Generating contributed and earned income is a critical part of running a successful nonprofit. However, projecting the exact amount that your team will bring in over a certain period of time can be incredibly challenging.

The funding landscape fluctuates based on current events, government budgets and philanthropic priorities, and fee-for-service activities vary dramatically depending on internal infrastructure issues and external market forces. Calculating revenue risk is a way of evaluating revenue projections that applies a numerical discount to revenue that is not confirmed, based on its likelihood of success. For example, if your organization was invited to apply for private funds, there is a high likelihood that the revenue will be secured. In other words, that revenue projection is not very risky.

High likelihood corresponds with low risk, and vice versa. Nonprofit leaders and board members should understand the level of revenue risk within each budget as part of the annual budgeting process.