In a volatile economy, Not-for-Profit organisations are finding themselves having to constantly evolve in response to a range of pressures. Following Pitcher Partners most recent NFP sector survey, a number of operational and governance priorities were highlighted by leaders as they looked to steer their organisations into this post-pandemic world. Fortunately, there are a number of steps that can be considered and implemented to help facilitate strategic success.
Planning for the future
It’s understandable that in the wake of the pandemic there was some hesitancy in implementing future-driven strategies, with almost half of the respondents (47%) identifying hurdles to longer term strategic planning. NFP’s consider longer term planning unreliable because of an uncertain operating and economic environment, staffing challenges and lower expected return on capital.
As a result, organisations are becoming more myopic in their planning approach. However NFP’s can set themselves up for success with some proactive steps:
- Increased frequency in tracking of delivery and a greater focus to understand the potential changes in the operating environment
- Increased use of scenario analysis, thereby mapping potential responses to exogenous shocks
Embedded risk management is key
Good risk management is a necessary strategic pillar to help protect the organisation and those that serve it. However somewhat surprisingly, 20% of surveyed organisations do not have fully embedded, up to date and formalised risk management frameworks in place.
In an increasingly complex and higher risk operating environment, it was expected that Board’s would be more sensitive to potential organisational and personal exposure.
A good risk management framework (RMF) is built on three pillars:
- Policy: clearly defined strategies which outline action to mitigate risk and create accountability
- People: an identified team to embed and oversee the strategies, and ensuring buy-in from the broader organisation
- Planning: a structure to preempt and identify potential risks, and respond appropriately
We believe good RMFs tick the following boxes:
- They have organisational penetration. Information and expectations should flow down from the Board to the ‘floor’, and information and risk identification should flow up from those on the ‘floor’.
- The use of a risk matrix allows for the identification of risks and there potential impact. Ranking risk likelihood and severity allows appropriate prioritisation.
- Any RMF should be dynamic and responsive to a changing environment – regular reviews are key.
- Regular audit of policy and procedures is important to ensure that risk management is truly embedded.
Considerate management of capital reserves
76% of survey respondents identified navigating an expected lower return environment as a top priority when it comes to managing their capital. For multiple decades the economy, assets and capital markets have all benefited as interest rates have steadily fallen. This supercharged asset prices, making many organisations significantly more financially sound.
However, with inflation re-emerging and interest rates increasing, the historical interest tailwind trend is likely to have come to an end, reducing forecast returns from those historically achieved. Therefore, from a strategic long-term perspective it requires an alteration to return expectations and potential changes to managing their capital reserves appropriately.
Key considerations to managing capital reserves in the ‘new world’ include:
- Resetting expectations: set the bar for expected vs actual returns.
- Enhanced communication regarding forward budgets to the committee who oversee the investment capital reserves, allowing sufficient liquidity to meet any operational needs.
- Ensuring the risk profile reflects the organisation’s risk appetite and financial needs, and not the personal preferences of the Investment Committee or Board.
A proactive approach to cybersecurity
As we see prominent coverage of big brands succumbing to cybercrime, it was a surprise that just 40% of survey respondents intended to invest in cybersecurity. Instead the survey highlighted a preference towards technology investment focusing on promotion at the expense of security. For example, 52% of respondents indicated website investment was a priority and 60% intended to allocate budget to a Customer Relationship Management (CRM) system.
The increase in data-centred attacks means that for many organisations it will be a case of ‘when’ and not ‘if’ they will find themselves the victim of a cybercrime. Pitcher Partners’ recent Business Radar 2022 report revealed that a quarter of mid-market businesses have experienced a cyberattack of some kind, everything from text message phishing to ransomware attacks.
In the case of cybersecurity, the best defense is a good offense and a strong data security plan will be key to supporting organisational success in 2023. Key considerations to build a comprehensive and actionable plan include:
- Identifying the most critical data assets and ensuring they are protected, rather than be overwhelmed by trying to cover all bases to the same depth.
- Educating staff and increasing their awareness of cyber risks and appropriate responses and action pathways.
- Incorporating security tools such as multifactor authentication
- Review existing insurance policies and understand the coverage it provides for cyber attacks.
- Building a comprehensive breach response plan. If a breach does occur, responses to different attacks will vary, and business leaders need to know their regulatory obligations and notification requirements.
What to do next
Looking to the future, not-for-profit organisations that invest the time and resources into tangible forward planning across each facet of the business will find themselves best placed to succeed regardless of the operating environment. You can explore the full findings from the most recent Not-for-Profit Survey on the NFP Survey report hub. If you have any question or would like to seek strategic advice for your organisation, contact one of our Pitcher Partners industry experts today.
Christian Golding and Pitcher Partners Wealth (WA) Pty Ltd are authorised representative of Sentry Advice Pty Ltd AFSL 227748. This information is for general information purposes only and is not (and cannot be construed or relied upon as) personal advice. No investment objectives, financial circumstances or needs of any individual have been taken into consideration in the preparation of the content. You should always obtain professional advice to ensure products and strategies are suitable for your circumstances.