Ted Bilich: Resilience & Lean Risk Management
Ted Bilich wants you to develop a risk management cycle and incorporate lean principles, so you confront negative risks and exploit positive risks. He’s the author of the book, “Managing Your Nonprofit for Resilience.”
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Transcript for 629_tony_martignetti_nonprofit_radio_20230227.mp3
right. It’s it’s village village. Thank you very much [00:02:27.29] spk_0:
And welcome to Tony-Martignetti non profit radio big non profit ideas for the other 95%. I’m your aptly named host of your favorite abdominal podcast. We have a listener of the week Gina Grove at ANne Arundel County Public Library Foundation that’s in Maryland. She loved last week’s show talent development. It was very timely for her and Gina took the time to write and tell me, thank you very much Gina, I’m glad that the show struck a chord with you. I appreciate your message very much. Congratulations on being our listener of the week. Oh, I’m glad you’re with me. I’d be forced to endure the pain of necrotizing ulcerative ginger vos dermatitis. I think that one deserves two weeks. If you inflamed me with the idea that you missed this week’s show resilience and lean risk management. Ted billets wants you to develop a risk management cycle and incorporate lean principles so you confront negative risks and exploit positive risks. He’s the author of the book managing your nonprofit for resilience On Tony’s take two planned giving accelerator here is resilience and lean risk management. It’s a pleasure to welcome back to non profit radio Ted Village. He is the author of the 2023 book managing your nonprofit for resilience Use lean risk management to improve performance and increase employee engagement. He’s also ceo of risk alternatives providing non profit training, highlighting challenges in evaluating risk and providing unique nonprofit resources. Ted is at T village his book and his company are at risk Alz R I S K A L T S dot com. Ted welcome back and congratulations on the book, [00:02:41.34] spk_1:
tony Thanks so much for having me back. I’m excited to talk about this. Always excited to talk to you. [00:03:13.05] spk_0:
Ah that’s very thoughtful. Thank you very much. All right. It’s a pleasure to have you. Let’s start. I’m gonna get to parse through the title Managing your nonprofit for resilience. Okay. Managing your nonprofit for I can I can handle that listeners got that. I’m sure resilience help us. What’s your definition of this resilience which you pointed out of the book is a process. What talk to us about resilience [00:03:34.06] spk_1:
exactly uh resilience in my view, tony is the idea of being able to not just bounce back in the face of conflict and unusual circumstances, but to actually welcome the idea of uncertainty and take advantage of the positive aspects of uncertainty over time. You know, it’s not a matter of just sort of cowering behind the wall and hoping to absorb a blow. It’s being willing to look out over the wall and see the uncertainty and then make the next reasonable choices, in light of your evaluation of that uncertainty [00:03:58.93] spk_0:
and when you were on the show roughly five years ago we talked about positive and negative risks. were you, were you formulating this book as long as five years ago because we’ll get to positive risk. But did you have the genesis of the book in mind all those years ago? [00:04:28.37] spk_1:
That’s exactly right. I think from the get go, I’ve been slowly building uh, this theory of the way you create an organization that isn’t just uh risk, uh, risk able, but in fact is risk agile. And uh yes, from the get go, I’ve been thinking that risk is not just about bad things. Okay. [00:04:40.59] spk_0:
And we’re gonna talk about the positive risks. Um, let’s a little more on motivation. Perhaps why should non profits be paying more attention to risk management? [00:05:26.98] spk_1:
Well, you know, every nonprofit has a strategic plan. No, not everyone, but 89%. I think according to the data I’ve seen. Um, but if you if you have a strategic plan without an awareness of what your current capacities are, then really you just have an aspiration. What you want to have is an early warning system. Something that allows you to orient ear along the way toward those mountains that you’re trying to conquer. And that’s true any time. But especially it’s true now, you know, when you think about all of the challenges, not just of the business model but all of the political unrest and social unrest and you just go down the line, nonprofits need to have a way to avoid being reactive and instead be proactive. [00:06:11.18] spk_0:
All right, so let’s get into negative risk and positive risk. I think most people are acquainted. I mean on a, on a general level you certainly drill down about potential negative risks. But um, you know, so, so what’s the word that I’m looking for differentiate? That’ll work. It’s not exactly the word I was thinking of, trying to get to, but differentiate will work differentiate between negative risk and positive risk. [00:06:36.74] spk_1:
You know, the the idea would be, um, a negative risk is, um, we call them threats, you know, we it’s it’s something where there is something looming out there that if it happens, is going to either impact your performance negatively or it’s going to reduce your funding or it’s sometimes somehow going to undermine your business model. Um, by contrast contrast, that [00:06:43.77] spk_0:
was, that’s what I was [00:06:44.62] spk_1:
trying there. It is okay. [00:06:49.86] spk_0:
And I was looking for, would you please contrast negative and positive [00:08:20.57] spk_1:
and you know, by contrast, think about the number of things that a nonprofit faces that could actually be good. It could either be a a new initiative, tony you know, something where where someone says, boy, you could partner with us and we could do great things for your mission by doing this new thing. So it could be that kind of positive risk or it could be simply right now we do our device development process this way. If we tweaked it a little bit, we would unlock so much more value for us and therefore be able to achieve our mission more effectively. So it could either be something entirely new or something that is simply a different way of doing what you were already doing and and tony The weird thing is, yeah, I’ve asked leader after leader after leader about this, what device do you have in your organization to identify opportunities and make sure that you follow through on them. Even those organizations that have a risk management process and they think of it as a threat management process very rarely do they have what private industry has, which is a, you know an R. And D. Development and R and D program and an op X program to do operational excellence and identify ways to change for the better And so nonprofits don’t have that tool to build that muscle. That’s why I like to think of risk management, lean risk management as thinking, you know, how do we serve the customer better by reducing threats and increasing opportunities. [00:09:46.63] spk_0:
Okay. The increasing opportunity part is not widely recognized as you’re saying, you know, we’re focused on the threat side and as you know, the book is important because we’re not focused enough on the, on the threat on the threat side, we really don’t, I think people think of insurance and um putting their head in the sand. Those are the two ways of avoiding risk, which is not what ted billets would recommend. Risk insurance. Okay, that’s bona fide. But it’s not the only thing to do. It’s it’s not the first thing to do. Putting your head in the sand. That’s that’s a that’s a big mistake. Alright. Um I got one more thing before we get into what what does lean contribute to risk management? You you pledge that we can do more or we can have less worry not more. If we start we start paying attention to risk. If we create our risk register which we’ll get to and and you get into a cycle we can have less worry not more because we’re surfacing a whole bunch of risks here and only a few of them are positive. I think you’d agree that imbalance there’s more negative risk than positive risk. I I don’t [00:09:47.38] spk_1:
know about that one. But let me let me let me let me address the basic question that you asked, which is you know, we’ll hold off [00:09:56.62] spk_0:
the proportion the proportionality. But but you’re you’re assuring us that we can have less worry not [00:11:09.90] spk_1:
more without question. And and the reason for that is and there’s sound research saying that uh people carry a certain amount of cognitive load and that cognitive load is not only about what they are consciously focusing on, but also what they are subconsciously ka agitating about that never gets up to the conscious level. And that car agitation creates this low level anxiety that’s gonna be there. And I tell you every one of your listeners who honestly looks at themselves in the mirror is gonna say, oh yeah, I know what he’s talking about, I don’t want to lift up those rocks because they might have bad things, so I’m still thinking about bad things, but I don’t know what they are by getting it out in the open. There’s always this incredible cathartic effect. I was working with a client yesterday and and, you know, 25 people on a conference call and they were just saying, oh my gosh, it’s so great to get it down on paper. First of all, we see that most of us are in agreement about what the important things are. But secondly, now, as a, as the leader of this organization, I’ve had so many people who have been able to bring things to my attention and I don’t feel like I’m worried about what balls are out there that I don’t know about. So it’s a really enormous uh, clarity that comes from using a risk management process. [00:12:03.15] spk_0:
Narcisse is what I was thinking of when you you said it, I was thinking this sounds cathartic for the organization. Alright. That word I could think of contrast eluded me until you said you’re you’re you’re saying all the words that I’m thinking of, so you’re, I don’t know if you knew that you were, you’re a mind reader as well. Um Savant, Alright, um Acquaint us with one more thing before we get into lead. What liber this process of risk management. Like give us, give us a high level overview of what you’re encouraging folks to, to jump into. [00:13:32.16] spk_1:
I’ll again use the analogy of of, you know what mountains you want to conquer and imagine that you drop, you drop your, you are parachuted or you crash land in a jungle and you want to get to a mountain. The first thing you do is you want to figure out what your capabilities are. You want to take inventory of what you got. And so the first step of a risk management processes to perform a risk inventory where you look at the various functional areas of your nonprofit plus your external environment to say. What do I currently have in my toolbox? And what are my current worries about those tools that I’ve got? So that’s the first thing. After you do an inventory, you’d probably get 150 items. If you’re really looking at the average nonprofit, you can’t focus on all of them. So what are the most important critical items? So you prioritize and you put together a list that’s sort of like, you know, creating the map and creating a a rubric of what you’ve got wear in your backpack. The things that you most need to worry about in order to get from point a to point B. And then the third thing is this is not an event, it’s a process you want to make sure that you don’t just set off towards the mountain and never pay attention to orienteering again periodically stop. You assess how am I doing in terms of hunger and breathing and everything else? In other words, what are my current threats? Are there any new ones? Are there any new opportunities? And of course correct as necessary along the path. That’s why I think of, you know, risk management. Strategic planning is hand in glove. Strategic planning tells you what mountains to conquer and how you’re gonna judge when you’ve done it. Risk management helps you orient your along the way, [00:13:58.67] spk_0:
Ted Bill. It is going to take us to the mountaintop. Alright, So now what does lean contribute to risk management? [00:16:38.55] spk_1:
Sure. Lien is, you know, it’s it’s it’s not new, but it’s really important. Lean is a methodology that says that you start with what does your customer want and then you try to give the customer what he or she wants with a minimum of waste things that the customer doesn’t want to deal with. The reason why we adopt a lean methodology in in our risk management process is that um you want to make sure you are always focused on customer needs when you’re thinking about your current capabilities and your potential future capabilities. So lean emphasizes. First of all get the voice of the customer. If you’re a nonprofit, you should be finding out how you’re doing. Programmatically not by sort of sitting back and watching the program, but instead by talking to the actual participants. And if you’re talking to, if you’re looking at your other set of customers, the your donors who are after all their customers, they’re giving you money in order to achieve some sort of social change. You want to find out why those donors are doing it and and what they value in what of what your mission is. And so you want to focus on customers. The second reason why lean is so important is that lean emphasizes that you want to make incremental positive change over time. You want to look at problems, challenges as opportunities to become better. You know, a lean one of the lean uh aphorisms would be, you can never be perfect, You can always be better. And so by emphasizing that that you can begin a lean management lean risk management journey and take steps over time to make yourself more and more agile. It allows an organization to say we can test the process of risk management and course correct. Rather than saying we’re going to spend 100 grand and hire a risk manager and create a risk management process. So that’s the second reason why a lean methodology isn’t so important. And then the third one that I think is so consistent with the nonprofit sector is that lean management says your number one asset is your people, you want to empower your people to be able to perform better every day? And if you go back to what I was talking about, when you think about that risk inventory and the risk prioritization and the risk cycle. That’s what it is. It’s a way of an executive director or ceo being able to get his or her team to identify and prioritize and act incrementally to be better every day. So those are the basic concepts behind a lean risk management process. [00:17:07.55] spk_0:
I thought lean originated with software development, But it goes back to Toyota Motor Company in, I think it was the early 1970s, I think you said. [00:17:14.14] spk_1:
Absolutely, no, it it came out of the fact that that Toyota after World War Two was trying to compete with bigger organizations that have greater efficiencies [00:17:27.34] spk_0:
after post World War Two. Okay. Yeah. [00:17:29.65] spk_1:
And and but you’re right, Tony that it wasn’t until the early 80s that that that it became popularized as a methodology, in the in the United States, [00:18:19.11] spk_0:
in the United States. Um, yeah, it’s got a it’s got a rich history and I know there are a lot of books about lean for folks are interested in a lot of books about lean management principles. Um Okay, sorry. So now as I understand how it’s how it applies to risk management, let’s let’s dive into what we’ve been, we’ve been sort of talking about the edges of the risk inventory? The prioritization. Um, what is this and then the cycle, what is the, what is the risk inventory? You know, How often do we need to be inventorying? Acquaint us with this? [00:21:08.57] spk_1:
Sure. Usually what will happen? tony is an organization beginning the risk management process or exploring whether to begin one. They’ll, they’ll do an inventory with a small group of people because you don’t want to over promise that that your day definitely going to adopt risk management. You want to first test how your culture responds to identifying threats and opportunities. So you bring together a small group. They look at the various functional areas of the nonprofit. Each of them identifies threats and opportunities in all of the functional areas. In other words, you ask someone who’s in the development function. No, don’t just focus on development also identify other things that that has been on your mind in other functional areas because the development person might have seen something in the finance function that that is really cockamamie, but they’ve never been asked. So you you have everyone identify threats and opportunities. You put them together in a central document and then you look at them and you talk about what that tells you as an organization. You know, for instance, again, with the organization I was talking about yesterday. You know, they were able to look at their initial risk inventory and they were able to see that a lot of people were identifying the same issues under various functional areas of of their organization. But there was some diversity of opinion as to, you know, as to the threats and opportunities as well. Both of those were really insightful, you know, kind of wow moments for for that organization. Um that’s the first thing the next thing you would do is if you’re going to do an inventory, if you’re gonna stick with this process is after you initially test the idea of a risk cycle with the small group, then what you might do is take it down a level to the people who are boots on the ground and have them do the same sort of exercise because they may see things that senior leadership doesn’t see. You might even at sometime down the road go up A level and engage your board in a risk inventory exercise. Now that would probably be more focused on external things than internal things. But your board might be able to identify big external issues that the staff because they are narrowly focused don’t see. So that’s the way that you could do an inventory and then once you get into adoption of risk management process organization wide, maybe you do a full inventory with a select group of people, you know, twice a year, once a year, depends on the nature of the organization, you know, Sophistication, it’s regular environment, things like that. But but initially what you’re trying to do is you’re trying to slowly widen the number of people who have been asked to identify threats and opportunities in your organization. [00:21:30.25] spk_0:
Ok. And it starts with senior leadership. It sounds like he usually does. When you were saying the development person, that would be the chief development, the [00:21:52.14] spk_1:
chief development officer. You know, you want your, your head of programs, your CEO or E. D. Um, you might, in that initial group have one more junior person who might be, you know, an up and comer. Just so that you, even at the beginning, you, you get a little bit more insight than just the C suite would be able to provide. Um, one thing I would urge anyone who’s trying this process is unless you are a one or two person nonprofit so that you don’t have anyone else to bring in, don’t involve your board in an initial risk inventory because that’s just an invitation for them to get into the weeds [00:24:19.55] spk_0:
enough. Said leave it there with leave it there with the board at that at that stage. Or if your, if your organization is that small. It’s time for Tony’s take two time is running short for planned giving accelerator. The next course is going to start in the first week of March, that will be our fifth class. I’ve had four classes before I already have a Y, we got the first Y this one is a Y M. C. A. In small. It’s a small Y M. C. A. Because all the members of playing giving accelerator are in small and midsize shops. Uh, this is a small Y in north Carolina. We don’t have yet any humane societies. The last few classes have had humane societies again, small but and the very first class had a humane society. But no humane societies. Yet, if you are interested in plan giving accelerator, of course you can get 50% off using the coupon. Non profit Radio 50. The class is all about teaching you to launch planned giving at your small or midsize nonprofit. I went into more detail last week, lots of peer support, all the templates and resources that you’re gonna need to get started holding your hand, guiding you step by step, we’ll spend three months together, March april and May an hour each week. All the other info is at planned giving accelerator dot com. You can always send me an email, tony at tony-martignetti dot com. If you would like to talk about whether planned giving accelerator works for your non profit That is Tony’s take two. We’ve got just about a butt load more time for resilience and lean risk management with ted village, you have a methodology for prioritizing because now we’ve got this bunch of risks and uh, you know, how do we know obviously which comes first and which one can can wait. You have a methodology for prioritizing. [00:25:53.31] spk_1:
Yeah. And and I think that some risk managers at major financial firms would just slap me if they had the chance to, to look at me because they would probably say I oversimplify the process. My response is no, no, no, no, no. You know what, what most risk management professionals do is they try to make precision and it is false precision, you know, they’re why broadly, when you look at a risk, you think about what’s the likelihood of it happening? What’s the impact if it happens and how much of a lead time am I going to get between when I first see it’s definitely coming on and when I feel the full impact, but tony I guarantee If you and I were looking at the same risk and we were using those criteria, we would have different backgrounds that would lead us to have different views of those three factors. So we take it down to an absolute simple level, we say give each participant 50 points And they use those points like chips that they would put on the table and and they can put 50 on one, they can put one on 50 different risks. And what they’re saying is my assessment of likelihood impact and speed of onset means that I want to say this one’s more important and when you bring that all together, you get a very good first estimate of the emotional content of risk in terms of likelihood and impact and so on. You know, that’s a great way to begin to get the process rolling without applying a false level of precision to it. [00:26:32.79] spk_0:
Well, well, well dismiss the naysayers in the, in the professional risk management pool. The simplification can be very, very valuable. So now, so now prioritize so we create our risk register. Yes, we can get to the risk register. This is a this is a moment of peak excitement around risk management. [00:26:39.00] spk_1:
Oh, it’s something that gives you tingles. [00:26:41.61] spk_0:
My synesthesia is kicking in. I’ve got chills. Yeah, chills and I’m almost moved to tears. I’m not quite there. But [00:27:26.55] spk_1:
but but but think about it this way, tony Imagine you’re a nonprofit chief executive and you have a single document that allows you to know what are the most important issues facing our organization right now. Who is watching over that issue for me because because it can’t be me watching over every issue. What is our current best description of what the issue is? What’s our current expectation of what we’re gonna do next about that issue. And when am I gonna hear back about? Imagine if you had that document, it’s better than a strategic plan. It’s better than an annual operating plan. It’s a Boots on the ground. This is a situation, you know, a a situation report about where we are on the most important things. That’s why it is, it’s kind of a really great tool. It [00:27:44.43] spk_0:
sounds, it sounds reassuring and comforting. [00:27:47.92] spk_1:
No going back to [00:27:50.92] spk_0:
less worry, not more, you know, it’s, it sounds like something that, you know, you gotta, you gotta slog through to get to, but it’s very gratifying and reassuring to have it. [00:28:37.91] spk_1:
Yeah, absolutely. tony And, and those who do have it report that, you know, they have, uh, greater engagement from their team because team, team members know who is the champion of a particular risk. Uh, they have greater engagement in terms of people feeling like they belong because they realize that that the, the organization has, is really looking out for them and wants to be around for the long haul. They’re just this host of things that come out of having a risk register and using it, that, that really impact performance in extremely positive ways to [00:28:43.76] spk_0:
tell another story. Uh, the different different organization, not the one you just talked to yesterday, uh, that just had good, had good outcomes or just felt reassurance at reaching a milestone in risk management tell tell a good story. [00:32:01.77] spk_1:
Yeah. Well, okay, a couple of years ago, um, we did work down in Jacksonville and we did work through the non profit center for Northeast florida that brought together a number of organizations to do this deep dive to go through doing an inventory and doing a prioritization and creating a register, uh, in parallel so that they were all doing it together and first of all, that’s a great way to do it because you create a common language among the number of different nonprofits and so, you know, you get this informal coordination and discussion and being willing to show a little bit of vulnerability and so and so on. But one of those organizations was the area agency on aging for Northeast florida wonderful organization. They looked at their uh, situation and they realized, well, a lot of the risk that we have really resides in the fact that we aren’t put boots on the ground. We distribute money to meals on wheels and legal counsel for the elderly and pick your number, you know, that all of the Jacksonville area organizations that interact with with the elderly, but they realized we don’t control those organizations and we don’t know what risks they face. So this organization went and was able to persuade a funder in florida to allow them to do the same sort of thing with their provider network. So we had the provider network also do a risk inventory and discuss it and also do prioritization and discuss it. And so you had things tony like, you know, you had organizations, all of whom were saying, boy, it’s really hard to have capable talent. We can’t hire people and keep them. What they realized though was that most of the people who they hired, who left, we’re going to another organization within that general group. And so discussions started to come about of saying, you know, should we be recruiting in some ways for the ecosystem? Should we be thinking that we’re hiring people who will be with us for 2.5 years and then we’ll become ambassadors either good or bad to some other organization who is working with us. And then the, the area agency on aging accomplished the result of getting these people who were boots on the ground to be talking to each other more and also to be willing to be more vulnerable in their conversations with the area agency on aging. And because they knew that the triple A. Had done the same sort of inquiry. It’s phenomenal what you can do with with that. And so in various communities we’ve had situations where organ where cohorts have gone through because the funder wants to have uh, people who might be interested in collaboration do this work so that they start identifying areas of collaboration. We have some that have done it because they realize that there are certain backbone organizations that they want to make sure have a common vocabulary in case something goes awry. It’s a really powerful tool, not just from a single nonprofit perspective, but from a nonprofit ecosystem perspective. [00:32:29.53] spk_0:
The risk management cycle. Yes, let’s let’s flush that out. [00:33:52.02] spk_1:
Yeah, well, it it captures that idea that risk management is not a one and done thing. Risk management involves, you know, identifying and prioritizing and responding as we, as we’ve talked about already. And then it includes assessing how you’ve done so far with those risks you’ve addressed and what else needs to be done on those risks. But then it emphasizes as well that the next time you look out into the community or even the next time you bring an all staff or a senior staff meeting together, there may be new issues that have percolated up. So it emphasizes that it’s cyclical. You don’t stop after assessing and improving based on your first go round, you identify more, you fold those into your list of existing risks and put them in the risk register where they depend where they need to go. And then you respond to your various risks and assess and improve and identify and so on and so forth. That’s the, that’s the reason why, you know, and it’s the hardest thing tony is to get an organization to adopt a risk cycle. They get tremendous value out of a risk inventory. They say, oh my God, this is great. They do their prioritization, they get the register and they say, oh my God, this is great. And they, they hit their top 10 risks and hit them hard and then they decide, well we’re doing really good. So let’s look at that shiny object over there and they set it aside and so getting that emphasis on making sure that you continue to bring up that register periodically and update it and hold yourselves accountable is the most critical aspect of this. It’s the it’s the one that allows you to really feel like you are facing uncertainty with agility [00:34:17.16] spk_0:
and reach like risk management. Well, you may not achieve it, but asa methodically approach risk management maximization. [00:34:28.53] spk_1:
Nirvana yes, may [00:34:31.12] spk_0:
never reach it. But the the journey, the journey is the end. [00:34:35.36] spk_1:
That’s exactly right. Going back to that lean principle that you can never be perfect. You can always be better. Alright. [00:35:30.70] spk_0:
Uh there’s a lot more detail in the book. You know, you just you wanna you wanna achieve the risk management Nirvana. You want to reach that mountaintop with Ted Bill it. You’re just gonna have to get the book because there’s only so much that we can, we can uh we can talk about and the book is managing your nonprofit for resilience. Use lean risk management to improve performance and increase employee engagement. And I believe we’ve we’ve hit on each of the main topics in the title. So the book is at risk Alz dot com. R I S K A L T S dot com. You’ll find ted at t Bilic uh and you’ll find ted’s company also at risk Alz dot com. Ted thank you so much, enjoyed [00:35:32.62] spk_1:
it. This has always been a blast to talk to you. This has been a great discussion. I can’t wait to talk to you again soon. [00:36:24.37] spk_0:
Thank you so much Ted next week. The co ceo of free will jenny xia Spradling and Patrick Schmidt. If you missed any part of this week’s show, I beseech you. I really do. Beseech you find it at tony-martignetti dot com. I’m not light about the beseeching. I mean it’s it’s a serious beseech Mint. This is no, this is no off the cuff. Beseech Mint, our korean producer is Claire Meyerhoff shows. Social media is by Susan Chavez. Marc Silverman is our web guy and this music is by scott Stein. Thank you for that. Affirmation. Scotty B with me next week for nonprofit radio big nonprofit ideas for the other 95 go out and be great.
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[00:00:03.62] spk_0:
It’s a pleasure to welcome back Ted village. Wait, do I am I saying your name? Wait, wait, we gotta stop here, I forgot to ask, am I saying your name correctly? That’s
right. It’s it’s village village. Thank you very much [00:02:27.29] spk_0:
And welcome to Tony-Martignetti non profit radio big non profit ideas for the other 95%. I’m your aptly named host of your favorite abdominal podcast. We have a listener of the week Gina Grove at ANne Arundel County Public Library Foundation that’s in Maryland. She loved last week’s show talent development. It was very timely for her and Gina took the time to write and tell me, thank you very much Gina, I’m glad that the show struck a chord with you. I appreciate your message very much. Congratulations on being our listener of the week. Oh, I’m glad you’re with me. I’d be forced to endure the pain of necrotizing ulcerative ginger vos dermatitis. I think that one deserves two weeks. If you inflamed me with the idea that you missed this week’s show resilience and lean risk management. Ted billets wants you to develop a risk management cycle and incorporate lean principles so you confront negative risks and exploit positive risks. He’s the author of the book managing your nonprofit for resilience On Tony’s take two planned giving accelerator here is resilience and lean risk management. It’s a pleasure to welcome back to non profit radio Ted Village. He is the author of the 2023 book managing your nonprofit for resilience Use lean risk management to improve performance and increase employee engagement. He’s also ceo of risk alternatives providing non profit training, highlighting challenges in evaluating risk and providing unique nonprofit resources. Ted is at T village his book and his company are at risk Alz R I S K A L T S dot com. Ted welcome back and congratulations on the book, [00:02:41.34] spk_1:
tony Thanks so much for having me back. I’m excited to talk about this. Always excited to talk to you. [00:03:13.05] spk_0:
Ah that’s very thoughtful. Thank you very much. All right. It’s a pleasure to have you. Let’s start. I’m gonna get to parse through the title Managing your nonprofit for resilience. Okay. Managing your nonprofit for I can I can handle that listeners got that. I’m sure resilience help us. What’s your definition of this resilience which you pointed out of the book is a process. What talk to us about resilience [00:03:34.06] spk_1:
exactly uh resilience in my view, tony is the idea of being able to not just bounce back in the face of conflict and unusual circumstances, but to actually welcome the idea of uncertainty and take advantage of the positive aspects of uncertainty over time. You know, it’s not a matter of just sort of cowering behind the wall and hoping to absorb a blow. It’s being willing to look out over the wall and see the uncertainty and then make the next reasonable choices, in light of your evaluation of that uncertainty [00:03:58.93] spk_0:
and when you were on the show roughly five years ago we talked about positive and negative risks. were you, were you formulating this book as long as five years ago because we’ll get to positive risk. But did you have the genesis of the book in mind all those years ago? [00:04:28.37] spk_1:
That’s exactly right. I think from the get go, I’ve been slowly building uh, this theory of the way you create an organization that isn’t just uh risk, uh, risk able, but in fact is risk agile. And uh yes, from the get go, I’ve been thinking that risk is not just about bad things. Okay. [00:04:40.59] spk_0:
And we’re gonna talk about the positive risks. Um, let’s a little more on motivation. Perhaps why should non profits be paying more attention to risk management? [00:05:26.98] spk_1:
Well, you know, every nonprofit has a strategic plan. No, not everyone, but 89%. I think according to the data I’ve seen. Um, but if you if you have a strategic plan without an awareness of what your current capacities are, then really you just have an aspiration. What you want to have is an early warning system. Something that allows you to orient ear along the way toward those mountains that you’re trying to conquer. And that’s true any time. But especially it’s true now, you know, when you think about all of the challenges, not just of the business model but all of the political unrest and social unrest and you just go down the line, nonprofits need to have a way to avoid being reactive and instead be proactive. [00:06:11.18] spk_0:
All right, so let’s get into negative risk and positive risk. I think most people are acquainted. I mean on a, on a general level you certainly drill down about potential negative risks. But um, you know, so, so what’s the word that I’m looking for differentiate? That’ll work. It’s not exactly the word I was thinking of, trying to get to, but differentiate will work differentiate between negative risk and positive risk. [00:06:36.74] spk_1:
You know, the the idea would be, um, a negative risk is, um, we call them threats, you know, we it’s it’s something where there is something looming out there that if it happens, is going to either impact your performance negatively or it’s going to reduce your funding or it’s sometimes somehow going to undermine your business model. Um, by contrast contrast, that [00:06:43.77] spk_0:
was, that’s what I was [00:06:44.62] spk_1:
trying there. It is okay. [00:06:49.86] spk_0:
And I was looking for, would you please contrast negative and positive [00:08:20.57] spk_1:
and you know, by contrast, think about the number of things that a nonprofit faces that could actually be good. It could either be a a new initiative, tony you know, something where where someone says, boy, you could partner with us and we could do great things for your mission by doing this new thing. So it could be that kind of positive risk or it could be simply right now we do our device development process this way. If we tweaked it a little bit, we would unlock so much more value for us and therefore be able to achieve our mission more effectively. So it could either be something entirely new or something that is simply a different way of doing what you were already doing and and tony The weird thing is, yeah, I’ve asked leader after leader after leader about this, what device do you have in your organization to identify opportunities and make sure that you follow through on them. Even those organizations that have a risk management process and they think of it as a threat management process very rarely do they have what private industry has, which is a, you know an R. And D. Development and R and D program and an op X program to do operational excellence and identify ways to change for the better And so nonprofits don’t have that tool to build that muscle. That’s why I like to think of risk management, lean risk management as thinking, you know, how do we serve the customer better by reducing threats and increasing opportunities. [00:09:46.63] spk_0:
Okay. The increasing opportunity part is not widely recognized as you’re saying, you know, we’re focused on the threat side and as you know, the book is important because we’re not focused enough on the, on the threat on the threat side, we really don’t, I think people think of insurance and um putting their head in the sand. Those are the two ways of avoiding risk, which is not what ted billets would recommend. Risk insurance. Okay, that’s bona fide. But it’s not the only thing to do. It’s it’s not the first thing to do. Putting your head in the sand. That’s that’s a that’s a big mistake. Alright. Um I got one more thing before we get into what what does lean contribute to risk management? You you pledge that we can do more or we can have less worry not more. If we start we start paying attention to risk. If we create our risk register which we’ll get to and and you get into a cycle we can have less worry not more because we’re surfacing a whole bunch of risks here and only a few of them are positive. I think you’d agree that imbalance there’s more negative risk than positive risk. I I don’t [00:09:47.38] spk_1:
know about that one. But let me let me let me let me address the basic question that you asked, which is you know, we’ll hold off [00:09:56.62] spk_0:
the proportion the proportionality. But but you’re you’re assuring us that we can have less worry not [00:11:09.90] spk_1:
more without question. And and the reason for that is and there’s sound research saying that uh people carry a certain amount of cognitive load and that cognitive load is not only about what they are consciously focusing on, but also what they are subconsciously ka agitating about that never gets up to the conscious level. And that car agitation creates this low level anxiety that’s gonna be there. And I tell you every one of your listeners who honestly looks at themselves in the mirror is gonna say, oh yeah, I know what he’s talking about, I don’t want to lift up those rocks because they might have bad things, so I’m still thinking about bad things, but I don’t know what they are by getting it out in the open. There’s always this incredible cathartic effect. I was working with a client yesterday and and, you know, 25 people on a conference call and they were just saying, oh my gosh, it’s so great to get it down on paper. First of all, we see that most of us are in agreement about what the important things are. But secondly, now, as a, as the leader of this organization, I’ve had so many people who have been able to bring things to my attention and I don’t feel like I’m worried about what balls are out there that I don’t know about. So it’s a really enormous uh, clarity that comes from using a risk management process. [00:12:03.15] spk_0:
Narcisse is what I was thinking of when you you said it, I was thinking this sounds cathartic for the organization. Alright. That word I could think of contrast eluded me until you said you’re you’re you’re saying all the words that I’m thinking of, so you’re, I don’t know if you knew that you were, you’re a mind reader as well. Um Savant, Alright, um Acquaint us with one more thing before we get into lead. What liber this process of risk management. Like give us, give us a high level overview of what you’re encouraging folks to, to jump into. [00:13:32.16] spk_1:
I’ll again use the analogy of of, you know what mountains you want to conquer and imagine that you drop, you drop your, you are parachuted or you crash land in a jungle and you want to get to a mountain. The first thing you do is you want to figure out what your capabilities are. You want to take inventory of what you got. And so the first step of a risk management processes to perform a risk inventory where you look at the various functional areas of your nonprofit plus your external environment to say. What do I currently have in my toolbox? And what are my current worries about those tools that I’ve got? So that’s the first thing. After you do an inventory, you’d probably get 150 items. If you’re really looking at the average nonprofit, you can’t focus on all of them. So what are the most important critical items? So you prioritize and you put together a list that’s sort of like, you know, creating the map and creating a a rubric of what you’ve got wear in your backpack. The things that you most need to worry about in order to get from point a to point B. And then the third thing is this is not an event, it’s a process you want to make sure that you don’t just set off towards the mountain and never pay attention to orienteering again periodically stop. You assess how am I doing in terms of hunger and breathing and everything else? In other words, what are my current threats? Are there any new ones? Are there any new opportunities? And of course correct as necessary along the path. That’s why I think of, you know, risk management. Strategic planning is hand in glove. Strategic planning tells you what mountains to conquer and how you’re gonna judge when you’ve done it. Risk management helps you orient your along the way, [00:13:58.67] spk_0:
Ted Bill. It is going to take us to the mountaintop. Alright, So now what does lean contribute to risk management? [00:16:38.55] spk_1:
Sure. Lien is, you know, it’s it’s it’s not new, but it’s really important. Lean is a methodology that says that you start with what does your customer want and then you try to give the customer what he or she wants with a minimum of waste things that the customer doesn’t want to deal with. The reason why we adopt a lean methodology in in our risk management process is that um you want to make sure you are always focused on customer needs when you’re thinking about your current capabilities and your potential future capabilities. So lean emphasizes. First of all get the voice of the customer. If you’re a nonprofit, you should be finding out how you’re doing. Programmatically not by sort of sitting back and watching the program, but instead by talking to the actual participants. And if you’re talking to, if you’re looking at your other set of customers, the your donors who are after all their customers, they’re giving you money in order to achieve some sort of social change. You want to find out why those donors are doing it and and what they value in what of what your mission is. And so you want to focus on customers. The second reason why lean is so important is that lean emphasizes that you want to make incremental positive change over time. You want to look at problems, challenges as opportunities to become better. You know, a lean one of the lean uh aphorisms would be, you can never be perfect, You can always be better. And so by emphasizing that that you can begin a lean management lean risk management journey and take steps over time to make yourself more and more agile. It allows an organization to say we can test the process of risk management and course correct. Rather than saying we’re going to spend 100 grand and hire a risk manager and create a risk management process. So that’s the second reason why a lean methodology isn’t so important. And then the third one that I think is so consistent with the nonprofit sector is that lean management says your number one asset is your people, you want to empower your people to be able to perform better every day? And if you go back to what I was talking about, when you think about that risk inventory and the risk prioritization and the risk cycle. That’s what it is. It’s a way of an executive director or ceo being able to get his or her team to identify and prioritize and act incrementally to be better every day. So those are the basic concepts behind a lean risk management process. [00:17:07.55] spk_0:
I thought lean originated with software development, But it goes back to Toyota Motor Company in, I think it was the early 1970s, I think you said. [00:17:14.14] spk_1:
Absolutely, no, it it came out of the fact that that Toyota after World War Two was trying to compete with bigger organizations that have greater efficiencies [00:17:27.34] spk_0:
after post World War Two. Okay. Yeah. [00:17:29.65] spk_1:
And and but you’re right, Tony that it wasn’t until the early 80s that that that it became popularized as a methodology, in the in the United States, [00:18:19.11] spk_0:
in the United States. Um, yeah, it’s got a it’s got a rich history and I know there are a lot of books about lean for folks are interested in a lot of books about lean management principles. Um Okay, sorry. So now as I understand how it’s how it applies to risk management, let’s let’s dive into what we’ve been, we’ve been sort of talking about the edges of the risk inventory? The prioritization. Um, what is this and then the cycle, what is the, what is the risk inventory? You know, How often do we need to be inventorying? Acquaint us with this? [00:21:08.57] spk_1:
Sure. Usually what will happen? tony is an organization beginning the risk management process or exploring whether to begin one. They’ll, they’ll do an inventory with a small group of people because you don’t want to over promise that that your day definitely going to adopt risk management. You want to first test how your culture responds to identifying threats and opportunities. So you bring together a small group. They look at the various functional areas of the nonprofit. Each of them identifies threats and opportunities in all of the functional areas. In other words, you ask someone who’s in the development function. No, don’t just focus on development also identify other things that that has been on your mind in other functional areas because the development person might have seen something in the finance function that that is really cockamamie, but they’ve never been asked. So you you have everyone identify threats and opportunities. You put them together in a central document and then you look at them and you talk about what that tells you as an organization. You know, for instance, again, with the organization I was talking about yesterday. You know, they were able to look at their initial risk inventory and they were able to see that a lot of people were identifying the same issues under various functional areas of of their organization. But there was some diversity of opinion as to, you know, as to the threats and opportunities as well. Both of those were really insightful, you know, kind of wow moments for for that organization. Um that’s the first thing the next thing you would do is if you’re going to do an inventory, if you’re gonna stick with this process is after you initially test the idea of a risk cycle with the small group, then what you might do is take it down a level to the people who are boots on the ground and have them do the same sort of exercise because they may see things that senior leadership doesn’t see. You might even at sometime down the road go up A level and engage your board in a risk inventory exercise. Now that would probably be more focused on external things than internal things. But your board might be able to identify big external issues that the staff because they are narrowly focused don’t see. So that’s the way that you could do an inventory and then once you get into adoption of risk management process organization wide, maybe you do a full inventory with a select group of people, you know, twice a year, once a year, depends on the nature of the organization, you know, Sophistication, it’s regular environment, things like that. But but initially what you’re trying to do is you’re trying to slowly widen the number of people who have been asked to identify threats and opportunities in your organization. [00:21:30.25] spk_0:
Ok. And it starts with senior leadership. It sounds like he usually does. When you were saying the development person, that would be the chief development, the [00:21:52.14] spk_1:
chief development officer. You know, you want your, your head of programs, your CEO or E. D. Um, you might, in that initial group have one more junior person who might be, you know, an up and comer. Just so that you, even at the beginning, you, you get a little bit more insight than just the C suite would be able to provide. Um, one thing I would urge anyone who’s trying this process is unless you are a one or two person nonprofit so that you don’t have anyone else to bring in, don’t involve your board in an initial risk inventory because that’s just an invitation for them to get into the weeds [00:24:19.55] spk_0:
enough. Said leave it there with leave it there with the board at that at that stage. Or if your, if your organization is that small. It’s time for Tony’s take two time is running short for planned giving accelerator. The next course is going to start in the first week of March, that will be our fifth class. I’ve had four classes before I already have a Y, we got the first Y this one is a Y M. C. A. In small. It’s a small Y M. C. A. Because all the members of playing giving accelerator are in small and midsize shops. Uh, this is a small Y in north Carolina. We don’t have yet any humane societies. The last few classes have had humane societies again, small but and the very first class had a humane society. But no humane societies. Yet, if you are interested in plan giving accelerator, of course you can get 50% off using the coupon. Non profit Radio 50. The class is all about teaching you to launch planned giving at your small or midsize nonprofit. I went into more detail last week, lots of peer support, all the templates and resources that you’re gonna need to get started holding your hand, guiding you step by step, we’ll spend three months together, March april and May an hour each week. All the other info is at planned giving accelerator dot com. You can always send me an email, tony at tony-martignetti dot com. If you would like to talk about whether planned giving accelerator works for your non profit That is Tony’s take two. We’ve got just about a butt load more time for resilience and lean risk management with ted village, you have a methodology for prioritizing because now we’ve got this bunch of risks and uh, you know, how do we know obviously which comes first and which one can can wait. You have a methodology for prioritizing. [00:25:53.31] spk_1:
Yeah. And and I think that some risk managers at major financial firms would just slap me if they had the chance to, to look at me because they would probably say I oversimplify the process. My response is no, no, no, no, no. You know what, what most risk management professionals do is they try to make precision and it is false precision, you know, they’re why broadly, when you look at a risk, you think about what’s the likelihood of it happening? What’s the impact if it happens and how much of a lead time am I going to get between when I first see it’s definitely coming on and when I feel the full impact, but tony I guarantee If you and I were looking at the same risk and we were using those criteria, we would have different backgrounds that would lead us to have different views of those three factors. So we take it down to an absolute simple level, we say give each participant 50 points And they use those points like chips that they would put on the table and and they can put 50 on one, they can put one on 50 different risks. And what they’re saying is my assessment of likelihood impact and speed of onset means that I want to say this one’s more important and when you bring that all together, you get a very good first estimate of the emotional content of risk in terms of likelihood and impact and so on. You know, that’s a great way to begin to get the process rolling without applying a false level of precision to it. [00:26:32.79] spk_0:
Well, well, well dismiss the naysayers in the, in the professional risk management pool. The simplification can be very, very valuable. So now, so now prioritize so we create our risk register. Yes, we can get to the risk register. This is a this is a moment of peak excitement around risk management. [00:26:39.00] spk_1:
Oh, it’s something that gives you tingles. [00:26:41.61] spk_0:
My synesthesia is kicking in. I’ve got chills. Yeah, chills and I’m almost moved to tears. I’m not quite there. But [00:27:26.55] spk_1:
but but but think about it this way, tony Imagine you’re a nonprofit chief executive and you have a single document that allows you to know what are the most important issues facing our organization right now. Who is watching over that issue for me because because it can’t be me watching over every issue. What is our current best description of what the issue is? What’s our current expectation of what we’re gonna do next about that issue. And when am I gonna hear back about? Imagine if you had that document, it’s better than a strategic plan. It’s better than an annual operating plan. It’s a Boots on the ground. This is a situation, you know, a a situation report about where we are on the most important things. That’s why it is, it’s kind of a really great tool. It [00:27:44.43] spk_0:
sounds, it sounds reassuring and comforting. [00:27:47.92] spk_1:
No going back to [00:27:50.92] spk_0:
less worry, not more, you know, it’s, it sounds like something that, you know, you gotta, you gotta slog through to get to, but it’s very gratifying and reassuring to have it. [00:28:37.91] spk_1:
Yeah, absolutely. tony And, and those who do have it report that, you know, they have, uh, greater engagement from their team because team, team members know who is the champion of a particular risk. Uh, they have greater engagement in terms of people feeling like they belong because they realize that that the, the organization has, is really looking out for them and wants to be around for the long haul. They’re just this host of things that come out of having a risk register and using it, that, that really impact performance in extremely positive ways to [00:28:43.76] spk_0:
tell another story. Uh, the different different organization, not the one you just talked to yesterday, uh, that just had good, had good outcomes or just felt reassurance at reaching a milestone in risk management tell tell a good story. [00:32:01.77] spk_1:
Yeah. Well, okay, a couple of years ago, um, we did work down in Jacksonville and we did work through the non profit center for Northeast florida that brought together a number of organizations to do this deep dive to go through doing an inventory and doing a prioritization and creating a register, uh, in parallel so that they were all doing it together and first of all, that’s a great way to do it because you create a common language among the number of different nonprofits and so, you know, you get this informal coordination and discussion and being willing to show a little bit of vulnerability and so and so on. But one of those organizations was the area agency on aging for Northeast florida wonderful organization. They looked at their uh, situation and they realized, well, a lot of the risk that we have really resides in the fact that we aren’t put boots on the ground. We distribute money to meals on wheels and legal counsel for the elderly and pick your number, you know, that all of the Jacksonville area organizations that interact with with the elderly, but they realized we don’t control those organizations and we don’t know what risks they face. So this organization went and was able to persuade a funder in florida to allow them to do the same sort of thing with their provider network. So we had the provider network also do a risk inventory and discuss it and also do prioritization and discuss it. And so you had things tony like, you know, you had organizations, all of whom were saying, boy, it’s really hard to have capable talent. We can’t hire people and keep them. What they realized though was that most of the people who they hired, who left, we’re going to another organization within that general group. And so discussions started to come about of saying, you know, should we be recruiting in some ways for the ecosystem? Should we be thinking that we’re hiring people who will be with us for 2.5 years and then we’ll become ambassadors either good or bad to some other organization who is working with us. And then the, the area agency on aging accomplished the result of getting these people who were boots on the ground to be talking to each other more and also to be willing to be more vulnerable in their conversations with the area agency on aging. And because they knew that the triple A. Had done the same sort of inquiry. It’s phenomenal what you can do with with that. And so in various communities we’ve had situations where organ where cohorts have gone through because the funder wants to have uh, people who might be interested in collaboration do this work so that they start identifying areas of collaboration. We have some that have done it because they realize that there are certain backbone organizations that they want to make sure have a common vocabulary in case something goes awry. It’s a really powerful tool, not just from a single nonprofit perspective, but from a nonprofit ecosystem perspective. [00:32:29.53] spk_0:
The risk management cycle. Yes, let’s let’s flush that out. [00:33:52.02] spk_1:
Yeah, well, it it captures that idea that risk management is not a one and done thing. Risk management involves, you know, identifying and prioritizing and responding as we, as we’ve talked about already. And then it includes assessing how you’ve done so far with those risks you’ve addressed and what else needs to be done on those risks. But then it emphasizes as well that the next time you look out into the community or even the next time you bring an all staff or a senior staff meeting together, there may be new issues that have percolated up. So it emphasizes that it’s cyclical. You don’t stop after assessing and improving based on your first go round, you identify more, you fold those into your list of existing risks and put them in the risk register where they depend where they need to go. And then you respond to your various risks and assess and improve and identify and so on and so forth. That’s the, that’s the reason why, you know, and it’s the hardest thing tony is to get an organization to adopt a risk cycle. They get tremendous value out of a risk inventory. They say, oh my God, this is great. They do their prioritization, they get the register and they say, oh my God, this is great. And they, they hit their top 10 risks and hit them hard and then they decide, well we’re doing really good. So let’s look at that shiny object over there and they set it aside and so getting that emphasis on making sure that you continue to bring up that register periodically and update it and hold yourselves accountable is the most critical aspect of this. It’s the it’s the one that allows you to really feel like you are facing uncertainty with agility [00:34:17.16] spk_0:
and reach like risk management. Well, you may not achieve it, but asa methodically approach risk management maximization. [00:34:28.53] spk_1:
Nirvana yes, may [00:34:31.12] spk_0:
never reach it. But the the journey, the journey is the end. [00:34:35.36] spk_1:
That’s exactly right. Going back to that lean principle that you can never be perfect. You can always be better. Alright. [00:35:30.70] spk_0:
Uh there’s a lot more detail in the book. You know, you just you wanna you wanna achieve the risk management Nirvana. You want to reach that mountaintop with Ted Bill it. You’re just gonna have to get the book because there’s only so much that we can, we can uh we can talk about and the book is managing your nonprofit for resilience. Use lean risk management to improve performance and increase employee engagement. And I believe we’ve we’ve hit on each of the main topics in the title. So the book is at risk Alz dot com. R I S K A L T S dot com. You’ll find ted at t Bilic uh and you’ll find ted’s company also at risk Alz dot com. Ted thank you so much, enjoyed [00:35:32.62] spk_1:
it. This has always been a blast to talk to you. This has been a great discussion. I can’t wait to talk to you again soon. [00:36:24.37] spk_0:
Thank you so much Ted next week. The co ceo of free will jenny xia Spradling and Patrick Schmidt. If you missed any part of this week’s show, I beseech you. I really do. Beseech you find it at tony-martignetti dot com. I’m not light about the beseeching. I mean it’s it’s a serious beseech Mint. This is no, this is no off the cuff. Beseech Mint, our korean producer is Claire Meyerhoff shows. Social media is by Susan Chavez. Marc Silverman is our web guy and this music is by scott Stein. Thank you for that. Affirmation. Scotty B with me next week for nonprofit radio big nonprofit ideas for the other 95 go out and be great.