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Financial sustainability and organisational change

Paul Rao Paul Rao

Income and financial reserves are the lifeblood of a charity. COVID-19 restrictions reduced many charities' fundraising and forced them to look at different options to maintain operations. Paul Rao explains the key considerations in their financial stability. 

Charities rely on diverse income sources, depending on the areas in which they operate: direct marketing, major events, major gifts, corporate partnerships, legacies, retail, and institutional funding. Some charities have access to a wider range than others, which should theoretically improve income resilience. However, the impact of environmental, social, political, and economic factors on large charities over the last few years has demonstrated that even the most common sources of income can be stifled by external events. COVID-19 restrictions' limitations on fundraising have acutely impacted the forecasted incomes of large charities. This has forced some to access their reserves and restructure to maintain operations.

Management considerations for income and financial sustainability

Performing scenario-planning and reforecasting exercises

COVID-19 has prompted many large charities to perform scenario-planning and reforecasting, particularly in relation to income. During events that threaten business continuity or business as usual and periods of heightened uncertainty, scenario planning and re-forecasting should be an iterative exercise. Projections should be revisited when new information is obtained, and assumptions should be scrutinised by multiple stakeholders.

Risk assessing your sources of income

Charities should risk assess their sources of income to identify those that are either more susceptible to reductions or loss. These risk assessments should feed into contingency plans and future strategic and organisational planning processes as charities begin to prepare for the time horizons post-pandemic. COVID-19 has opened doors for some of the charities with whom we work to establish new sources of income, primarily leveraging digital technology. Examples include virtual marathons and bike rides, and other virtual fundraising events. Risk assessments of sources of income should also consider these potential longer-term opportunities. 

Adequately overseeing volunteer activities

Charities often rely on volunteers for fundraising and income generation (eg, events and retail shops) and third-party suppliers (eg, face-to-face fundraising) for key elements of income generation and fundraising activities. It's essential that these individuals are well managed and appropriate oversight controls are in place; in particular where they bring increased activity. 

Questions for trustees and audit committees

  • Do you perform scenario planning and regular reforecasting on your income?
  • Have you risk assessed your current sources of income?
  • Do you have adequate arrangements in place to oversee your income generating volunteers and any third-party fundraisers?

Organisational change, including digital transformation

Modern charities are frequently delivering projects or change programmes. Large digital transformation programmes are particularly common, but in recent times we have also observed charities undertaking major IT systems implementations, restructuring their organisational design model and expanding their charitable operations. Major change programmes are typically concerned with modifying the way an organisation has historically operated to align with corporate strategy, to improve effectiveness and efficiency of the use of resources or to take advantage of technical innovation.

This often necessitates a cultural shift that requires a multifaceted and closely-monitored approach to deliver and embed the change. This cultural shift is typically more difficult to create in situations where the charity is not accustomed to change, such as in some smaller ones that are embarking on their digitisation journey. The benefits of a change programme are typically significant, however so are the potential opportunity costs and wasted donor funds of a failed undertaking.

Management considerations

Adequate governance arrangements over your change programmes

Well-designed governance arrangements are key in organisational change and should include effective change management capability, proactive management of the programme, and reporting to governance forums on cost control, risks and issues of delivery. Any change programme should be supported by individuals with appropriate and relevant technical capability and capacity. Often the project or programme team feel as though they know what's required and are eager to get the work underway, however, a key cause of failed projects is poor rigour in the project’s oversight and structure.

Charities should ensure that they identify appropriate stakeholders for a change programme’s sponsorship and oversight with an appropriate blend of technical expertise, knowledge, and capacity to fulfil project requirements. Some of the examples we see of technology programmes and projects not achieving their critical success factors could have been avoided if the appropriate governance forums had been in place. Monitoring, progress reporting, and decision-making processes should be formally agreed and signed off prior to project commencement. Based on the size and complexity of the programme, the charity may also benefit from using specialists to assist in the successful delivery of the programme.

Focusing adequate time on business-case development

When created and used properly, business cases define the reason for, and purpose of, a project / change initiative as well as the related costs, expected benefits (including assumptions), risks and options for decision makers. A business case should also be a living document that's revisited at key points throughout the project to ensure it remains viable, depending on the project methodology used. Unfortunately, we often see business cases that are neither robust, nor effectively used to monitor and measure progress, and this tends to contribute to projects not delivering against agreed plans and critical success actors – losing their way and hence failing to fully realise the intended benefits.

Appropriately involving the project’s beneficiaries

Another common factor we see limiting the effectiveness of change programmes, and particularly digitalisation projects, is failure to appropriately involve the principal beneficiaries. Beneficiaries are usually the charity’s employees, or even charitable beneficiaries intended to use new systems, processes and services. Charities should recognise that digital and IT projects are ultimately focused on enabling improvements in ways of working, and services beyond the scope of IT (such as in fundraising, people or finance teams). It's fundamental that the project team include beneficiaries throughout to ensure that the solution is fit for their purposes, making changes to the programme as required.

Questions for trustees and audit committees

  • Do you have adequate governance arrangements over your change programmes? Is your management reporting adequate?
  • Are your business case templates and approval requirements robust enough and treated as living documents?
  • Do your projects adequately involve the project’s beneficiaries through the lifecycle of the project?

For more insight and guidance, get in touch with Paul Rao. 

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