Risk Management and Insurance

What is Risk Management?

"Scenario planning" is all about looking ahead and spotting opportunities - and threats. When a nonprofit is successfully managing risk it is taking a proactive approach to reduce the likelihood or severity of some unknown occurrence that could prevent or seriously derail a nonprofit from fulfilling its mission.

  • When an executive director checks references or confirms the educational background of a potential new staff member, that executive director is managing the risk of hiring the wrong person;
  • When a board decides to set aside money in a reserve account or adopts a fund development plan, it is managing the risk that someday there may not be enough cash on hand to satisfy a need for resources;
  • When a nonprofit decides to back-up its data "in the cloud" or adopts a policy to protect its database with a password, risk is being managed;
  • When a client mentions that there is an icy patch on the sidewalk and the nonprofit immediately deploys someone to remove the ice, risk is being managed; and
  • When a volunteer attends a training, or a board member attends a board orientation, risk is being managed. 
  • Risk management opportunities occur in everything staff, board and program volunteers do on a day-to-day basis. In a risk-savvy nonprofit, everyone is a risk manager.

Share a primer on how nonprofits handle risk with your board members. (North Carolina Center for Nonprofits)

Learn about avoiding the ultimate risk: Loss of tax-exempt status

What is the Board's Role in Risk Management?

Risk management is everyone’s job at a nonprofit – but that’s especially true of the board of directors.

How Can Nonprofits Manage Risk?

Insurance is just one tool that nonprofits and others (businesses and individuals) use to manage risk. While insurance cannot prevent something bad from happening, it can transfer the financial impact of a bad result to an insurance carrier, in many cases limiting a nonprofit’s risk to the cost of insurance. The insurance industry offers special policies tailored for the needs of nonprofits. It is very important to select an insurance professional who is experienced in the nonprofit market, and take the time to make sure s/he understands your nonprofit’s mission, specific programs and activities, and clients, customers, employees, and volunteers.

Learn all about Directors and Officers Liability Insurance.

Protecting Your Nonprofit and the Board (Nonprofit Risk Management Center) explains why insurance is only one method of protecting nonprofits from risk.

Sample Risk Management Policies

Additional Resources

Also visit the section on Risk Management in the Council of Nonprofits' online bookstore.