6. Risk management
Risk may be defined as events that may prevent or inhibit the achievement of the company’s strategic objectives. Risk Management is the process of identifying risks, evaluating their probability and potential impact and determining suitable methods for reducing, controlling and responding to risk. As an ambitious and pioneering project, that will cost a substantial amount of money, LILAC has to take its risks seriously. At this stage, LILAC is clearly identifying Risk Management as a future priority, whilst doing some initial work on our risk management.
LILAC will look to ‘map’ each area of risk against certain risk categories and then define mechanisms for response and monitoring. These risk categories are:
6.1 Risk register
Once identified, the risks will be assessed by LILAC to see what effect they may have on its ability to meet our key objectives. We will maintain a “risk register” that scores each identified risk and determines the person(s) responsible for its management. We hope to do this in a participatory and engaging way, that helps members understand our mutual responsibilities but not get bogged down in negative detail. This will be reviewed regularly, by a sub committee appointed to manage risk.
The following is a template for our risk register:
Category |
Risk / Consequences |
Level of risk |
Control / Action |
Respon-sibility |
Target date(s) |
Progress |
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5 Catastrophic 4 Major 3 Moderate 2 Minor 1 Insignificant |
5 Almost certain 4 Likely 3 Possible 2 Unlikely 1 Rare |
Avoidance (eliminate) Reduction (mitigate) Transfer (outsource or insure) Retention (accept and budget) |
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6.2 Financial risk management
This is the area of immediate concern and we have identified the following areas for further attention:
Liquidity risk
This is the risk that LILAC will be unable to meet its liabilities as they fall due. This risk needs to be managed using reliable short-term, medium-term and long-term cash flow forecasts backed up with a combination of adequate cash resources, borrowing arrangements and/or overdraft facilities.
Grant risks
Given the current financial situation, there may be problems securing grants. In this scenario, any shortfalls from grant failures will be met through low interest loans from the co-operative sector or additional loan stock.
Interest rate risk
This is the risk that future interest rates will be higher than budgeted or forecast. This risk can be managed through the spreading the loan portfolio across a number of lenders. In particular the Ecology Building Society discount their interest rate for buildings of high environmental specifications, like ours.
Poor budget management
There is the potential for LILAC to make inappropriate financial conclusions and decisions. In the development phase a Finance Committee will manage the financial planning and monitoring. After moving in, the finances will be overseen by Finance & Legal Committee, with the day-to-day finances managed by a dedicated book-keeper. We will seek to use Participatory Budgeting techniques to actively engage all the residents in an annual planning, prioritising and monitoring process. This will be complimented by “budget literacy” to ensure the finances are not an onerous or boring area left to a few in the know.
Risk from people moving out
The repayments come from members paying 35% of their net income. Matters beyond the control of individual members and the MHOS may result in members being unable or unwilling to make their payments. Lilac has a robust plan to deal with this scenario as follows.
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1. In the situation where a member is refusing to pay, their membership will be withdrawn following the procedures as set out in the company rules to try and resolve this issue. New occupants will be selected from the waiting pool. |
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2. In the situation where the income of a household dropped, for example from illness or redundancy, there would be several measures in place to deal with this:
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