Financial Pressures
One of the most immediate challenges charities face is financial pressure. We’ve seen sectors where funding has been cut significantly, sectors where funding is the same level as the previous year and occasionally a small percentage increase in grant income. At the same time, with current economic pressure including changes to National Insurance and minimum wage increases, the cost of delivering services are increasing significantly, resulting in charities using reserves or trying to generate additional funds to cover the shortfall.
We’re also seeing the competition for funding increasing as more charities are trying to increase funding as well as larger charities also now applying for smaller grants where they have the resources to cover the application process.
On top of this, cyber threats continue to evolve, targeting the financial infrastructure of charities that may lack the resources to invest in robust security.
Governance Issues
Governance issues continue to be a source of risk for many organisations, including recruiting new trustees and ensuring the board has the necessary skills or level of commitment to navigate today’s challenges effectively. With grant funding changing to an annual confirmation of funding, the uncertainty of funding and minimal increases to funding can result in the loss of key staff when competing with corporate bodies. A lack of timely and accurate reporting to the trustee board only adds to the governance burden, weakening oversight and accountability. In some cases, one or two individuals dominate decision-making, which can lead to poor strategic direction and increased risk of conflicts of interest.
Operational Challenges
Operational risks have also become more pronounced. Many organisations are experiencing issues of getting the best use of volunteers; this ranges from struggling to attract volunteers, not using the skills of the volunteers to benefit the charity, through to having too many people volunteering as part of a company charity day, where using that day for fundraising would be more beneficial.
The process of measuring the effectiveness of services has become more critical, especially as funders and the public demand clearer evidence of impact.
Technological Threats
The threat of cyber incidents continually increases, with recent attacks seen on M&S and Coop. The importance of security cannot be stressed enough and providing cyber training to staff/boards and using Two-Factor authentication (2FA) wherever possible can safeguard charities from some attacks.
Technology offers both opportunities and threats. Remote working has introduced flexibility but also exposes organisations to IT and cybersecurity risks that many were not previously equipped to manage. The rise of artificial intelligence brings both an opportunity for producing articles, reports and user engagement quicker and easier than previously to threat of not using AI, ethical questions and regulatory considerations. Meanwhile, social media remains a powerful yet unpredictable force, with the potential to both build and damage a charity’s reputation quickly.
Social Challenges
Social pressures are also increasing. Many charities are facing increased demand for services, particularly in the health sector, where needs now often extend beyond traditional service areas. This demand is often driven by increasingly complex social issues, including mental health, inequality, and poverty. Public expectations have also shifted, with donors and beneficiaries alike expecting greater transparency, inclusivity, and impact from charitable work.
Environmental Pressures
External and environmental pressures also play a significant role in shaping risk. Public perception can shift quickly, and adverse publicity can severely damage an organisation’s ability to fundraise and operate. Relationships with funders are increasingly sensitive, and demographic changes are altering both the profile of donors and the needs of service users. Government policy changes can also create uncertainty, particularly when funding priorities shift with little warning.
Managing Risks for Charities
Regulatory compliance remains a cornerstone of effective risk management. Charities must ensure they meet legal and reporting obligations that are appropriate for their size and structure. This includes taxation, data protection, and reporting to regulatory bodies. Seeking professional advice is often essential in navigating this complex area.
Managing risk effectively begins with identifying it. Once risks are known, charities can apply one of four basic strategies. They can transfer the risk, often through insurance or outsourcing. They can avoid the activity altogether if the risk outweighs the benefits. They can mitigate the risk through better planning, processes, or controls. They may choose to accept certain risks if the activity is considered essential and the risk is unavoidable.
Risk management is not just about avoiding harm; it is about enabling charities to make informed decisions and plan strategically. When done well, it allows organisations to take advantage of opportunities with confidence, knowing that they have a framework in place to handle setbacks. It also supports the achievement of long-term goals by reducing the likelihood of crises and ensuring that risks are addressed before they become problems.
The responsibility for risk management ultimately lies with the charity’s trustees. While operational aspects may be delegated to staff or external advisers, trustees must be actively involved in setting the parameters for risk management and reviewing its outcomes. Their leadership is critical in establishing a culture of accountability and foresight.
In Summary
Ultimately, the charity sector faces a risk environment that is more dynamic and demanding than ever. Financial, operational, technological, social, and regulatory pressures require careful attention and proactive management. By understanding these risks and adopting a strategic approach to governance and planning, charities may remain resilient and continue to deliver meaningful impact in the communities they serve.
If you would like to learn more about managing risks for your charity, please get in touch with our highly experienced team by sending us an email or phoning 01792 410100.
