Making Risk Routine
Pam Foster

Pam Foster Managing Dir Program Operations Gener Counsel, The Rockefeller Foundation

Ellen Taus

Ellen Taus Treasurer and Chief Financial Officer, The Rockefeller Foundation

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May 18, 2017

Making Risk Routine

Image credit: SSIR

“Philanthropy is risk capital.”

If you work in philanthropy, you’ve likely heard that phrase many times. But a survey conducted by Open Road Alliance in 2015 clearly showed that as a sector, we’re not great about discussing risk, with 76 percent of funders reporting that they don’t ask grantees to talk about project risks in proposals. The survey data are further described in the introduction by Laurie Michaels and Judith Rodin to a special SSIR supplement on risk being published today. A Risk Toolkit put out by The Commons (a task force consisting of leading practitioners from every facet of the philanthropy marketplace working to examine ways to meet the challenge of managing for risk) offers plenty of insights into how to have those conversations at multiple levels—internally with boards and staff members, externally with grantees and partners, in requests for proposals and in monitoring and evaluation processes.

What we take away from the articles in the SSIR supplement—and what we know works at The Rockefeller Foundation—is that these discussions must become routine. Maybe not to the point where they’re boring, but almost. Our grantees have to get comfortable talking about the risks inherent in their proposals—and trust that we’ll work with them to mitigate those risks rather than constraining their funding. Our staff have to trust that they will be supported if they flag risks—so that they can still move their work forward, and work to mitigate risks. So how does it become routine? At The Rockefeller Foundation, we’ve built it into our process in a few specific ways.

First, our grant review process happens in two stages, with risk discussions built into both stages in different ways. Our two-stage review was adopted a number of years ago primarily to address the fact that our grants were usually fully-baked when they were submitted for approval. That made it difficult for senior leadership to say no or even to advise on the shaping of grants without creating a dynamic of rejection or substantial revision after grantees had invested significant time and energy in a proposal. So we built in an earlier, concept-stage review before we ask prospective grantees for proposals. In that stage of review, we require our program staff to address potential execution or reputational risks for proposed grants. To do this well means that they expressly discuss risks with potential grantees. We also add legal and communications review to this stage, so that any compliance or reputational risks are surfaced and can be addressed by the in-house experts in those areas. Risks – and in particular execution risks—are also discussed again in the proposal-review stage for our grants, so that our program officers continue to have the conversation with grantees as they develop their detailed proposals and budgets.

Second, our grants managers perform organizational capacity reviews of grantees based on a risk level determined by an algorithm. The algorithm looks at objective factors such as grant size, type of grantee, and grant size relative to organizational budget, as well as the subjective factors identified in the concept stage. For low-risk grants, our grants managers review financials and only trigger a deeper review if red flags go up. For higher risk grants, staff have a detailed conversation with the grantee about their capacity to manage and report on the grant funds. They bring our Finance team into the conversation for particularly high risk grants. We have never stopped a grant because of risks identified in this process, but we have responded with slowed-down payments, added deliverables (such as audited financials), and for some very small or young grantees, engaged a third party to help administer the funds or added funds to the grant to enable the grantee to hire a bookkeeper, for example.

The Commons Risk Toolkit encourages foundations to identify their own risk profile.  At The Rockefeller Foundation, we have a fairly high tolerance for risk, generally believing that if we’re not taking risks, we’re not getting the most out of our philanthropic dollars. But we also believe in understanding the risks we’re taking – so we can address them if possible, monitor progress, and adapt if need be. From our vantage points in the finance, program operations and legal teams, we’re not doing our jobs well if we’re not supporting our program staff in taking risks. This means talking about potential risks in our initiatives and in our grants, working together to figure out if we can mitigate them, and allowing the work to proceed with our eyes wide open. And that’s all less scary and more productive when it’s part of the routine.

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