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Avoiding Disruption to Your Nonprofit: How to spot the “Black Swan”

Even the best-run nonprofit organizations sometimes face disruptive events that, in hindsight, could have been avoided.

These major surprises, which have great impact, are commonly called “black swans.” (I coined the term “Million Dollar Blind Spot” in a book I wrote of the same title. Though written for for-profit companies, it has much to teach nonprofits, as well.)

The black swan might not literally cost your organization a million dollars, but it could impact its ability to perform its mission. That alone is reason to read on.

These kinds of events are seen as outliers from our expectations and seem improbable, yet have great impact. Not being able to see potential black swans is actually a consequence of our own mental biases. Uncertainty is something we struggle with psychologically and sometimes we simply are unaware that unexpected events could potentially alter our world in a major way.

Consider that most organizations need to generate far more than a dollar of top line revenue to result in a dollar remaining at the bottom of the income statement. That suggests finding and addressing a black swan in time before it impacts your organizations surplus or deficit is at least as valuable as a bluebird bequest of the same amount of top line dollars.

With this framework, let’s consider how your organization can benefit from this enterprise risk-management-oriented approach.

The world of nonprofits is a cornucopia of surprises both good and bad which introduces a significant level of stress and uncertainty for those working in the field. By uncovering and working with your black swans, you can transform your work experience from one dominated by the feelings of being ground down and fearful to one that has elements of joy and reduced stress. Does this sound good to you? Black swans can manifest themselves as increased opportunities, more charitable funding, the reduction of risk and uncertainty and a decrease in the cost of operations.

Black swans abound:

  • the drumbeat of federal and state budget cutbacks which increases the neediness of client constituents;
  • the increasing gap between rich and poor which causes donors to question the efficacy of what they are trying accomplish;
  • the lack of meaningful jobs for newcomers in the nonprofit arena while many present day executives in the workforce are experiencing burnout and lack the funds to retire;
  • the unrelenting demand to demonstrate results coupled with the ongoing pressure to minimize overhead as if it is some sort of surrogate for efficacy of the nonprofit enterprise; and
  • the introduction of for-profit/social mission organizational hybrids and their potential disruptive effect on the world of non-profits.

So the question is, how do you, with limited time and resources, uncover your black swans and use them to your nonprofit’s advantage?

There are three tests that you can apply to a situation to determine whether or not you have found a black swan:

  • Does the circumstance have an upside or downside of major portions?
  • Is the event a total surprise and defensible?
  • Looking back, was the event easy to predict?

Hurricane Katrina is a prime example of a perceived black swan event that could have been significantly mitigated had some black swans been foreseen and addressed.

Our system for national preparedness was built to address the normal hurricane, earthquake, wildfire, or other bounded natural or human induced events. The response system was not designed to handle a catastrophe. Methods for a coordinated federal and regional response were absent. There was a lack of understanding by those responsible for making decisions as to what the preparedness plans actually were which resulted in a lack of teamwork among nonprofits and governmental organizations. And, finally, from a structural point of view, there were simply weak planning and coordination mechanisms in place to deal with such a catastrophe at a regional level.

Looking at the Katrina fiasco through the test rules for black swans, you would probably conclude that the downside was horrendous and with the benefit of hindsight could have been easily predicted. Perhaps you disagree, per the second black sway test, that Katrina came totally out of the blue and was therefore an extraordinary surprise and totally defensible. Taking a large step back and examining what did in fact happen, you would be inclined to see the Katrina response system as a discrete project; ticking off examples of the pluses and minuses associated with such elements as leadership, management and communication. The notion that the hurricane was purely a black swan sabotages the hard project work of a retrospective examination which can lead to learning and building better projects going forward.

The overarching theme of this commentary is to provide you with a way to work with your black swans when you are constrained by limited time and resources. If you can bring leadership to the task within the context of a strategic framework to the process described below, you will be well on your way to success.

The next three questions will help you to come to grips with where you should invest your time in aspects of your nonprofit endeavor by focusing on enterprise risk management, planning for possible risks and opportunities, and examining the process used to update your strategic plan. The questions are:

  • When is pointing to a black swan merely an excuse rather than being defensible?
  • What is the impact and expense associated with your entertainment of such a distorted perception?
  • What dollar threshold must be crossed that will grab your attention?

In a world of limited time and resources, the answers to these three questions will help direct you in making the difficult decisions with respect to your nonprofit risk assessment and enterprise risk management. You are now on your way to identifying those black swans by attaching a dollar value to key risk elements and the establishment of monetary criteria which help you decide where to place your attention.

Gary Patterson

About the Contributor: Gary Patterson

Growth and fiscal leadership expert, Gary W. Patterson, the FiscalDoctor® (www.FiscalDoctor.com), author of Million Dollar Blind Spots: 20/20 Vision for FinancialGrowth, enables growth through leverage you did not know you had.

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