Posts tagged with "assessment of recession risk and preparedness for nonprofit organizations"

Assessment of Recession Risk and Preparedness for Nonprofit Organizations 

Assessment of Recession Risk and Preparedness for Nonprofit Organizations 

Use this tool for a quick assessment of risk in four essential areas for nonprofit organizations. The rating and guidance provided will help to start discussions, set priorities, and focus attention as nonprofits develop plans to weather the recession. This assessment is a starting point developed to indicate the level of urgency and priority. It cannot take the place of a comprehensive organizational review or in-depth analysis of financial trends and forecasts.

FINANCIAL HEALTH 1 point 2 points 3 points Score
1 The number of the most recent three fiscal years that ended with a surplus in unrestricted funds (positive change in unrestricted net assets) 3 years 2 years 0 or 1 yrs
2 Percentage of contributed income included in the budget that is committed or highly reliable 75% or more 50 – 75% less than

50%

3 Percentage of contracts and earned income included in the budget that is committed or highly reliable 75% or more 50 – 75% less than

50%

4 The percent of variance between budget and actual results for total income for the most recent year Less than

10%

10 – 18% Over 18%
5 Number of months in the past year in which cash flow challenges required out of the ordinary steps such as delayed payments or use of reserves None 1 or 2 months 3 or more months
6 Number of months of operating expenses available in unrestricted cash (whether designated as reserve or not) More than  3 months              1 to 3 months 1 month    or less
7 Percentage of annual budget supported by income paid from an endowment Less than

5%

5 – 15% More than

15%

Financial health risk total       9 or less: lower risk, 10 – 12: moderate risk, 13 or more: high risk 
FINANCIAL INFORMATION 1 point 2 points 3 points Score
8 Budgets and actual financial performance, including full program costs, are understood and monitored for each significant program Yes Somewhat No
9 Financial reports prepared by staff or outside contractors are accurate and available every month within 30 days of month end Always Usually Sometimes
10 Accurate cash flow projections are prepared and used for management decisions Monthly Quarterly Irregular or never
11 Financial information identifies and tracks use of grant funds received for restricted purposes Always Sometimes No
12 Annual audit is completed in a reasonable time after the fiscal year Within 4 months 4 – 7 months More than  7 months
13 Required reports and data submissions for funders are prepared and submitted on schedule Always Almost always Inconsistent
Financial information risk total     8 or less: lower risk, 9 – 10: moderate risk, 11 or more: high risk

 

Assessment of Recession Risk and Preparedness for Nonprofit Organizations 

ORGANIZATIONAL CHANGE 1 point 2 points 3 points Score
14 Length of time the Executive Director or CEO has been in their position More than  3 years  

1 to 3 years

Less than   1 year
15 Significant changes in program or strategic direction have been implemented in the past two years No Some change Major change
16 Level of increase (or decrease) in quantity or level of program services provided in past 12 months that were driven by external changes Typical Above Average Significant
17 A capital campaign or building project is currently underway No Small project Large project
Organizational change risk total      5 or less: lower risk, 6 – 7: moderate risk, 8 or more: high risk
LEADERSHIP ENGAGEMENT 1 point 2 points 3 points Score
18 All staff leaders understand the organization’s financial condition and risks and their role in addressing the current siuation Yes Somewhat No
19 The majority of  board members understand the organization’s financial condition and risks and their role in addressing the current situation Yes Somewhat No
20 Tangible action has already been taken to prepare for and respond to the downturn and prepare for a tougher economic environment Yes Minimal No
Leadership engagement risk total      4 or less: lower risk, 5: moderate risk, 6 or more: high risk
USING THE RISK ASSESSMENT SCORES
Financial Health Risk Level
High: The financial weaknesses allow little breathing room and require urgent and decisive action and short-term planning.

Moderate: Scenario planning is important using conservative assumptions for highest risk items. Test all assumptions.

Lower: Strong financial health allows for longer-term planning and affords opportunities for innovation and strategic partnerships.

Financial Information Risk Level
High: Smart, timely decisions can’t be made without reliable information. The first priorities are tracking cash flow & budgets.

Moderate: Focus on improving areas of weakness, especially understanding true program costs, restricted grants & cash flow.

Lower: If budgets are reduced, try to maintain the infrastructure for reliable financial information to support management.

Organizational Change Risk Level
High: Multiple, simultaneous changes require diligent oversight, focus on strategic goals, and willingness to say no.

Moderate: Big changes put pressure on everything and require balanced decisions based on level of risk in other areas.

Lower: Because major change is not a factor (yet), stay focused on managing uncertainty in other areas.

Leadership Engagement Risk Level
High: The organization urgently needs a leader to step forward to call attention to the challenges, even if it causes discomfort.

Moderate: Champions within the organization need to work together to bring others up to speed and focused on taking action.

Lower: Leaders who have taken steps to plan and manage challenges can help develop others in the organization.

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