Updated: Oct 20
_ Dave Page, Lead Trainer, The FSI _
No doubt some of you had just dusted off plans for significant developments for your organisations (which likely predate COVID) then Ukraine was invaded, and inflation headed in a dizzying direction.
When just finding the confidence and sustainability to continue operating at current levels is low, is now the right time to embark on a new capital funding project? What if I said it was?
Well, it is all a question of risk, namely how much you are willing to endure?
Let us take some terminology straight from a generic Wall Street article I stumbled upon and see how it translates to our Capital project dreams and plans.
Determine Your Risk Profile
This requires you to look at the likelihood of adverse occurrences happening, and the extent of the impact they will have. If for example, you are wanting to buy a 4x4 for a project, but there is a year-long waiting period, is that something you can manage? If ongoing energy costs of a project are now forecast significantly higher than planned, is that a risk that can be mitigated?
Once you have these mapped out, and there may be quite a few, you can colour code them - green for low risk / low impact, yellow for medium and red for high risk / high impact. Your profile will now take on a colour so you can see how risky your concept is.
Understanding Your Risk Tolerance
This is made of two components, risk capacity and risk willingness. What is your capacity to deal with risks? For example, a strong and diverse support base suggests you have a good capacity to deal with financial risks. If you have no required specialist knowledge, your capacity will be low.
Your risk willingness is your internal appetite for risk – where do you draw the line between being responsible and being reckless. Are the board happy for staff to be drawn away from their regular roles if things go wrong?
Know Your Timeline
Overly ambitious capital projects can take a long time, and unforeseen hiccups can add to this. Maybe you can cope with the risk of delay, if so, this is not major, however if your roof is caving in and you are working on a truncated timeline, this will be higher on your importance list. Also, if you can delay, maybe you should, or at least extend your private phase.
Select Your Strategy
The strategy in any capital appeal is the most important aspect. No matter how noble your cause, if you do not have the right team, right messages and right audiences, you will struggle. Get your strategy right in good and difficult times. I need say no more.
Determine the Risk You Are Comfortable With
Finally, it is time to decide. You have the details of the risks, your ability to mitigate them (or ride them out) and a strategy that factors these in. Is now the right time to head into that Capital project, or should you pause and put it back into the drawer? Only you and your team of trustees can tell.
In September, I am running a course on Capital projects, so if you have an idea but are not sure if you should start or bide your time, or maybe you have not run a capital project before, come along and learn from the FSI’s experience and others in similar situations. See here for the course booking link.
We also currently do not offer any specific training on Risk Management. If that would be attractive, then do email and let us know.