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Risky Business and Maximizing Impact

December 20, 2016

Risk_measurementOpen Road Alliance is in the business of risk. A private foundation, Open Road only provides funds to fully-funded nonprofit projects that encounter unexpected obstacles. We come in when risk is realized. Over the last four years, we've worked closely with more than sixty-five nonprofits and projects ranging in size and area of focus. Yet through our work, we've seen just how infrequently risk and the unexpected are incorporated into the grantmaking process.

Based on our own research, we found that 76 percent of funders report that they do not ask potential grantees about possible risks to a project, while 87 percent of grantees report that no grant application has ever asked for a risk assessment. Both nonprofits and funders acknowledge that risk exists; neither seem to have found a way to address it. Seeing these stories over and over again in our own portfolio raised the question as to whether the organizations we work with were an exception to or the norm in philanthropy.

To test this, we partnered with IssueLab, a service of Foundation Center, to examine what materials were available to and authored by the philanthropy sector that address risk. Last month, the IssueLab team completed an evidence scan of the sector's "grey literature" – websites, blogs, and industry-specific publications – and identified which types of resources are currently available to nonprofits on the topic of risk.

The IssueLab scan uncovered two important findings:

  • Funders love to talk about "risk" and being "risk-takers" without having a standard definition of risk and how to measure it. If funders cannot define or measure risk, they can't know whether they are taking one.
  • As much as funders like to discuss risk, there is virtually no conversation around how to manage it. Without risk management, the conversation about whether philanthropy is or should be risk-taking is moot.
As we anticipated, there are materials available that addresses the ethos of risk-taking, but there are virtually no tools to help nonprofits and grantmakers understand, anticipate, mitigate, and manage risk.

This, however, is about to change.

Since May 2016, Laurie Michaels, founder of Open Road, and Judith Rodin, president of the Rockefeller Foundation, have co-convened leaders from a range of philanthropic entities to produce practical methods for assessing and planning for risk. Comprised of twenty members, the Commons represents geographically diverse institutional and family foundations, law firms with specialties in philanthropic governance and tax issues, financial advisors, and nonprofits.

In early 2017, the Commons will be releasing a baseline toolkit of ten adoptable and adaptable policies for assessing an organization's risk and implementing risk management practices throughout the grantmaking process. The result of the IssueLab collection underscores the need for this work, but we believe its relevance is even broader than filling a gap in practice.

Philanthropy is at a tipping point and is ripe for the next level of professionalization and sophistication. Within philanthropy, we're seeing an unprecedented intergenerational transfer of wealth, the creation of new philanthropic models, a blurring of the lines between the private and nonprofit sectors, and the emergence of a new generation of foundation leaders who seek to re-imagine how we can most effectively achieve impact.

Yet, outside the industry, inequality is growing and financial markets are exhibiting unsettling volatility (even while soaring to record highs). Research also shows that at least one in five philanthropic investments are affected by unforeseen disruptions, and exogenous events continue to erect barriers to the work we do to create impact.

All of this makes the need for a robust discussion of and better practice around risk management more salient than ever. We encourage our peers to use this toolkit, together with the IssueLab collection of browseable, searchable, and public resources, to foster open dialogue around risk and better ensure the impact we all seek.

Headshot_maya-winklesteinMaya Winkelstein is executive director of Open Road Alliance, where she is responsible for the organization's overall investment strategy, including finding new ways to deploy capital to achieve maximum social returns. This post originally appeared on the GrantCraft blog.

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