Risk #4: Here is the Church, There Goes the Steeple

When I'm staying in a different city over a weekend, whatever the reason may be, I love to get up early on a Sunday and visit a local church. It's always nice to see the different customs and traditions each church brings to its services, and it often gives me great ideas to bring back home with me ("They all pray in small groups during Prayers of the People! We should try that!"). A few weeks ago I found myself in the middle of downtown Toronto for the weekend, and I was up bright and early on Sunday morning to attend a service in a large, old Presbyterian church.

The service itself was great, with a powerful sermon about forgiveness and an organist who really knew what he was doing, but the most-provocative moment for me was at the very beginning, during announcements, when one of the church's elders informed the congregation that a pipe had burst overnight, causing massive flooding in half a dozen rooms. As a result, the rooms were entirely inaccessible and the congregation now faced two large bills: one for fixing the pipe, the other for the cleanup of all the water damage.

The impact of this would undoubtedly be felt well beyond the walls of that church. A quick look at the church's bulletin revealed a long list of community events and activities scheduled to be held that week, but would now likely have to be cancelled. Being in the heart of Toronto, this church was clearly a gathering spot for many different groups, particularly those focused on helping the lonely and needy. One burst pipe may have put all those ministries on hold.

Though it lasted no more than a minute, this announcement served as a great reminder of the risks associated with the physical church building. Many churches in North America are well over fifty years old and have not had serious updates or renovations since they were built. Add to that their large, exposed structures and the increasingly-erratic weather we've been seeing, and you have some serious threats to a House of Worship.

Thus, when it comes to thinking about the risks a church is facing, the physical structure has to be considered and should be a priority, especially as the seasons change. Can the sanctuary roof survive another winter (or hurricane season)? Has the electrical wiring been inspected at the appropriate time? Have any complaints about leaky or frozen pipes been made? Who is responsible for ensuring the church stays clean, and do they have a way to report any problems they find?

Staying on top of the building's condition can save the church thousands of dollars in avoided repairs and replacements. More importantly, it keeps the church's doors open and the surrounding community active. As the church I attended on that Sunday learned, the inability to host other support groups can be devastating. Especially when it could have been avoided.

Risk thought: Does your church have a plan for the upkeep of its building? How closely is that plan followed?

What about other types of risk?

So far, this blog has covered three overarching types of risk: financial, operational and reputational. These three are by-far the most predominant in a church's everyday business, and need the most focus. There are, however, other types of risk that could arise, but for the most part are not going to be a huge hazard to a house of worship.

For most companies and corporations, which make money from selling goods or services, market risk is important to pay attention to. This is the risk that fluctuation in prices and costs can have an effect on the overall bottom line. For example, commodity prices could rise, causing greater expenses to the organization, or interest rates could go up, resulting in a greater cost of debt. There's also currency risk, which happens when a multinational company deals with money from different countries, and equity risk, where stock and security prices constantly fluctuate. Going even deeper, some organizations pay a lot of attention to volatility risk, which is focused on primarily with derivatives trading, and are also focused on systemic risk, another securities-related term which describes risk that is impossible to mitigate.

So what should churches think of these risks? Ultimately, probably not too much, because there isn't a whole lot that can be done about them from an individual congregation's perspective. Take market risk: it's unlikely to cause too much trouble, because churches typically won't have their budgets wiped out by a few rising prices. Interest rate risk also exists for a church that's carrying debt, but not to the extent that it would affect a multi-billion dollar corporation. And equity and currency risk may affect pensions, but most denominations keep a pension plan that is well outside the decision power of each congregation.

When discussing risk, it's important to have scope. Financial, operational and reputation risk are all important to a church, and more importantly, are manageable from the congregational level. The fluctuation of commodities and stock markets are most-definitely not. Knowing all the risks the church faces is immensely valuable, but even more so is knowing where, and where not, to focus the attention.

Published in L Magazine

I've recently had several articles published in church magazines and journals, including the United Church of Canada's The Observer in Nov 2012. Now L Magazine (formerly The Clergy Journal), a Lutheran publication in the States, has printed another article. You can check it out here:

http://www.lmagazine.net/wp-content/uploads/LMagazine-Jan-Feb2013.pdf#page=29

Risk #3: Reputation Risk: An Overview

Reputation risk can be tricky for any organization. It essentially examines the uncertainty surrounding how much the general public trusts an org, and what the general perception of that institute is. There are few businesses that can thrive despite strong public disapproval (one may think that energy companies are the exception to this rule), which makes a positive reputation crucial to the survival of any company. For churches--whose ultimate goal is to minister to those outside its doors--a negative image can be devastating.

Building and maintaining a good reputation in the community is challenging enough, but churches these days seem to have the deck stacked against them. There is a growing distrust of organized religion in North America, and a rise in people identifying as irreligious. Those outside the church frequently view it as being narrow-minded, homophobic and too involved in politics; without the amount of media attention given to "religious leaders" who sound more like political pundits, this is hardly a surprise. On top of all that, hardly a week goes by without a story breaking about a scandal in the church, or a viral video of a crazed pastor calling for the death of a minority group, or a secularism advocate condemning the general church in the harshest of terms. The end result is a society that looks at the church uneasily and keeps its distance whenever it can.

This, of course, is unfair to individual churches and their congregations, who get a completely inaccurate perception cast upon them due to the actions of a few people who could be as far away as the other side of the world. Unfair as it may be, it's nevertheless an unfortunate reality, one that churches need to be aware of.
Then there are the reputation risks that individual churches are in control of. Members and leaders should be asking themselves how they are viewed within their community, and should be taking into account their outside perception when making decisions. Projects like church renovations, meetings and parties, and third-party rentals can all have an effect on the surrounding area; if done without consideration for neighbours, they can create a backlash against the church.

At the same time, there is great upside to reputation risk. Since the church is meant to be a light in a world of darkness, there is incredible opportunity to build bridges and form relationships with those in the community. When a church's outreach is focused on being a beacon to those around it, and when its acts mirror those of Jesus and the early Christians, it will undoubtedly gain a reputation as being a place for joy and celebration, as well as care and healing. While the general outsider perception of churches may be of distrust and skepticism, a taking into account of reputation risk can open a church's doors wider than ever before.

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.