Importance of  ERM in the third sector
The writer

Importance of ERM in the third sector

Before we delve into the significance of ERM, let's first clarify what the "Third Sector" is. Imagine three pillars that hold up our society:


1. The First Pillar: The Government. They make the rules and enforce them.

2. The Second Pillar: Businesses or the Private Sector. They make products and services to sell for profit.

3. The Third Pillar: The Third Sector. These are the non-profit organisations, charities, and voluntary groups that work for social causes, not for profit. They try to fill in the gaps and address needs that the other two might miss.

So, the Third Sector is like that friendly neighbour who organizes community events or charity drives, but on a much larger scale.

What is ERM?

ERM stands for "Enterprise Risk Management." In simple terms, it's a smart way for organizations to think about all the things that could happen (risks), which includes good and bad things and plan for them. Just like we might have a first aid kit at home in case of emergencies, organizations use ERM to be ready for potential problems or some spare cash to take advantage of a free fall in price of your favourite closet items.

Why is ERM Important for the Third Sector?

1. Scarce Resources: Third Sector organizations often run on tight budgets. They rely on donations, grants, and volunteers. If something goes wrong, it could waste the limited resources they have. By using ERM, they can be smart about how they use their funds and protect them from potential risks.

2. Trust is Key: People donate their hard-earned money to these organizations because they trust them to do good. If a Third Sector organization faces a scandal or major problem, it could lose the trust of the public. With ERM, they can spot potential issues early on and address them before they become bigger problems.

3. Fulfilling their Mission: These organizations exist to make a difference. Whether it's helping children, conserving wildlife, or any other noble cause, they need to be effective in their mission. ERM ensures that risks don’t sidetrack them from achieving their goals.

4. Adapting to Change: The world is always changing. New laws might come into play, or there could be natural disasters, or perhaps changes in the community they serve. ERM helps Third Sector organizations anticipate these changes and be prepared for them.

5. Encouraging Innovation: While it might seem like ERM is all about avoiding risks, it's also about seizing opportunities. By understanding their risk landscape, Third Sector organizations can find new and innovative ways to fulfill their mission without fear of the unknown.

Wrapping it up

Think of ERM as the trusted flashlight and toolkit combo that the Third Sector keeps in its backpack.

As these organizations travel the path of societal challenges, they face various obstacles.

ERM ensures that they're not caught off guard and can keep moving forward, shining their light brighter for all to see.

So, the next time you hear about a charity or nonprofit doing great work, know that behind the scenes, they're probably using smart strategies like ERM to make the world a better place.

The writer is an independent Internal Audit Advisor, Enterprise Risk Management Consultant, and professional trainer.

He is the founder and Chief Operating Officer of Redric Consulting, your trusted partner for comprehensive training and consulting services in the fields of Governance, Risk, and Compliance (GRC). With a proven record of accomplishment Enterprise

Risk Management, Internal Audit, Internal Control, Compliance, Fraud Risk Management, and Cybersecurity, Redric Consulting empowers your organization and ensures its success. You may reach out to Frederick on [email protected].

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