Risk is the likelihood of an undesirable outcome. Every action includes an element of risk.

Philanthropy is no exception to this rule. In fact, charitable donations — because they seek to solve seemingly intractable problems — are often referred to as society’s ultimate “risk capital.”

Risk and return analyses are important considerations when making any investment decision. In the context of philanthropy, this includes grants as well as impact-investing decisions that seek social as well as financial returns.

“Philanthropy should be taking much bigger risks than business,” said philanthropist Bill Gates. “If these are easy problems, business and government can come in and solve them.”

An important new report has developed a framework for understanding and valuing the role of risk in contemporary philanthropy. The Open Road Alliance, The Rockefeller Foundation and Arabella Advisors collaborated on “Risk Management for Philanthropy – a Toolkit,” which is described as “the first practical, comprehensive framework providing guidance to funders on how to implement best practices in risk-management.”

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