Risky Business and Maximizing Impact

Open Road Alliance is in the business of risk. A private foundation, Open Road only provides funds to fully-funded nonprofit projects that then encounter unexpected obstacles. We come in when risk is realized. Over the last four years, we’ve worked closely with over 65 nonprofits and projects that range in size and sector. Yet through our work, we’ve seen just how scarcely 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, and 87 percent of grantees report that no grant application has ever asked for risk assessments. Both nonprofits and funders acknowledge that risk exists; neither seem to have found a way to (or feel comfortable to) address it with one another. 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 for nonprofits on the topic of risk.

The IssueLab scan uncovered two important findings:

  1. 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 if they are taking it.
  2. 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 a moot point.

As we anticipated, there are materials available that addresses the ethos of risk-taking, but there are virtually no guided 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 risk culture, and implementing risk management practices throughout the grantmaking process. The result of the IssueLab collection underscores the need for this work, but we believe that its relevance is even broader than filling a gap in practice.

Philanthropy is at a tipping point that makes it ripe for the next level of professionalization and sophistication. Within philanthropy, we are seeing unprecedented intergenerational wealth transfers, the creation of new philanthropic models, and a new generation of foundation leaders, which all seek to reimagine how we can most effectively reach impact.

Yet, outside of our industry, inequality is growing and financial markets are facing more uncertainty post-2008 than ever before (if also their highest levels of success). The lines between the private and nonprofit sectors are increasingly blurred, and external events in our world continue to shape the barriers we face as impact-seekers.

All these variables make the need for a robust discussion and practice of risk management imperative to our sector. We know that at least one in five philanthropic investments are affected by unforeseen disruptions. These trends make the need for better 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 begin fostering an open dialogue around risk and, in turn, better ensure and insure the impact we seek.