Back to 'Avoiding problems in running your charity (risk management)'
This guidance is a simplified version of our guidance on risk management and may be suitable for smaller charities. There’s no legal requirement for charities to follow these steps, but we think they are helpful. For more detailed advice see the Commission’s full guidance Charities and risk management.
What is risk management?
Managing risk is a way of planning to avoid problems. If you plan for the things that might go wrong, you can avoid or reduce the problem. This means that you can have more time and money to help the people who use your charity.
The following steps can help you make a plan to manage risks.
Step 1 – What are the risks?
Think about the risks you know could arise. The following list only shows some examples. See ‘How to avoid typical risks’ for more examples.
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Type of risk
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Examples
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Your trustees aren’t working properly
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- the trustees are not appointed in the way your governing document says they should be
- things are not done properly because you never look at your governing document
- you are not dealing with conflicts of interest
- the trustee body lacks relevant skills or commitment
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Your charity isn’t run properly
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- the charity can no longer do what it was set up to do
- you have a trustee who is not allowed to be a trustee
- you have no ways of checking how well your charity is doing
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Your charity doesn’t have enough money or could lose money
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- you don’t plan how you will spend the charity’s money
- you don’t know whether your grant will be renewed
- you’re not raising enough money
- you don’t have enough insurance
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Things happening outside your charity are a problem
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- your charity doesn’t have a good reputation
- your local council is ignoring charities like yours
- people are complaining about the way you do things
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Your charity isn’t working within the law
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- you are doing things that are not covered by the charitable purposes set out in your governing document
- you are not preparing accounts and a trustees’ report showing what you have spent over the year and what you’ve done
- you don’t know about the rules for fundraising activities, like lotteries, trading, selling alcohol
- you don’t know about the health and safety rules for selling food at an event
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Step 2 – Prioritising the risks
Now decide which risks you need to do something about soon, and which you can take action on later.
(a) Think about how likely it is that each risk will happen.
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How likely?
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What this means
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Unlikely
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expected to occur hardly ever
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Possible
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expected to occur sometimes
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Probable
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expected to occur many times
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(b) Decide how important the risk is.
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How important?
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What this could mean (examples)
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Not important
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- no effect on the charity’s services
- no-one will think badly of the charity
- it is unlikely that anyone will complain
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Important
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- some effect on the charity’s services
- some people might think badly of the charity
- it is possible that someone will complain
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Very important
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- the charity’s services are seriously affected
- a lot of people will think badly of the charity
- there are likely to be many complaints
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The likelihood and importance of each risk will help you decide how to prioritise your risk planning. For example, if a risk is:
- Probable and Very important - plan for that risk now
- Possible and Important - planning soon for that risk is advisable
- Unlikely and Not important - no short-term action is necessary
Don't forget, even if a risk is unlikely, if you mark it as important you should still think about planning for it.
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Step 3 – How to deal with the risks?
The likelihood and importance of those risks will help you decide what you need to do to deal with them. It’s also important for the trustees to agree who is going to be responsible for dealing with them. Add all these things together and you have a simple plan for managing risks/problems.
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Type of risk
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Examples
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How likely?
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How important?
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What to do?
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Who should do this?
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Your trustees aren’t working properly
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- the trustees are not appointed in the way your governing document says they should
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Possible
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Important
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Check the governing document each time you are going to appoint a trustee
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The chairperson (or anyone else you choose)
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Step 4 – Review regularly
Finally, agree that you will check the plan at the trustees’ regular meetings to see if anything still needs to be done to deal with a risk or problem, or if the plan needs to be changed.
For further information see Avoiding problems in running your charity (risk management)
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