Managing Your Nonprofit for Resilience

2Learn the Language of Lean Risk Management

When people use the term risk in everyday conversation, they often mean the possibility of a negative outcome. One mentions the risk associated with catching the flu, drunken driving, or walking across the street without looking both ways.

Some academics and risk management professionals similarly define risk as “a state of uncertainty where some of the possibilities involve a loss, injury, catastrophe, or other undesirable outcome (i.e., something bad could happen).”¹ This book disagrees. Because the language of risk can be confusing, this book will define risk, risk management, and its favored approach, Lean Risk Management.

Risk Involves Threats and Opportunities

This book advises a holistic approach to risk. Risk is neither good nor bad. Risk is simply an acknowledgment that none of us can see into the future and predict exactly what will happen, our concession to the fact that we are human. Thus, as used in this book, risk “is any deviation from the expected. Defined this way, risk includes both downside and upside volatility.”² (See Figure 2.1.)

Vocabulary Risk = Uncertainty Threat = Negative risk Opportunity = Positive risk

Figure 2.1 Core Vocabulary

If the concept of “upside risk” seems foreign, consider financial investments. We expect a lower rate of return from a money market account than a stock mutual fund. Because the stock mutual fund is a collection of securities, each of which could go up or down in value, ...