Maths assignment on: Contingency planning analysis

Abstract

There is a high requirement for charities to plan, review and assess and thereby manage the various risks that are faced by them in all areas.  The major aim of the research that is conducted is to analyse the risk management strategies that are adopted by organisations in times of economic uncertainty. Some of the major scenarios considered in the research are as follows

An analysis on contingency planning when there are termination of funds from other bodies

1. Securing the future of contracts when there is an economic crisis.
2. Contingency planning for rising of funds from the general public.
3. Risk management strategy to be adopted when there is a fluctuation in investments
4. Contingency planning when there is an unforeseen rise in demand of their services.

The research is undertaken under the hypothesis that effective governance also includes identification and management of the probable risks. Effective risk management strategies and contingency planning is a prerequisite to making timely action through informed decisions especially where the trustees are concerned.

The results reveal that there is a high requirement risk mitigation strategies in the case of charitable organisations and the organisations mainly depend on insurance, risk mitigation strategies, keeping in touch with the donors and accountability as a major strategy to implement risk management

Introduction

There is a high requirement for charities to plan, review and assess and thereby manage the various risks that are faced by them in all areas.  It can be said that risk is an inevitable part of any activity and charitable activity is not different. Risk in the case of charity programs should be highly kept under because that would enable the trustees to achieve the key objectives along with safeguarding the funds and assets (Kingston & Bolton, 2004).

Risk faced by charity is proportional to the size, nature and complexity of the various activities that are undertaken by the organisation. The risk management strategies undertaken increases as the complexity and diversity of the functions undertaken by the organisation increases. This would also mean that the risk management strategies that are adopted by various charitable organisations will be personalised in accordance with the various requirements

Some of the major factors to be considered for risk management are to calculate the chances for the occurrence of a risk and the impact of the risk on the various functions and organisational objectives. The risk management strategies should also be in alignment with the various organisational objectives. Once the major risk factors are identified internal control policies and objectives are too formulated for the purpose of the management of these risks. These policies should be acknowledged and be readily accessible to the entire stakeholder and should be referred for resolving operational and procedural issues (Kingston & Bolton, 2004).

Research Aim

Charitable organisations faces risk in their organisation and the diverse nature of the various charitable organisation means that different types of risks should be kept under control. One of the major decisions to be taken by the management is to decide if the needs of the beneficiaries should be met now or in the future. The major aim of the research that is conducted is to analyse the risk management strategies that are adopted by organisations in times of economic uncertainty. Some of the major scenarios considered in the research are as follows

1. An analysis on contingency planning when there are termination of funds from other bodies
2. Securing the future of contracts when there is an economic crisis.
3. Contingency planning for rising of funds from the general public.
4. Risk management strategy to be adopted when there is a fluctuation in investments
5. Contingency planning when there is an unforeseen rise in demand of their services.

The research is undertaken under the hypothesis that effective governance also includes identification and management of the probable risks. Effective risk management strategies and contingency planning is a prerequisite to making timely action through informed decisions especially where the trustees are concerned. This will help in increasing the confidence among the charitable organisations and make them work more effectively when issues arise. Achievement of the major aims of the charitable organisations is better implemented when there is effective risk management and contingency planning.

Research method and Data collection

Initial data is collected for the purpose of the research through are collected through literature review and precise and clarified data were collected through a questionnaire that was given to the selected samples that are Chengyi Li-Mission Australia, Judit Csillag-Boys Town, Nilakantha Acharya. The details and information that are received from literature review are cross checked with the collected information to reach to a conclusion.

Literature Review and Discussion

The chances of Risk to be faced by an organisation are determined by the external environment and internal environment of the charitable organisation. Some of the major factors that are bound to change the outlook of the organisation and to be included in the risk management strategy are the financial climate, knowledge and technology, natural environment, society and its attitudes towards the charitable organisation. The risks that are faced by charitable organisations can be both financial and non-financial in nature. But it should also be noticed that almost any form of risk will ultimately lead to a financial loss and it is risky in the case of charitable organisations as they are not involved in any profit making process. There are chances for the involved parties to seek compensations for the loss, management cost and transference of risk. An example is taking insurance for the employees.

The various types are risks are separated from each other by classifying risks on the basis of the internal and the external factors. When the risks are identified on various levels, a risk mitigation strategy is also proposed. This is done so that the risk is handled effectively. The strategy also defines a framework where important decisions about the various levels of risk are taken and accepted on a day to day basis.

Following are the strategies that are usually implemented in organisations.

• Risk can be mitigated to a certain extend with the help of an insurance. In this case the financial consequences of the risk are shared with the third parties ensuring that the financial impact on the charitable institution is minimal in case of the occurrence of the risk.
• Avoidance of certain factors that may turn in to a risk
• Management and mitigation of the risk
• Acceptance or assessing a risk factor in advance if there is a chance for the risk to occur.

There is a high level of importance that is associated with the objectives of the charitable institution as the risk may impact the various services that are given to various beneficiaries. This would also include all the factors that have a major impact and lower likelihood.

The importance that is given to various factors of risk includes high levels of estimation. Following are the grids in which the risks are divided on the basis of the impact and the probability of the occurrence.

The risks that are dealt with initially are the ones that have high probability of occurrence along with high impact. A balance is to be attained between the risk and the benefit along with a balance in the case of cost or convenience. The initial process is a step where the risks are managed. In this the risks that can be avoided are avoided to the maximum level and the risks that can be minimised are minimised. The remaining risks are insured against to ensure complete protection to the resources. Along with this many charities can also adopt to the idea of making use of disaster recovery plans or contingency plans that are adequate procedure in the case of both public and the private sector. The nature of these plans also tends to vary on the basis of the objectives, priorities and nature of the involved charitable organisations.

Sources of finance should be chosen by the various not for profit organisations on the basis of the various sources of finances and keep their objectives aloof while the choice is made. Efforts are still being made on the creation of various financial tools for the use of the not for profit organisations. Efforts are also made for the purpose of increasing awareness among the people about the various requirements of charitable organisations and thereby clearing banks and major grant making trusts (Kingston & Bolton, 2004).

Here is some of information that was collected through literature review.

Charities Finance Directors and accountancy firm PKF indicated in a survey that was conducted by them that there is a requirement for contingency planning in the case of charitable organisations in the case of changing technology and funds. The process of running a not-for profit organisation is the same as running a business and needs preplanning in order to deal with the uncertainties (Boateng, 2003).

Charitable institutions are highly influenced by the economic environment that is prevalent in the economy. One of the major reasons behind it is that the funds that flow in from companies, government and individual donors are also highly dependent on the economic environment. Charities in Australia were highly effected due to the crisis that happened by the end of the last decade. At the same time it could also be seen that there was a rise in the demand where charitable services were concerned. The depression also limited the amount of service that could be given to the customers (Howard, 2001).

Contingency funding is an approach that can be taken for the purpose of managing charity and other financial uncertainties. This is also responsible for providing several benefits.

On rethinking the international disaster and aid finance, contingency funding can be taken as approach that will manage the uncertainties where financial benefits are concerned. It will ensure that there is a prompt delivery of the funds and helps charitable foundations to give predictable aid in the times of crisis and risk price information for the sound development of the investment decisions. This will also help them to stop advertising about the various difficulties that are faced by the various beneficiaries that would make them uncomfortable. There are also chances that political support can be yielded as a result from various advantages that will accrue from the portfolio effect of bringing developing countries natural risk management strategies into the international markets (Syroka & Wilcox, 2006)

Finding new and capable donors are one of the most challenging activities that are done by charitable institutions. Solicitation rates are limited and this is a risk that is usually faced by trading the donor lists of buying donor lists from various other firms to obtain a new donor. This can effectively act as an essential tactic for mitigating the risk when the current donors are not rising up to their potential (Angela, Rachel & Eckel, 2011).

There are chances for the donors to reveal to the charitable organisations that various financial difficulties are faced by them and they fail to carry out the various donation pledges. There is a requirement to be in direct touch with the donors to understand the reason behind the cease of donations. The contingent circumstances are to be dealt with directly for the purpose of addressing these issues. Interaction of the charities and donors may give rise to contingency planning. The charitable foundations can also keep in touch with donor’s financial situation and can resume with the contingency plan in case there is a requirement for covering the lost funds (Banjo, 2009)

The impact of the donations is felt directly by four factors in the case of accounting reports and they are stability, efficiency, amount of available information and the reputation (Trussel & Parsons, 2008)

According to Parsons Efficiency is the degree to which the non profitable organisations direct their available resources for implementing the mission of the organisation. This is a measure that can be taken as the indication to calculate the average contribution made to the beneficiaries in an organisation (Trussel & Parsons, 2008).

It is important to impart information between the donors in an organisation.  The amount of benefits that was made available to the beneficiaries plays an important role in increasing the fund raising efforts by the organisation. This will also act as a fund raising effort and the information will act as an advertisement for attracting more donors to the organisation (Trussel & Parsons, 2008).

Reputation of the charitable institutions plays an integral part in attracting the donors towards the organisation. The major reason behind it is that donors tend to make donations for the charitable organisations that make the best out of the funds that are donated to them. Reputations of the organisation speak for itself.

Contingency plan is made so that there will be mitigation or elimination of the negative impacts in an organisation that would have unforeseen or under-predicted. Contingency planning is pre-planned and should be used in the pre established frameworks. Contingency funds are also different from the ‘fund’ accounts and ‘line allocations as it is seen in the case of project management. The main reason behind the difference is that it is a ‘reserve’ and ‘hedge’ against risk (Noor et.al, 2004).

NFP Australia

On analysing the statistics it was revealed that to NFP sector of Australia is very large and diverse and has about 600,000 entities who exits for the purpose of serving the community on terms of social, economic, cultural and environmental areas. 21,000 entities are at DGR status and about 5000 are constitutes as companies that are limited by a guarantee. Almost 136, 000 NFP is incorporated and registers in the States and territories of Australia. 440,000 organisations are small unincorporated NFPs.

The Australian Charities and Not-For-Profit Commission (ACNC) is an organisation that is being set up by Common wealth Government of Australia for the purpose of regulating various charities and will be in force by 2014.

Results from Data Collection

From the interviews that were conducted it was realised that risk management plans are conducted by all the chosen charities. They are also extremely dedicated towards mitigating the risk for themselves, for the volunteers and for the programs. A considerable high amount of attention is given to analysing the risk and the procedures can be generalised as conducting a risk assessments for the different volunteer programs. The volunteers are all checked for references and supervision guidelines are implemented in the case of all the programs that are conducted.

Charitable organisations believe in sharing the risk with a third party and they all have insurances to protect them against any miss-happening. A high level of importance is given to ensuring insurance coverage.  Most of the risks affect them financially and therefore the beneficiaries of the services. As the detail that was collected, donors tend to make donations in accordance with the loyalty of the firm to them. They require accountability from the whole organisation to ensure that their investment for the poor is in the rights hands. Reputation of the organisation is of high importance which is one of the major reasons for implementing the code of ethics, policies and procedures.

Charitable organisations also agree that they keep monitoring the employees and implemented stringent policies. Any case of fraud is thus eliminated and is used for the benefit of the beneficiaries. The strategies that are implemented by the charitable organisation include proper adherence to the rules and regulations in the case of financial reporting, liability insurance in the case of directors and officers as they are to make decisions where risk mitigation strategies are concerned. They also try and mitigate the risk by giving details job descriptions that is precise in nature and it helps in monitoring and measuring the staff for various actions that they are involved in. policies of the organisation are also clearly stated. Charitable organisations also work on the basis of strategic long term and short term planning by setting objectives and analysing the amount of risks that are faced by them.

According to the interviewed organisations there are the major strategies that are adopted for mitigating the risk. They also agree that they conduct events and advertise for the purpose of gaining donors. The donors in their case did go through an economic crisis and reduced donations. They also agreed that it is not possible to rise up to the requirements of all the clients, the reason being lack of resources. The charitable organisations also keep in touch with the donors and keeps in track of the financial changes. The donors are cooperative if their reasons are served well. One of the charitable organisations had fund for serving the beneficiaries and fulfilling the requirements through economic crisis.

The charitable organisation also solemnly agrees that one of the major ways of minimising the fluctuations in investments and keeping the donors interest intact even through economical crisis is by giving high amount of importance to accountability and reporting. Transparency of the dealings in an organisation attracts the co-operation of not only the donors or the beneficiaries, but also the stake holders. Adherence to governmental policies along with risk mitigation strategies ensure that the charitable organisation grows faster in terms of fulfilling its objectives simultaneously having a higher reputation.

The volunteer programs are highly beneficial in completing the paper work and volunteers fill in the gaps that are created by the employees or the work is shared among the current employees. When the employee is on leave for long term another person is hired on a contract basis.

Conclusions and Recommendations

A charitable organisation is not much different from other profit oriented organisations on terms of management and required strategic planning and risk mitigation strategies. The accountability of the NFP organisations should be higher as they are using up the investments of the stakeholders to attain their self less objective. So it is their duty to be transparent to the public.

Amount must be kept aside from what was contributed to them for the purpose of meeting emergency requirements. This will ensure effective risk management even when there is a decrease in payment from the donors and when there is economic crisis.

There is a high level of requirement for check if the beneficiaries deserve to be helped as funds of the NFP organisations tends to reach the wrong hands in some cases.

To conclude, it can be said that effective that effective governance also includes identification and management of the probable risks. Effective risk management strategies and contingency planning is a prerequisite for making timely action through informed decisions especially where the trustees are concerned. Accountability and transparency remains the most important requirement where NFP organisations.

Questionnaire For interview

1. What would be your strategy when a long term fund is terminated and results in a dramatic fall of the available funds?
2. How is the fluctuation in investments
3. What strategy is taken when there is a fall in the fund donation by the general public?
4. What is the contingency plan adapted when there is an unforeseen rise of demand in the case of services?
5. What is the risk management plan in case there is loss of data due to fire or virus?
6. What is the contingency plan that is adopted when there is loss of a key employee due to sickness or other reasons?
7. What would be the strategy adapted when there is a change in weather and the office cannot be used for a long period of time?

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