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The role of risk in funding systems change and how to manage it

Published Date: 15 August 2018

Funding systems change initiatives and innovations is inevitably risky. A growing number of foundations globally are interested in funding from a systems change perspective - yet there is a simultaneous trend toward metrics-driven grantmaking and quantitative evaluation of outcomes based on technical measurement. This has translated into risk-averse grantmaking that channels funds toward ‘guaranteed outcomes.’ Can these two trends co-exist?

The SIX Funders Node is programme at SIX that supports funders as they move away from more traditional grant making practices and support social innovation to ultimately create more systemic change. This practice is emergent and often times involves risk. The outcomes and outputs are less known. Given the inherent risk in this work, we want to open up the dialogue on risk. This piece discusses some of the risk involved in funding from a systems change perspectives and highlights some resources that explore how to take and manage more risks, alongside case studies of those who have done so.

Changing a system may take years, or decades, involves working with multiple organisations and levels of the system (or multiple systems) and disrupting the status quo and vested power interests. Long-term grants and commitments are needed, alongside a systemic mindset and flexible approach. Measuring ‘success’ is more difficult, particularly as results can take a considerable amount of time. Working long-term in a complex system also increases the likelihood of uncontrollable and unpredictable external disruptions that could lead to ‘failure. It’s clear that funding systems change requires a willingness to take risks.

Developing a culture of risk

Engaging in systems change funding requires developing a culture of risk. This doesn’t mean instilling a risky culture that funds without due diligence. Rather, it means honestly and explicitly discussing and forming a position on the organisation’s risk tolerance and putting in place measures to support this.

An organisation’s risk culture, according to Tony Macklin of the National Center for Family Philanthropy, is the norms of behaviour of individuals and groups within an organisation that determines the collective ability to identify and understand, openly discuss, and act on the organisation’s current and future risks.

Developing  a risk culture is not only an internal exercise, but should involve grantees and partners as well. Funders should communicate their risk culture externally and involve the perspective of their grantees, asking them about the risks involved in their projects and how they can better support them in their work.  This requires developing a relationship and building trust to enable more transparent and honest communication to ensure the grantee feels comfortable discussing problems that occur without fear of repercussion or losing funding.

Developing this culture must be an intentional process. Open Road Alliance in the US has created a number of resources to support this process:

Strategies and systems

Developing systems and infrastructures to manage risk can help compliment a risk culture. This could include methods to prepare for different possible futures, like strategic foresight,  scenario building (see more from our recent funders retreat on the the role of strategic foresight in philanthropy), and contingency planning.

Contingency planning involves creating scenarios, plans, and contingency budgets to prepare for external risks. Some foundations, such as the New York State Health Foundation have diversified portfolios with a balance of higher and lower-risk initiatives. Others set aside a percentage of funds for contingency should a project come upon a challenge that requires more support, lest the desired impact be lost. Open Road Alliance provides one-time funding to grantees of other foundations to meet unforeseen obstacles, and Urgent Action Fund provides contingency grants to grassroots women’s and LGBTQI equality organisations when they face unanticipated threats or opportunities.

Frameworks

Various frameworks and methodologies exist for determining and managing organisational risk. Open Road Alliance has developed several helpful guides specific to philanthropy:

Case studies

The two reports below tell the stories of funders who have taken risks to achieve greater impact, detailing their approaches, challenges, and outcomes, and can serve as inspiration for others who wish to pursue more risk and systems change.

  • Be Fearless Campaign Case Studies - Case Foundation’s Be Fearless Campaign encourages funders to take bigger bets for systems change. This document provides eight case studies of fearlessness from trailblazing organisations that have learned how to take risks, be bold, and fail forward.

  • Just Change: Strategies for Increasing Philanthropic Impact - This report aims to encourage discussion of how philanthropy can contribute to achieving longer term systemic change with impact beyond immediate grantees, and inspire practice.

This September, SIX is hosting a Funders Retreat in Australia with the Fay Fuller Foundation  that will explore how funders can take, enable and manage risks to achieve greater systemic impact. Leading up to and beyond this convening, we would like to hear from funders globally - what is your risk story? When have you taken a big bet to achieve greater impact? How has your organisation talked about and dealt with risk? What impact have you achieved?

If you have a story to share, or would like to learn more about systems change and risk, email jordan@socialinnovationexchange.org. To receive SIX’s newsletter, please sign up here.