Posted: June 10th, 2015

Enterprise Risk Management in Non-profit Organization

Enterprise Risk Management in Non-profit Organization

Introduction

            Enterprise Risk Management (ERM) is the tool for Comprehensive Management Risks of organizations providing a holistic view that allows the sound decision making, proper prioritization and allocation of more efficient capital, increasing effectiveness of corporate management and becoming a fundamental to the creation of value for an organization component. A structured approach helps align strategy, processes, people, technology and knowledge in order to assess and manage the uncertainties facing an organization, aimed at creating value. Structure of efficient ERM provides accurate information for decision of sound decisions in business risk management. Enterprise Risk Management needs proper communication throughout the nonprofit organizations. Executive management is responsible for implementation and education (Herman, 2011). They must assemble the proper staff, develop a comprehensive program, and educate the staff on how to implement and use the ERM. Reckless risk-taking will occur if staff is not properly trained, and the ERM becomes standard operating procedure. Through the effective ERM, management can mitigate future risk by training and management levels are responsible for communicating the ERM and ensuring their direct reports are adhering to same. Management is ultimately responsible when infractions occur. The study aims to discuss and evaluate enterprise risk management in non-profit organizations.

Literature Review

            The managers of nonprofit organizations are responsible for designing a real system of management control to ensure the effective and efficient use of resources. A nonprofit organization is one whose purpose is other than making profits for their owners. Its objective is generally focused on providing services (Huarng & Hui-Kuang, 2011). In such entities, decisions made by managers are aimed at providing the best possible services with available resources. The success of these organizations is measured primarily by the amount of services provided and the quality thereof, measured by the contribution given to the public welfare (James & Rose-Ackerman, 2013). Considering that the concept of service is little susceptible of being measured in real terms, is how well it becomes very difficult to choose among alternative courses of action in these, due to the difficulty of relating the costs of services directly and benefits. Despite these complications, managers must somehow ensure that resources are used efficiently and effectively, is where part of the problem of establishing measures of management control to be applied in policies and practices that are implemented in the provision of services. A nonprofit entity should receive funds through their income or other sources which are at least equal to its expenses if it is to continue to provide services (Light, 2011).

In nonprofit organizations, managers have to perform a key role in order to keep it running with any hindrances. Most nonprofit organizations are service organizations and therefore do not have the same advantages in terms of management control companies that produce and sell tangible goods (Seaman & Young, 2010). The first requirement of a good management control in a non-profit organization is that managers appreciate the importance of control, recognizing its feasibility, understand how to use it and want to devote sufficient time to the process. Moreover, the control system must comprise two main classifications of accounts, structured in terms of programs and the other in terms of organizational responsibilities. At the lowest level account groups, each of which is associated with a unique concept of the program and a single center of responsibility are. These accounts are added together at the level of concepts and categories of programs and at various levels of the organizational hierarchy. The system must contain historical data and estimated data on costs and future outputs. The historical data are defined and structured in the same way that future data. An accounting system that brings historical data that are inconsistent with estimated costs and outputs does not provide an adequate basis for the control (Seaman & Young, 2010). In addition, the budget process is much more important in a non-profit organization that seeks a profit. This can allow managers to modify certain operating plans own initiatives, under the assumption that the revised plan is likely to increase profits. In contrast in non-profit organizations must adhere closely to the plans specified in the budget. The annual operating budget is derived from approved programs. Essentially it is an assessment of the share of another year program. During the budget process, a careful estimate of the costs of programs and responsibilities for the implementation thereof that are assigned to individual responsibility centers is performed (DiRusso, 2011).

            Organizational understanding of the risks management and potential risks is necessary. Education and training in EPA guidelines and standards could have prevented violations and mitigated risks involved. Empowerment of the employees and management may provide more effective response to future needs.

A systematic and coordinated approach to risk management with well defined roles, responsibilities and accountabilities is essential to the success of Alumina. Developing internal auditing system can assure that this framework is effective and communicate well within the Alumina organization. Utilizing legal and environmental consultants to independently review the ERM framework can make certain that the framework address all potential risks (Anheier & Kendall, 2012).

A well develop ERM framework is not effective if it is not put in practice. Risk managers with Alumina must work closely with all levels of management to apply the ERM framework and integrate into the corporate culture. RM and reporting will be linked to performance management system of Alumina. Maintaining environmental and safety compliance is the responsibility of all employees and managers will be accountable. Regular auditing of the ERM process in practice will be carried out to verify effectiveness and compliance.

Methodology

Research Design

Qualitative research method will be used for this research study. The qualitative method is important as it was performed by taking in to consideration the previous studies on the same topic. Achieving the aims of this research study is a crucial concern for the research that must be given high importance. Aims of this research study are of greater concern for this researcher which must be fulfilled for getting proper results for the study. The aim of researcher has a major focus on achieving goals that are set by the researcher to achieve for this research study.

Data Collection

Data for this research study has been gathered through the secondary sources. The researcher has reviewed the literature which is currently available. Secondary data for this research is gathered from the books, libraries, archives and various other databases. Hence, information and data obtained for this research is collected from the data that has been already published on the practice of enterprise risk management in nonprofit organizations.

Secondary data is used to locate information to solve the research problem and profit an improved understanding and explain the research problem by literature review. These include books, journal articles, virtual data sources such as websites of firms, governments, semi-government organisations and catalogues. Therefore, this research will be conducted by the use of secondary data sources.

Limitations    

            There are certain limitations associated to the secondary research, that it might not have a demand for the needs of the researcher. In a similar case, secondary research can be costly and harder to gain access too. In some of the information sources, there exists biasness for making the data that lacks reliability for some data sources are prepared for advertisement purpose, basically magazine and newspaper. From the advantages and disadvantages of the secondary data, the researcher has chosen sources of secondary data very carefully. The data sources should be reliable and trustworthy, which improves the reliability and validity of the data in research.

Rationale for Choosing the Research Method

Rationale behind choosing secondary research method is because a wide variety of publications are available on the subject of the study. Hence, the researcher will chose to carry out secondary research which utilizes lesser time and is comparatively less expensive than primary research. Carrying out primary research is not just expensive but it requires greater time for carrying out this research as there are steps associated to it which requires more time. Hence, the only purpose of opting for adopting secondary research was to carry out this research study and fulfil the aim and objectives within the allocated budget and time.

Ethical Consideration

It is highly important to take in to consideration all the aspects of ethics. The ethical concerns associated to the research study are related to the respondents of the study or are related to the general research conduct. Researcher will also ensure that the overall integrity and reliability of the research is maintained and it does not offer any opinions that are biased in any way. Use of internet for collecting the secondary data has posed certain social dilemmas and threats which are associated to the reliability and integrity of research study. It is important to note that all the material which is available online is highly authentic and reliable. Hence, the researcher will be more careful to collect data that is authentic and peer reviewed.

References

Anheier, H. K. (2014). Nonprofit Organizations: An Introduction: Theory, Management, Policy. Routledge.

Anheier, H. K., & Kendall, J. (2012). Third sector policy at the crossroads: an international non-profit analysis (Vol. 10). Routledge.

DiRusso, A. A. (2011). American nonprofit law in comparative perspective.Wash. U. Global Stud. L. Rev., 10, 39.

Garner, J. T., & Garner, L. T. (2010). Volunteering an opinion: Organizational voice and volunteer retention in nonprofit organizations. Nonprofit and Voluntary Sector Quarterly.

Herman, R. D. (2011). The Jossey-Bass handbook of nonprofit leadership and management. John Wiley & Sons.

Huarng, K. H., & Hui-Kuang Yu, T. (2011). Entrepreneurship, process innovation and value creation by a non-profit SME. Management Decision,49(2), 284-296.

James, E., & Rose-Ackerman, S. (2013). The Non-Profit Enterprise in Market Economics. Taylor & Francis.

Light, P. C. (2011). Making nonprofits work: A report on the tides of nonprofit management reform. Brookings Institution Press.

McMurray, A. J., Pirola-Merlo, A., Sarros, J. C., & Islam, M. M. (2010). Leadership, climate, psychological capital, commitment, and wellbeing in a non-profit organization. Leadership & Organization Development Journal, 31(5), 436-457.

Seaman, B. A., & Young, D. R. (Eds.). (2010). Handbook of research on nonprofit economics and management. Edward Elgar Publishing.

Worth, M. J. (2013). Nonprofit management: Principles and practice. Sage.