Risk and the nature of crises

Nonprofit organizations face a wide variety of risks and potential hazards. Some of these are statistically predictable and of manageable consequence, such a building fires, theft, or accidents. Such risks may be insurable and can be minimized by taking proper precautions. Other risks are voluntarily incurred in the course of organizational decision making, such as possible consequences of starting a new program, moving to a new location or building a new facility, hiring or firing a staff member or investing an endowment in a mutual fund. In these decisions, nonprofits must take prudent, understandable risks, assessing the right combination of risk and reward in each case. However, nonprofits also face low probability, high consequence risks that are not insurable and may even be unknown. While any one such event may be improbable, the likelihood that some such event will occur is not small. One way for nonprofit leaders to prepare for high-consequence, difficult-to-anticipate events is to engage in a series of "what if" exercises that simulate alternative imaginable scenarios. More generally, nonprofits must be ready to cope with circumstances that they cannot reasonably anticipate or prevent.