Revealing Risk in Philanthropy – part 2

Last fall, I started researching the topic of risk in philanthropy for a conference session. I wrote a post soliciting feedback on the topic and cited a couple of the resources I’d found useful.

Some of the best thinking I’ve found comes from the team at the Open Road Alliance. Philanthropist and psychologist Laurie Michaels, Ph.D., founded Open Road to “fill a market demand for fast, flexible contingency funding in the philanthropic sector.”

In addition to its grant and recoverable grant programs, Open Road helps nonprofits and funders think about:

  • Risk mitigation – better forecasting, planning, and budgeting for risks that can be predicted and tamed. These would include strategy risks, implementation risks, and organizational culture risks.
  • Contingency planning – creating scenarios and contingency plans for external risks, the factors beyond an organization’s direct influence or control.

Open Road’s newest publication is Contingency Funding in Philanthropy. It describes the results of a survey which asked 200 nonprofits and 200 funders how they dealt with contingency funding – the need for additional money related to unforeseen disruptive events during the lifetime of a grant. Four highlights from the report include:

  1. About 1 in 5 nonprofit projects require contingency funding to help deliver their anticipated results on time and with the full impact desired. The disruptive events they faced didn’t include natural disasters, but did include such challenges as costly shifts in government regulations and a critical infrastructure failure.
  2. Funders think grantees can easily find contingency funding other places should the funders decline a request. However, most nonprofits end up having to use their savings, take on debt, and/or reduce the impact of a project.
  3. Only 35% of the funders had a policy for managing off-cycle requests for contingency funding, and it was often unclear to nonprofits that they could apply for contingency support. Even if nonprofits thought that contingency funding was available, they often did not feel comfortable asking for it.
  4. The surveys verified Open Road’s central premises – too few nonprofits and funders have policies and practices in place to deal with risk (especially external risk) and too few have honest, open conversations about risk.

The disconnect between nonprofit and funder expectations isn’t a surprise. Those honest, open conversations require a high degree of trust between the funders and nonprofits. However, not many foundations devote the time and human resources it takes to build real trust and make a dent in the power imbalance between funder and fund requester. And, I can’t help but wonder if the declining amount of trust between people and in institutions is also slowing damaging opportunities for conversations about risk.

Open Road has a couple of other reports useful to funders and nonprofits:  Risk in Philanthropy has practical guidance on risk mitigation and contingency planning, and Project Risk and Impact has a longer case study on risk assessment and mitigation in an international health nonprofit.

Tune in next time…

As a follow-up to the fall 2015 conference session, the National Center for Family Philanthropy invited me to write a longer Issue Brief on the different types of risk in family philanthropy. That publication will only be available to NCFP subscribers and Friends of the Family. But, in my next blog post, I’ll describe an overview graphic I created and a few other key ideas I ran across in my research.