Talking About Risk with The Seattle Foundation & PATH
On January 14th, Laurie Michaels, Founder of Open Road Alliance, and Steve Davis, President and CEO of PATH, met with over two dozen philanthropists, fund managers, and members of family foundations to discuss risk in philanthropy and the role of donors when projects led by non-profit organizations encounter unexpected roadblocks. Hosted by The Seattle Foundation, the event featured a moderated panel followed by Q&A from the audience. Below is a recreated excerpt from the conversation.
Why do non-profits with multimillion-dollar budgets fail to fund shortfalls that affect their own projects? Why would any such organization have a real need for the incremental (up to $100,000) funding that Open Road provides?
This notion can be a real stumbling block for funders who reasonably question whether an organization with millions on its balance sheet is sufficiently supportive of its projects that require additional funding.
Generally, the largest non-profits can be thought of as conglomerations of many smaller organizations, which means that each individual program endures the same budgetary struggles as a small start-up non-profit might, trying to stretch limited funding dollars. While the organization’s balance sheet may show ample funds in aggregate, often each individual program and project has budgeted down to the last penny in order to maximize impact. The large non-profits that have internal funds available for unexpected needs are the rare exception.
Non-profits also point out that the majority of their funds are given under such narrowly defined spending constraints that in an emergency, otherwise ‘available’ monies cannot be diverted to address other needs, even within the same project. Convincing funders to allow flexibility takes time, which is not available when a project is mid-implementation; even relatively “quick” turnarounds take months. As an example, a large, multi-country, NGO had a private funder who was interested in replicating a training program that had proven highly successful in East Africa. The funder was willing to pay millions of dollars for immediate implementation of the program in Southeast Asia but would not underwrite the much smaller cost of translating and adapting the curriculum to this new setting. Without these incremental funds, the organization could not move forward with an otherwise fully-resourced project.
If we accept the premise that the world is unpredictable and every project faces some level of risk – who has the responsibility to manage that inherent risk?
Risk is an inherent part of any investment – including philanthropic investments. It is in the interest of any investor, including donors, to help mitigate risk and correct problems as both their capital investment and their intended social impact are at stake if a project is derailed. Open Road believes that funders should play an active and collaborative role in mitigating risk and overcoming roadblocks.
However, the first step to solving any problem is recognizing that you have one. In conversation, most funders and non-profits agreed that the grantee is responsible for initiating conversations about risk and crisis management. These conversations shouldn’t wait until after the problem arises. Rather, expectations about what the donor will do, how the non-profit should initiate the conversation, and what information the grantee is expected to communicate should be established in the very beginning.
What steps could donors or non-profits take to become more flexible, or operationalize their own version of Open Road funding?
By embracing the reality that risk is inherent in the work that nonprofits do, donors and non-profits can pro-actively create mechanisms to efficiently plan for uncertainty. Here are some of our ideas to mitigate against risk and plan for uncertainty at the beginning of a project:
- Ask your grantees to include a budget line item for risk in every proposal submitted. The budget narrative will still need to justify this estimate based on the type of project and associated risks. Make it no different than justifying personnel or travel expenses.
- Consider setting aside 5 or 10% of your annual grant making budget to plan for risk and contingencies. If none of your projects run into roadblocks, roll over the funds to the next year or consider making a bonus grant to your most impactful grantee at the end of your fiscal year. Plan for risk and reward success.
- Have up-front conversations with grantees about what to do if something goes wrong. What is the process/protocol for communicating with you in the event of a roadblock or issue?
- Have the conversation with your Board of Directors about risk. If your grants are investments designed to deliver return on a social impact – what is your tolerance for risk in those investments? Discuss the hypothetical scenarios. Where/when would your Board feel a responsibility or desire to guarantee its investment when something goes wrong mid-implementation?
- Consider creating an accelerated grant approval process or emergency approval committee to handle timely requests from existing grantees when roadblocks arise.
- Include a budget line item for risk in every proposal you submit to a funder. Explain the associated risks of projects upfront – even if that means it’s a harder sell to get the initial funding. Truly committed funders will appreciate your honest and thoughtful approach.
- If possible, create an internal ‘roadblock’ fund in your unrestricted dollars to plan for risk and contingencies.
- Have the conversation with donors up-front about what to do if something goes wrong. Ask them about procedure and protocol. Put forward the hypothetical and ask your donor if they would be open to the conversation for incremental funds to fix potential problems.
- Be honest and transparent when roadblocks and challenges arise. Sometimes we make mistakes, and sometimes things happen that we couldn’t foresee. Being cognizant of the perceived causes of roadblocks and honest about the realities of the situation will deepen the relationship and build trust for the long-term.
About Open Road: Open Road Alliance helps the development community to manage the unexpected.
Open Road believes that many well-conceived programs and initiatives can and do run into ‘roadblocks’ to success. Regardless of the quality of the planning, unanticipated needs are often discovered mid-stream. Similarly, programs can reveal unexpected opportunities for investment that would multiply the benefits to target populations and communities. Many of these opportunities arise spontaneously and can’t be met with existing funding sources. It is during these critical, unanticipated moments that Open Road Alliance provides discrete, catalytic funding to help development organizations achieve full impact. To learn more visit www.openroadall.wpengine.com
The Seattle Foundation: The Seattle Foundation is making the greater Seattle community a vital and healthy place to live, driving positive change on a range of local issues by working side by side with donors. Founded in 1946, The Seattle Foundation is your local, definitive resource for giving. We provide the reliable insight and tools you need to make the most of your giving. Whatever your charitable budget, we can help you give wisely and have the impact you want. To learn more visit www.seattlefoundation.org