Risk

Charities need funders to take more risks.

What risk looks like in foundations

Starting points

Our research has focused on three dimensions of risk within foundations:

Balancing benefit and risk
Appetite for risk
The invisibility of risk

1. Balancing benefit and risk

Grant-making decisions can be understood as judgements about a balance between benefit and risk – the aim being to select applications that funders reasonably believe will make the biggest difference against their funding priorities, while being confident that the proposed work is achievable and that the funded organisation is capable of delivery.

2. Appetite for risk

There can be a lack of alignment within foundations in terms of understanding ‘what risk means to us’ and how it is best managed. Due diligence processes need to be proportionate to the size of the organisation being funded, the nature of the funded work, and the size of the grant.

3. The invisibility of risk

The invisibility of risk can produce processes and behaviours that are problematic to applicants and funded organisations – and that impede the flexibility and agility that the moment may call for. Foundations need to move from a deficit to a strengths-based approach, placing greater emphasis on where potential lies to deliver a positive outcome and how to work with organisations to manage and live with risk.

Too much caution can narrow the range of people and organisations funded and what that funding can achieve.

Our findings

Risk is not a static concept.
Processes need to be aligned with risk appetite.
Preoccupations with risk can be categorised under four (often overlapping) headings.
Risk needs to be looked at from a number of different angles.
Risk needs to be talked about.

Risk is not a static concept

A funder’s risk tolerance will fluctuate over time and between different projects or programmes. Understanding how foundations manage their tolerance of risk is valuable both for operational staff and for potential applicants.

Processes need to be aligned with risk appetite

Without explicit agreement about the approach to risk at a strategic level, and a clear vision of the potential rewards from risk, staff lack clear structures and authority to develop tailored processes. They may fall back on unnecessarily onerous requirements, designed to anticipate all possibilities.

Preoccupations with risk can loosely be categorised under four (often overlapping) headings:

Risk of project failure
Risk of organisational failure
Risk of fraud
Risk to reputation

Risk needs to be looked at from a number of different angles

It is too often ‘put into a box as a technical activity’ and not considered in the light of:

The consequences that risk avoidance mechanisms may have for strategy and purpose.
What can realistically be achieved within foundation staff levels and application/grant volumes.
The level of risk that foundations can responsibly transfer to charitable organisations.

Risk needs to be talked about

Failure to fully explore how strategic decisions about risk should play out in day-to-day practice leaves staff feeling exposed and reluctant to innovate. For example, a strategic decision to ‘take more risk’ does not in itself provide assurance to front-line staff about how their performance will be judged: ‘Do trustees really know that we aren’t going to ask as many questions? And what’s going to happen when something goes wrong?’.

A framework for thinking about risk

We developed a framework to help foundations to achieve greater clarity about the different aspects of opportunity and risk inherent in their strategies and aspirations. It offers seven attitudes and aspirations that influence appetites for risk, and have a direct impact on how foundations frame application processes, make grant decisions, manage grants, and make judgements about effectiveness:

Attitude to innovation
Expertise
Clarity and certainty of outcome
Data
Capacity and capability
Financial risk
Public opinion

Case study

Considering your appetite to risk when you have a bold ambition

In 2019, we carried out a learning review of The Queen Elizabeth Diamond Jubilee Trust (QEDJT), which was established in 2012 to mark and celebrate Her Majesty The Queen’s 60 years as Head of the Commonwealth. Trustees decided to dedicate nearly £80million to a five-year strategic programme to tackle avoidable blindness. Across the world, 285 million people are visually impaired, of whom 39 million are blind. Yet 80% of blindness and visual impairment is curable or treatable. Good quality eye care is a scarce resource for millions of people across the globe, including in many Commonwealth countries.

By any stretch of the imagination, this was a bold ambition. The learning for foundations interested in framing their work around a tightly defined goal includes:

Understanding and agreeing a foundation’s own organisational needs and expectations is a critical first step in identifying an objective that fits its scale, aspirations and appetite for risk.
Recognising and accepting the importance of complete organisational alignment behind an agreed strategy – ‘achieving strategic focus involves giving up everything else’.
Building genuine credibility as a contributor ‘beyond the money’ takes time and effort – being present, being interested and being useful all help this process run more smoothly.

This was also a potentially risky initiative. Our evaluation highlighted four key areas of focus for foundations considering their risk appetite and their approach to innovation:

Achieving real clarity and agreement – both internally and with partners – about what risk looks like and where it lies, and then being realistic about potential risks and taking care not to overreact; while being ready to take quick, and hard, decisions where necessary.
Taking a positive approach to risk management and mitigation, actively seeking access to skills, knowledge and expertise to assist in this task, and deploying these resources effectively.
Seeking to create relationships with grantees that enable them to contribute their expertise and have the confidence to share ‘real-time’ information on challenges and risks so that timely action can be taken to deal with them together.
In balancing questions of risk and benefit, being conscious of the distinctive freedoms that come with being an independent foundation and being willing to take risks where the potential rewards are sufficiently promising.