Rethinking Strategy: Risk Tolerances Add Clarity and Build Trust

Strategic plans are built to chart the path toward an association’s objectives. But too often, they’re written as if the future will unfold exactly as imagined. The truth? No plan exists in a vacuum. Every objective an organization sets is exposed to uncertainty; and that uncertainty is risk. Risk is simply the uncertainty that affects objectives. That means if we have strategic objectives, then we also have strategic risks. Ignoring this truth in planning isn’t just an oversight – it sets the stage for failure.

Why Risk Tolerance Matters

An association’s strategic plan that doesn’t include risk assessment—or a clear discussion of the board’s risk tolerance—is incomplete. While it may be comforting to imagine a straight line from “goal set” to “goal achieved,” we know that economic shifts, changing member needs, new competitors, or even internal resource challenges will affect execution. Associations that fail to account for these realities aren’t setting bold plans; they’re setting fragile ones.

Building Realism Into Your Plan

When we acknowledge strategic risks, we can design effective ways of managing them. This doesn’t weaken the plan, it strengthens it. Accounting for risks helps make goals and objectives more realistic, strategies more resilient, and execution more effective.

This is where setting risk tolerance becomes essential. For each objective or KPI in your strategic plan, the board should determine how much flexibility or deviation is acceptable.

• If the goal is to be first to market with a new service or education offering, would being second be acceptable?
• If the goal is 500 attendees at the annual conference, is 450 still a success?
  These discussions move a plan from being aspirational to being achievable. And it’s even more important if you have qualitative measures in your plan.

Clarity and Trust in Governance

When risk tolerance is clearly defined, it also adds clarity around CEO performance and team expectations. As association executives, we know how much trust exists between boards and CEOs. But we also know of times when that trust eroded, leading to painful partings of ways.
Setting and discussing risk tolerances protects that trust. It clarifies expectations, reduces misunderstandings, and ensures alignment—even as directors come and go.

The Bottom Line

Every strategic plan has uncertainty woven into it. The question isn’t whether risk exists, the question is how much risk – and deviation from KPIs is acceptable. By embedding risk tolerance into strategy execution, associations can strengthen their plans, protect relationships, and maximize their ability to achieve their goals. It’s a key part of the enterprise risk management framework.

© Lori Prospero, CAE