How associations are rethinking risk

Associations are uniquely positioned to be the voice of various industries, advance important causes and bring together individuals with common professional interests.

But the distinct role of associations also leaves these organizations exposed to a common set of risks related to revenues, membership and governance – and grappling, in some cases, to understand where these issues fit within their mandate.

“Becoming irrelevant is a big risk for a lot of associations,” says Susie Grynol, president of the Hotel Association of Canada. “A lot of (associations) struggle with that sort of identity crisis.”

The 2020 Ottawa Association Exchange, an annual management practice survey, asked more than 80 association executives about their approach to these prevalent risks and explored best practices to overcome these common challenges.

Experts say the first step is typically asking some simple questions: What could go wrong? What could derail your organization’s programs, operations and growth opportunities?

The answers are typically recorded in a risk register – something that doesn’t currently exist within the organizations of half of this year’s OAX respondents.

Addressing the risks facing an association typically involves adopting a risk management mindset that embraces responsible and evidence-based decision-making. This gives leaders confidence that their actions will advance the organization’s overall goals.

The 2020 OAX survey explores three areas in which associations most commonly face risk: financial practices, operations and membership engagement.

Financial risk

When asked to name the top threats to their organization, many association executives identified risks related to an unexpected loss of revenue.

The results underscore the importance for associations to have a mix of income sources, says Grynol.

“If you build in diverse forms of revenue, you’re more protected because you have a greater portfolio of where the money is coming from,” she says. “You have more control over it, and you’re just not as reliant on membership fees.”

Many associations say they’re looking to sponsorships as a way of reducing their reliance on member-generated income. At the Greater Ottawa Home Builders’ Association, for example, executive director Jason Burggraaf says sponsorship funds make up a third of the organization’s revenue and are “vitally important.” 

“It’s about balancing your revenue, and not tipping the scales one way or the other,” he adds. 

Another mitigation measure is having a financial cushion that enables the organization to withstand an unforeseen loss of revenue, such as the cancellation of an annual conference.

More than half of survey respondents reported having 10 months or less worth of operating reserves – a figure experts say could be insufficient in a crisis.

“You should typically have around 12 months of reserve funds to draw upon in case membership fees don’t materialize, or the annual conference is cancelled, and you need to pay the bills,” says Richard MacNeill, president of management consulting firm OTUS Group. “Not having sufficient reserve funds available means you may not have the required cash flow to meet daily operations.”

Operations

With data breaches and hacks – as well as new and emerging online threats – regularly making headlines, it’s no surprise that more than a quarter of OAX respondents cited a cyber attack as one of the biggest risks facing their organization.

“You have to think about your membership database and keeping people’s information confidential,” says Nicole Thibault, executive director of Canadian Parents for French.

Implementing specific safeguards, however, is a more complex subject, OAX survey respondents reported.

Slightly less than one-quarter of association executives say they turn to external expertise by outsourcing their cybersecurity requirements. A similar number of organizations carry some form of cyber liability insurance.

But despite many cyberattacks targeting employees through phishing schemes or other attempts to obtain sensitive information, more than four in 10 respondents say they don’t offer any form of cybersecurity training to their staff.

The Canadian Institute of Planners used to be part of that cohort before introducing a cyber training program for employees that outlines existing security programs, emerging threats that staff could confront as well as who to contact should a security breach occur.

“We’re all much more aware of cyber risk and privacy now,” says CEO Beth McMahon.

OTUS Group CEO Francis Liska says associations need to understand the origins of the risks facing their organization in order to address issues such as privacy and online security.

“When it comes to online security, significant risk often arises internally and is attributable to lack of awareness and cybersecurity training,” he says, adding that the risk of fraud can arise internally when financial controls are weak.

Liska says this is a risk that’s potentially being overlooked by many associations. Only one per cent of OAX respondents identified theft or fraud as a major threat to their organization, even though association executives conceded that they have practices in place – such as using physical cheques – that create vulnerabilities.

Membership

The prospect of reduced membership numbers is the biggest risk facing associations, according to OAX respondents. With membership fees typically representing a significant source of revenue for associations, it’s an understandable operational threat. But it also goes to the heart of an organization’s mandate and purpose.

“Obviously there’s a revenue stream (at risk) if membership were to drop,” says Thibault. “But more importantly, when you’re losing members, you’re questioning ‘Are we still relevant?’”  

On the surface, the associations represented in the OAX survey are moving in the right direction with more than three-quarters reporting their membership numbers are either staying constant or increasing.

However, other areas of the survey identify opportunities for association executives to reduce the risk of losing members.

Currently, more than half of OAX respondents say they don’t know their membership churn rate. Additionally, three in 10 say they don’t use a membership management software tool, or they rely on spreadsheets. And, when association executives are asked to rank various activities based on the amount of time they spend working on each, membership recruitment, engagement and retention ranks sixth.

But at the same time, association executives say they’re getting more creative in their approach to membership engagement by, for example, creating custom packages to meet the changing needs of individuals and organizations.

Michael Brennan, executive director at the Canadian Association of Management Consultants, says a focus on delivering value is key to retaining members and is something his team has spent several years evaluating. He explains that the process led the organization to introduce a new category of membership.

“We created a sort of semi-retired membership package that is priced accordingly and really focuses on that part of our members lives,” he says.

OAX survey respondents also cited financial discounts as well as outreach to post-secondary students as strategies to attract new members.

“An association’s relevancy is truly based upon having a big enough membership base,” OTUS Group’s MacNeill says. “They can act as the voice of a particular contingent of people, but if you don’t have enough of those people, you’re just no longer credible.”