As grant makers we take a variety of steps to assess potential projects and protect resources, but too often, we either seek to avoid risk or, worse, fail to acknowledge it. We hope to encourage our colleagues to talk about risk and understand it, and to analyze the pros and cons and appropriate levels of particular risks.
The Commons, a coalition of nonprofit leaders and advisers, has created a toolkit to help bring risk to the fore in grant making. From the toolkit, here's a checklist for better handling risk.
Develop a Risk Profile. Every funder should understand its appetite for risk and how that a!ects its grants and projects. Understanding an organization's level of comfort with risk is essential to developing policies and articulating those to sta!, grant applicants, and grantees. Failing to define one's approach to risk and act on a shared understanding sets the stage for frustrating outcomes. There are multiple types of risk (e.g. financial, reputational, governance, impact), and a grant maker will likely have di!erent appetites for risk in di!erent categories. As a first step, foster internal conversations -- with employees and board members -- to define and perceive risk. Sample questions include: When should we take risks, and when shouldn't we? Are we more concerned about losing money, losing face, or losing opportunities for greater impact? For more information on how to develop a risk profile, see How Foundations Can Develop Policies to Embrace Risk.
Assess Risk. To assess risk, you have to ask about it and look for it.
Grant makers can have clearer exchanges with nonprofits about potential risks by asking about risk in grant applications and follow-up reports. This will help remove the perception that risk exists only in poorly conceived projects. The classic "What keeps you up at night?" is a great opener. You can then move on to "What are the most likely risks that could keep this grant from being successful?" For more information on how to have this conversation, see How Foundations and Grantees Can Talk About Risk.
Mitigate and Manage Risk. Risk management doesn't end when the grant check is sent.
As grant makers, we tend to spend a disproportionate amount of time on grant review and very little time investigating ways to succeed or avoid problems. Within the Commons, we recommend a two-prong strategy:
1. Build policies and practices that support an open dialogue to explore risk before, during, and after the grant term.
2. Align monitoring and evaluation processes with the level of anticipated risk.
This way, time is spent where it matters most, and sta! members know how to spend their time. Deep conversations and frequent reporting don't need to happen on every grant. Just as we talk about "right-sizing" grant review, we need to "right-size" grant oversight. The goal is to identify risks early and mitigate them. We often have resources (e.g. connections, in-house technical assistance) that we could deploy to help secure the results we want. To use these tools, however, we must first acknowledge that the risk exists.
Plan for Contingencies. Stu! happens. When it does, it's better to be prepared.
Grant makers should consider setting aside a portion of their grant-making budgets to respond to the inevitable challenges that grantees face. This doesn't mean that all challenges require additional money. However, most foundations would consider providing additional assistance rather than see major project goals missed. The amount set aside for contingencies should reflect the risk profile and so should the criteria for using contingency funds.
Establish a process and criteria for making decisions about additional support. You don't want to be making up the rules as the crisis is taking place. For more information on how to plan for contingencies, see How Foundations Should Begin Planning for Risk.
Adopt Good Grant-Making Practices. Try not to be part of the problem.
We can unintentionally put our grantees and their work at risk by being penny-wise and pound-foolish. Forcing grantees to adopt slimmer and slimmer overhead margins removes their flexibility to respond to the unexpected and may prevent them from putting in place needed financial and governance oversight. Funding in annual cycles verses multi-year commitments siphons resources from programs and oversight to grant writing.
Grant makers can help their grantees respond to risk by adopting processes that build an organization's resiliency. Examples include providing some unrestricted funding, making multi-year commitments, being open to grant requests out of cycle, and streamlining grant applications and reviews depending upon risk level. Risk isn't bad, but failing to think about and plan for it will leave grant makers vulnerable. Kim McPherson is senior program o!cer at St. David's Foundation. Jim Joseph is partner at Arnold & Porter LLP. Both are members of the Commons, a coalition of nonprofit leaders working to produce practical methods for assessing and planning for risk.