursuing shortsighted gains. Corporate decision-makers can no longer expect to keep their choices private nor can they avoid facing the consequences of those choices. To learn more about managing reputation risk, read:

7. Tap into Transition Planning

Planning to manage staff turnover feels like living out the plot of Groundhog Day without the lovable, humorous Bill Murray to guide you through. There’s no end in sight and we keep grinding the same wheels wondering why it never gets easier. Turnover is not an unpredictable risk per se, but a certainty, a fact of life. Yet most nonprofit teams struggle to make succession planning and knowledge transfer a top priority—and an effective practice—often resulting in a literal holding period on programmatic and operational momentum each time a key team member departs. As boomers continue to retire in record numbers, gaps are filled by younger generations whose shorter tenures and distinct workplace values challenge the status quo. Increasing competition for nonprofit talent by employers across other sectors (i.e., for-profits, public entities) exacerbates transition challenges. Instead of focusing on turnover itself as a discrete event, nonprofit teams should shift focus to transition planning including a much broader realm of management practices such as exit planning (aka off-boarding), knowledge sharing, and rethinking the relevance of roles before rushing to fill gaps.

  • Exit Planning aka Off-boarding: Too many planned departures involve onerous, low-impact activities like writing a tome titled How To Do My Job. A new hire probably won’t have time to read that tome anyway, nor will a departing employee have time or desire to complete that transition task. For employees enjoying planned departures, ask them directly how they could best use the remainder of their time to deliver the greatest impact to your mission. By enabling an individual to begin or complete a dream project or innovative initiative, you’re scoring great work as well as a wonderful last impression before the individual says goodbye to your brand. Empathy and personal connection during exit planning keep the door open for future re-hire or another relationship.
  • Knowledge Sharing: Conventional exit planning focuses on what the departing individual is doing during their last weeks, but what is the employer’s responsibility during this time? Finishing projects and handing off relationships might be crucial tasks for the individual to complete, but perhaps the employer’s most crucial task is downloading and sharing the individual’s specialized knowledge about the role, the workplace, and everything in between. Much of this knowledge lives within the individual and is not formally documented. Give departing employees opportunities to share their quirkiest skills and insights with their team members, and give team members opportunities to observe and collaborate with their departing peers. Transferring knowledge from mind to mind still keeps this powerful currency within your institution, even if it never lands on paper.
  • Rethinking Roles: Most teams are guilty of rushing to hire and fill the gap of a departing employee before taking the time to reflect on the relevance of the role itself. A former NRMC consulting client disrupted this practice by instilling a cultural value of obsolescence across its organization. Team members were taught to stop conflating the existence of one’s job role with one’s contribution to the organization. If a role was no longer appropriate or necessary for the future of the organization, the individual in that role had the opportunity to recognize the need for change and contribute to designing—and potentially filling—new roles that better suited the organization’s trajectory. This progressive approach might not come easily to the rest of us, but we can start by rebelling against the tendency to speedily hire before reflecting on the continued relevance of the role in question.

To learn more about transition planning, read more from NRMC and other thought leaders: