This chapter defines the concept of risk and discusses the mechanics of risk management. A risk is the potential for negative, unwanted, or unpredictable consequences from an event, an activity, or a decision. Risk management involves making and carrying out decisions for the organization that will minimize the effects of risk. The chapter identifies the common areas of risk for nonprofit organizations and presents various types of risks related to management of a nonprofit organization. It introduces the theories and practices of integrated risk management in relation to its contributions to the financial sustainability of a nonprofit organization. The chapter describes the nature and contents of a risk-management policy. Risk-management options refer to the decisions of an organization to take action or purchase insurance for the purpose of: Risk avoidance, risk reduction, risk retention, risk sharing, and risk transference. The chapter explains the relationship between risk management and financial sustainability.
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This chapter explores the dimensions of financial sustainability as well as the principles needed to manage a nonprofit organization that can generate continuous funding through diverse sources in order to support its vision and mission in a way that is socially and environmentally sustainable. Sustainability is the ability of a business, an organization, or a project to fulfill its vision and mission, meet its goals, and serve its stakeholders over time. The chapter discusses the inherent, collateral, and environmental factors of financial sustainability in nonprofit organizations. Inherent factors of financial sustainability include: Financial management, budget, financial statement analysis, financial sustainability plan, social enterprise, fund-raising, grant seeking, investment, and risk management. Collateral factors of financial sustainability include: Governance, leadership, and strategic planning. The chapter describes key indicators that can reveal whether an organization is financially sustainable or is on the path for financial sustainability.