The Missing Piece of Modern Philanthropy: Part I

Oscar Wilde once said, “To expect the unexpected shows a thoroughly modern intellect.”

Many philanthropists these days consider themselves at the cutting edge of innovation and problem-solving. Perhaps at a programmatic level we are, since through philanthropy we have eradicated age-old diseases, supported mass social movements, and turned around entire cities. Yet despite our modern successes, philanthropists do not have a habit of expecting the unexpected.

In a recent survey of 200 funders, 76 percent reported that they do not ask potential grantees what could go wrong. Only 17 percent said they set aside funds for emergencies or other unexpected events, which their grantees might encounter. And yet, in the same survey, funders reported that 1 out of 5 projects they fund runs into an unexpected disruption that threatens its successful completion.

In short, funders acknowledge that 20 percent of their portfolio is at risk, but the vast majority do nothing about it.

If you’re like us, these numbers are scary because they threaten the reason we exist: achieving impact.

At Open Road Alliance, we are in the business of the dealing with the unexpected. All our money is designated to provide contingency funds when some unforeseen disruption happens. We do this because most funders won’t or don’t provide these funds, and, as we saw above, one out of every five projects will need this type of support.

Let’s take a look at some examples of disruptive events and risks that fall along the spectrum.

All are real-life examples from Open Road’s portfolio:

• A used truck critical to service delivery dies three years sooner than expected.
• A private donor’s assets are frozen for unrelated reasons in year two of a multiyear grant, thus jeopardizing the nonprofit’s entire endeavor.
• An armed robbery and assault on staff forces a temporary closure of operations, threatening time-bound milestones for impact.
• A major flood during the dry season damages heavy equipment essential to completing the project.
• In the midst of a government-related program, Parliament divides one state into two states forcing the nonprofit to pause programming and develop a new two-pronged approach.
• Fluctuations in exchange rates cause a project budget to lose 30 percent of its value.
• A government donor changes grant terms to ‘reimbursable only,’ leaving the non-profit with a serious cash flow challenge.

As you can see from some of the roadblocks we’ve come across, the kinds of risks facing philanthropic endeavors fall across a wide spectrum, but even the most minor ones can halt or stall worthwhile projects.

In our experience the risks themselves are not sufficient to cause mission failure. Instead, these events combine with a brittle fiscal environment in a way that shatters even the best-laid plans. Too many worthy projects get derailed because they lack flexibility.

Nonprofits are often given a tight leash by funders when dealing with project budgets. Most grant budgets are designed with zero cushion even when the nonprofit is working in tough conditions that can turn the simplest obstacle into an unmanageable issue. When funders ask nonprofits to work with limited budgets and resources, which are all strictly allocated in advance, any unexpected but inevitable change or deviation in the budget is potentially catastrophic. The nonprofit’s inability to fluidly adapt the budget to manage these roadblocks, however minor, can jeopardize even the largest of undertakings. If a flood during the dry season is indicative of external risks to impact, then restrictive grants are the internal risks and insider threats.

Although the survey shows that the question ‘what could go wrong’ is not at the top of funders’ minds, it’s apparent that the nonprofits are silent on the topic as well. Nearly 50 percent of grantees say they are not comfortable telling their funders about unexpected disruptions because they fear that having the conversation will negatively affect their future funding opportunities. Risks alone are threatening, but when the concept of risk goes unacknowledged, undiscussed, and unaddressed, those risks are more likely to become realities. All this adds up to lower impact, turning manageable events into liabilities.

Philanthropy is a modern endeavor, and the number of resources we are collectively putting toward addressing the world’s problems is growing. This is good news, but it also raises the stakes. We can no longer afford to pursue philanthropic solutions without adopting Wilde’s modern intellect.

To ensure impact we must begin to expect the unexpected, and we’ll talk more about ways to do this in part II of this blog series.

Laurie Michaels is the founder of Open Road Alliance, where she works with her team to make charitable and recoverable grants to nonprofits in need of contingency funds. Prior to founding Open Road Alliance in 2012, Dr. Michaels maintained a practice in clinical psychology. 

Maya Winkelstein is executive director of Open Road Alliance, where she is responsible for the organization’s overall investment strategy, which includes finding new ways to deploy capital to achieve maximum social impact. For more updates from Maya and Open Road Alliance, follow Open Road on Twitter!