On the topic of financial risk...

In the post covering financial risk, I discussed how churches need to think about the risks facing both their revenue and expenses. This week, another risk for an org's finances came painfully apparent to me.

For the last month-and-a-bit I've been managing a retail pop-up store along the outskirts of Toronto. The store itself is owned by a huge publishing company, and it sells cheap books, Christmas gifts and decorations, DVDs, and children's toys. It's nothing fancy (I was given a large, empty room and turned it into a nice little place in under a week), but shoppers seem to like it enough and our sales have been pretty strong. With the exception of a few isolated incidents involving irate customers or absent employees, the job's been pretty fun.

Last week, however, we all suffered a bit of a jolt. After doing some basic forensic accounting, I determined that hundreds of dollars had gone missing from the store's cash registers over the course of a few weeks. Evidence points to one of my (former) employees, but it's likely not going to be enough to have him charged with theft. The whole incident has left myself and the other employees frustrated and downhearted; we all trusted this guy, and he betrayed us.

Theft is going to happen in any business and industry: just today there was a story of Apple, one of the tightest-run organizations in the world, getting robbed during New Years' celebrations. From shoplifting to corporate embezzlement, money can easily go missing, never to be seen again. This is even easier when accounting methods are lax: the cash machines at my store are very rudimentary, allowing for money to be removed every day without appearing suspicious (it was only when I looked back at weeks' worth of data that I saw the trends). And for companies with billions of dollars of assets, is it any wonder that there are frequently stories of top-level managers getting caught with their hand in the cookie jar?

Churches need to be just as aware of this. As great as it would be to trust that all congregants will worship at a church will obey the eight commandment, it's still imperative to have a system in place that reduces the risk of theft. Simple initiatives, such as having two or three people count the collection money after each service, and minimizing how long cash stays within the church walls (or investing in a quality safe should it need to be there for a few days), can go a long way in eliminating any "sticky fingers." Similarly, routine audits of assets, and an atmosphere that encourages someone to speak up if something seems wrong, are great ways to stop embezzlement or mismanagement of funds.

I've learned the hard way that theft can happen anywhere, even at a small pop-up store with a handful of employees. Does your church have a plan to ensure that all the money given to it is used properly, and not pocketed by some unscrupulous hands?

Risk #2: Operational Risk: An Overview

One of the benefits of implementing risk management in a church is that many aspects will already be familiar to congregants. For example, much like religion, risk management is open to a wide variety of ideas and interpretations, with some pushing practices and protocols forward, while others seem to just create confusion. Even simple words can have many different definitions and meanings, with each thinker arguing that they are in the right. For Christian churches, this is nothing new.

Operational risk is one of those terms that no one can seem to agree on. The size and scope of an organization's "operations" is up for debate and is unlikely to be resolved anytime soon. Fortunately, just like theological differences, not everyone had to agree on everything to still move forward. What is important here is that, though there may be some differences, the general definition of operational risk is the uncertainty surrounding, and likelihood of non-ordinary events occurring out of, an organization's internal processes and systems, its people and human resources, and external happenings.

That's one heck of a definition, so vast that almost anything could count as operational risk. For those not steeped in risk management understanding (and, really, even for those who are), defining and managing an organization's operations can be incredibly intimidating. For a church committee, it may appear nigh-impossible.

Of course, it really isn't. Using the above definition of operational risk can help open up the risks that have been hiding in the church. The first part, processes and systems, raises questions about the decision-making processes used: are they effective and efficient? could they allow for unfair manipulation? what would happen if a member of the process suddenly became unavailable? Similarly, the church's people and human resources are a key (if not the key) factor in its success. Are the staff enjoying their jobs, or do they feel stressed and worn-out? Does the church have a plan should someone decide to leave? And finally, external happenings ask congregants to consider what outside events could affect the church--this can range from weather to roadwork and construction to political legislation.

Analyzing operational risk isn't always easy, or fun, but is crucial to keeping the church running smoothly. As this blog will show in near-future, there are many large-but-accessible operational uncertainties that can be analyzed and improved upon. Even just a few quick changes can put a church on the right path, away from unnecessary risk and towards better, more-efficient operations.

Risk #1: Financial Risk--An Overview

Risk management is not entirely about financial risk. In fact, when it comes to churches, financial risk is likely not even the biggest type that clergy and congregations face. And yet, within a house of worship, financial risk is ubiquitous. Budgets dictate just about every congregational activity, from outreach to parties. Costs are a frequent worry of anyone looking to endeavour on a major project. Offering is collected right after a fiery sermon. The most emotional use of the Lord's name comes when calculating revenue and expenses. If a church wants to keep its doors open, it has to be able to pay.

Some of the risks associated with finance are obvious: there is always a good deal of volatility to congregational donations, which make up the vast majority of a typical church's revenue. Such a financial model is particularly risky because there are several factors that influence it's uncertainty: both overall attendance and the generosity of those who attend are key elements in keeping revenue up, and both are susceptible to extreme change each week. Many churches find that givings ebb and flow, decreasing in the summer and spiking close to Christmas and other holidays, which can create difficulty in paying the steady expenses.

This leads to another, equally-important risk. A church's expenses determine how efficiently it can run and how much of its money can be used for external missions and outreach. Despite this, it is often given a secondary focus to revenues, perhaps because revenues are easier to approach from a full congregational standpoint. This can be dangerous for a church to do: expenses, from salaries to utilities to physical materials, are as much a concern for everyone as are revenues. Failing to see and address this risk can wreak havoc on a church's budget.

When a church starts openly discussing the uncertainties that surround its cash inflows and outflows, numerous smaller risks will come to the surface. Have certain expenses been rising too quickly for comfort? What sort of contracts has the church locked itself into, and what problems may arise from that? What has happened to average givings over the course of one, three and five years? What possibilities are there to cut expenditures? These are not always easy, or pleasant, questions to answer, but are far better being asked than ignored.

Evidently, financial risk goes deep in any organization, leading to numerous elements and particulars that need to be discussed. But it's never too early--or late--for a church to start looking at its finances and asking the tough questions. A few years down the road, it may be very glad it did.

Why Do Churches Need Risk Management?

Here lies the huge question: do churches actually need a risk management plan? Does taking into account the uncertainties surrounding a church's organization actually have benefit, or is it a waste of time and resources? This is crucial for a church to answer, and can be the difference between having a vibrant, enriching existence and having to close the doors for good.

In this day and age, any corporation that wants to see a future beyond the next few quarters is actively engaging in identifying its risks and determining how best to manage them. This is not just limited to financial institutions looking to minimize risk on an investment; these companies can be focused on consumer goods or services, resource development, transportation or entertainment. Even governments and non-profits are looking into managing their risks, because they know they're better off being aware of what uncertainties they face than being blind to them. Credit rating agencies like Moody's, S&P and Fitch are now actively looking for risk management plans when evaluating a company--they know that a corporation that takes risk seriously is one that is prepared to weather difficult storms and thrive in positive times.

The reality is that simply identifying risks can be incredibly beneficial to an organization. It aids with decision making, gives a clearer picture of overall health, and helps manage the likelihood of any sort of event, be it positive or negative. Because of this, churches could gain an incredible amount from starting to focus on their risks, instead of remaining unaware of what uncertainties they may be facing.

With every service, every outreach activity, and every meeting, there are inherent risks that a church faces. These can range from physical, such as a sanctuary's structure and the heating and plumbing, to the financial, such as offerings and expenses, to the relational, such as feelings and opinions between members and the leadership team. These risks aren't impossible to identify, and once they are they can be taken into account as a part of the church's business. Will the roof hold up for another winter? Better to find out than to be caught off-guard. How much would offerings have to drop before the budget would be in serious jeopardy? It wouldn't be difficult to calculate, and can lead to contingency plans should the event occur. How have members been reacting to a new worship leader or style? Knowing this may help boost turnout to services.

So, then, do churches NEED to engage in risk management? Of course not. Clearly, many have been able to get along fine without it. But are there benefits to doing it? Absolutely. Just look at the corporate world, or ask a worshiper whose church had one traumatic event and ended up losing half the congregation. Identifying and managing risk can help churches avoid negative outcomes, increase the likelihood of positive ones, and run a better, more-efficient overall.

With those three introductory entries out of the way, let's dive in to the different types of risks churches face.

About Me

So who am I, and why am I so interested in risk management and the church?

Let's start with me: I'm a recent MBA graduate from Dalhousie University in Halifax, NS. I'm also a lifelong churchgoer, having been raised in a Presbyterian church before moving over to the United Church for a few years; I also have Anglican, Roman Catholic and Evangelical experience. I've sat on a variety of committees and councils within those denominations and done everything from singing in choirs to leading entire services. I genuinely like church, for a variety of reasons: in addition to the spiritual nourishment and great fellowship every week, I'm a complete sucker for a traditional hymn played on an organ and can't help but be amazed when inside a large cathedral with gorgeous stained-glass windows.

It was this interest in church that led me to do an independent study as part of my MBA, focusing on church management and consulting, and investigating the ways that business practices can be implemented in religious institutions. Working with a local church in Halifax, I analyzed its operations and finances to determine ways that it could increase revenues, lower expenses and run more efficiently; most of this focused on the church using its excess space for rental income, as well as cutting unnecessary expenditures from the budget. When I was finished, I submitted a hearty report to the church's council and stayed around to help with some outstanding budget work.

The next semester I signed up for a class in Enterprise Risk Management, where I was required to write a journal-worthy paper for a final assignment. My professor--a tough, demanding genius in the field of risk--knew of my interest in church management and encouraged me to write about risk in the church. I thought it was a great idea, so I took to the internet to find other journal articles on the subject, only to find that there weren't any.

Despite the prevalence of churches and the clear need for risk management in any sort of institution, there has been an incredibly minuscule amount of writing done on the two. A search of online journals and databases yields nothing; journals that focus on risk management have no interest in the church, and vice versa. Having read published papers on ridiculously-detailed topics ("Feminist-structured group leadership in a post-modern world: An equatorial supply-side economic developing nation case study," for example), this came as a large surprise for me.

So I wrote a 2000-word paper of my own, giving an overview of risk management and how it would apply to churches, and submitted it to my professor. He loved it, gave it a good mark, and told me to get it published.

That brings me to where I am now: having reworked the paper several times for different publications, I have a handful of articles set to be printed in national magazines and journals in the next few months. I plan to write several more, with a greater focus on particular areas of church risk management. But the conversation can't stop there, which is why I've created this blog. It's time that we really started thinking about how we manage risk in the church. And in the next entry, I'll explain just why it's so important.

And that's me: I love church, I love risk, and I love the idea of throwing them together and seeing what happens.

The Church at Risk

There are thousands--maybe even millions--of blogs devoted to churches. A quick search can bring you to blogs on church growth, church marketing, church planting, and churches that focus on a particular niche or demographic. Then there's blogs on church and culture, church and state, church and business, and even church and other churches. Plus, there are countless personal sites from church leaders, church members and church adherents alike, with plenty of inspiration and opinion to share. Regardless of the topic, if it relates to the church, someone's bound to be talking about it.

Except, it seems, when it comes to risk.

It's not that people fail to mention risk in context of the church. It's hardly a challenge to find someone discussing the risk of the church becoming irrelevant, or losing members, or even falling from God's graces over some doctrine or theology. In this case, though, risk is synonymous with the chance or likelihood of a negative event occurring, and is almost always used in relation to a solitary event or action. What the church is missing out on is risk as uncertainty: despite the overwhelming prevalence, it's difficult to find anyone talking about, let alone planning for, the numerous uncertainties churches face every single day.

And yet, considering that these uncertainties can make or break a church's activities and functions, it's time that leaders and members started having a conversation about them. Ignoring risk isn't going to make it go away--if anything, it can make things much, much worse. But when churches open up about the challenges and uncertainties they face, there is incredible potential for growth, security and better everyday operations.

That's what this blog is about: identifying the risks churches face and bringing them into the light. In doing so, the writings here may incorporate some of the topics listed above; membership and demographics, the relationships churches have with other entities, and the personal opinions of clergy and members all contribute to the uncertainty surrounding a church's activities. But risk management goes deeper than that. Risk management takes a critical viewpoint, asks difficult questions and isn't afraid of what it may find. Risk management leaves no stone unturned.

Thus, JeRISKo, the product of a recent MBA grad with a passion for the church and its mission, as well as a strong interest in risk management, will cover, from the ground up, what risk is, how it affects the church, and what the church can do in response. Most importantly, it will do this in a fun, easy-to-understand and interactive way. Because anyone involved with a church needs to be aware of its uncertainties and how to deal with them, and anyone, be they clergy or member, business executive or construction worker, can play an important role in risk management.

Isn't that at least a bit more useful than reading one more blog about how churches can be hip?