The Business of Giving. The Theory and Practice of Philanthropy, Grantmaking and Social Investment

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The Business of Giving

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The Business of Giving The Theory and Practice of Philanthropy, Grantmaking and Social Investment Peter Grant Sir John Cass Business School, UK

© Peter Grant 2012 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2012 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978–0–230–33679–7 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 21 20 19 18 17 16 15 14 13 12 Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne

To Spike and the Chaps

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Contents

List of Figures and Tables

xii

Acknowledgements

xiv

Introduction

1

Part I The Theory of Social Investment 1 Philanthropy, Grantmaking and Social Investment There are few courses and no profession Social investors face serious problems What is social investment? What grants have done How long does change take? So you want to be a philanthropist? What makes a good social investment? The importance of process The challenge for funders Further reading

7 8 9 10 12 13 14 16 16 18 20

2 A Short History of Philanthropy Important definitions Philanthropy in the industrial age Philanthropy in the United States Grantmaking in the United Kingdom A note on the different models for civil society Where we are today Further reading

21 21 23 24 26 28 29 30

3 Theories of Change and Logic Modelling The theory of social change The W. K. Kellogg Foundation logic model The logical framework approach and the logframe Some problems with logic models (and logframes) Impact for designing social investment programmes Evaluation Programme impact Risk

32 32 33 35 36 38 40 45 48

vii

viii Contents

The effective funder Further reading 4 Types and Styles of Social Investment Individual motivation Individual motivation in philanthropy Breeze’s ‘eight logics’ Organisational types and styles The ‘freedom of action’ model Gift-givers, investors and collaborators The ‘Trust Triangle’ The ‘4P Continuum’ Unwin’s ‘givers’, ‘shoppers’ and ‘investors’ The ‘Philosopher-King’/‘What Works’ dichotomy ‘New’ philanthropy, venture philanthropy and ‘philanthrocapitalism’ ‘Reform grantmaking’ ‘Beyond the rhetoric’ – The Center for Effective Philanthropy ‘Strategic’ philanthropy Beyond philanthropy? Social bonds and impact investing Conclusions Further reading

49 51 53 53 54 55 56 58 59 61 62 64 66 68 73 74 75 77 77 79

Part II Social Investment as a Business Process 5 Can Philanthropy Learn from Business Methods? What can philanthropy learn from business? Governance in philanthropic organisations Strategy and tactics Leadership Strategic planning Functional structure Three key requirements of strong business Conclusions Further reading 6 Three Key Business Processes – 1: Risk Management Introduction: Why do we need to know this? The purpose of risk management Risk appetite Levels of risk Risk levels in social investment Key areas for attention The risks of risk management The risk management process

83 83 85 87 87 89 90 95 95 98 99 99 100 101 101 102 102 103 104

Contents

Risk identification Risk assessment/analysis Responding to risk and risk controls Communication and learning Further reading

ix

104 105 106 108 109

7 Three Key Business Processes – 2: Operations Management What is ‘Operations’? The strategic role of the operations function Operational process design The three operations objectives of time, quality and cost Further reading

110 110 110 111 113 114

8 Three Key Business Processes – 3: Performance Management Do we need performance management? Performance management – Its uses . . . and abuses Performance management – Introduction and more caveats Performance management – Theories and models Outcomes measurement Social return on investment ‘Best practice’ benchmarking Quality models for self-assessment – Total quality management and the excellence model The EFQM excellence model ‘Just-in-Time’ and Lean Systems The balanced scorecard and beyond Effectiveness frameworks Going beyond performance management – ‘Adaptive Learning’ and the ‘Learning Organisation’ Creating real measures of effectiveness Selecting performance measures – Key performance indicators Conclusions Further reading

115 115 117 118 120 120 122 125 127 127 128 129 133 136 137 138 141 142

Part III Managing Social Investment 9 From Logic Model to Investment Programme Aims of this chapter Background The theory From theory to goals From agreeing impact to programme plan Programme plan overview Risk and assessment criteria

145 145 145 146 147 153 154 154

x Contents

Risk and post-decision management Further reading

159 162

10 Designing the Programme The programme specification What you need to produce Quality control Classification/data collection The application form or request for proposals More on criteria and guidance notes Risk assessment and ‘scoring’ Terms and conditions Where terms come from Monitoring events Decision making – Peer review and review meetings Documenting the process and audit trail Communicating with potential applicants

163 163 164 165 166 167 170 171 174 176 176 177 178 179

11 Assessment and Selection The purposes of assessment Key activities in the process Application recording process Checking eligibility Assessing the risk Risk rating Enabling a decision Writing decision reports Review Decision making Modifying applications Rejected applications Notifying applicants of the decision Documenting the assessment process Receiving and sending information Contacting applicants Chasing Complaints – How to handle them

182 182 184 184 185 186 186 187 188 191 192 195 195 196 197 197 198 200 201

12 Post-Decision Management Introduction: Monitoring and evaluation revisited Aims and stages of post-decision management The funding contract Maintaining your role Amendments to the funding contract Terminating the funding contract

204 204 207 208 210 211 212

Contents

Accepting and declining the funding contract Monitoring events and reporting Closing an investment Solving problems Amending the funding contract and variations Defaults and terminations Fraud

xi

212 213 218 218 222 224 227

Appendix – Numbers of Stages and Applications

233

Notes

236

Select Bibliography

251

Index

257

Figures and Tables Figures 1.1 1.2 3.1 3.2 3.3 4.1 4.2 5.1 5.2 5.3 6.1 7.1 7.2 8.1 8.2 8.3 8.4 9.1 9.2 9.3 9.4 9.5 9.6 9.7 10.1 10.2 10.3 11.1 12.1

Selecting a field for investment ‘Einstein’s Triangle’ – Approach to results Simple logic model Logic model linked to programme elements The process of programme design (high level) The Fulton/Blau matrix The ‘Trust Triangle’ The funding cycle Levels of organisational planning Functional structure Approaches to risk – Hiding, suicidal, dead or wise? Design/cost relationship over time The time, quality, cost triangle The balanced scorecard Strategy map template The ‘Fruit Tree’ Strategy map template (social investor) Investment programme design process Investment programme planning diagram Planning an investment programme Outputs from the programme planning process The risk matrix The Grant/Horsley risk matrix Risk and post-decision management How elements derive from the programme specification The Grant/Horsley risk matrix (repeated) Grant/Horsley matrix with ‘line of tolerability’ Application management and assessment overview Stages of the post-decision management process

15 15 33 39 49 56 61 85 89 90 103 112 113 130 131 133 134 149 150 155 156 156 158 161 164 173 174 184 208

Tables 1.1 Scale of grantmaking in the United Kingdom 1.2 Scale of foundation grantmaking in the United States 1.3 How long does change take? xii

8 8 13

List of Figures and Tables xiii

2.1 2.2 3.1 3.2 4.1 4.2 5.1 10.1 12.1 12.2 12.3 12.4 12.5 12.6

Largest UK foundations Largest US foundations Example of a logframe matrix Example of the evaluation questions for a funding programme UK grantmakers classified by source of funds and governance Unwin’s impacts and motivations Liedtka’s strategic thinking and strategic planning New Opportunities Fund classification levels Elements of the funding contract Monitoring events Model annual monitoring report Categories for annual review findings Contract defaults The warning process

27 27 36 43 57 65 93 167 209 214 215 217 224 226

Acknowledgements By far, my greatest debt in the production of this book goes to my colleague of many years, Margo Horsley. She and I worked extensively together in setting up the systems and processes required for grantmaking brought about by the introduction of the UK National Lottery. Margo’s eye for detail and logical thinking ensured the wise use of most of the many billions of pounds that have flowed through the Lottery ‘good causes’ over the past 15 years. Several of the ideas contained in Part III of this book were originally hers rather than mine and for those plus her wise counsel and comments on earlier versions of the manuscript, she has my grateful thanks. I would also like to acknowledge the encouragement and support of my academic colleagues, most notably Professor Jenny Harrow and Professor Paul Palmer, who not only encouraged the production of this book but also showed great faith in taking on a practitioner in grantmaking as the leader of a Masters programme. In addition, I gratefully acknowledge the following who gave permission for specific inclusions in the text: Professor Cathy Pharoah, a fountain of knowledge on foundation facts and figures. Stardust Design for the illustrations in Figures 1.2, 6.1 and 8.3 – www. stardustdesign.co.uk. Alliance magazine for the explanation of different models of civil society in Chapter 2 and the ‘Fulton/Blau matrix’ (Figure 4.1). David Emerson and the Association of Charitable Foundations for the use of the ‘Trust Triangle’ (Figure 4.2). David Cutler and the Baring Foundation for the extract from The Grantmaking Tango (Table 4.2). Professor Jeanne Liedtka for her models of strategic thinking and strategic planning (Table 5.1).

xiv

Introduction

Often when I tell people what I do, I get the response ‘surely you don’t need to teach people how to give away money’? Obviously, I believe you do because it is one of the fundamentals of charity that you should try to be as efficient as possible, to ensure that the maximum benefit accrues to those you are seeking to help. Then there is the current state of philanthropic giving. Pablo Eisenberg, the veteran advocate for greater accountability by philanthropists: It’s hard to overstate the crisis facing charitable giving today. So let me say it as plainly as I can: much of current philanthropic giving, by foundations and individuals, neither meets the needs of our charitable organizations nor addresses some of our most urgent public needs. Foundation practices today are too bureaucratic, inflexible and cautious, and too focused on short-term objectives. Too often, the process and procedures of grant making are more tailored to the needs of foundations and their trustees than to the requirements of nonprofits.1 And this problem is of huge proportions. Despite the recent recession,2 it is expected that in the next 40 years in the United States alone 55 trillion dollars in philanthropic resources will be created.3 If the processes utilised in this philanthropy are as inefficient as Eisenberg suggests, then a lot of money will be wasted. And there is good evidence that this is happening. In the United Kingdom, it costs charities around £350 million a year just to apply for funding from trusts and foundations,4 over 11 per cent of their income from this source. That would mean over six trillion dollars of the additional resources going to the costs of application. If say 50 per cent of this could be saved by adopting more efficient funding processes, which I consider to be perfectly feasible, this would provide over three trillion dollars of additional funds for direct charitable activities in the United States alone. Surely this is a target worth pursuing? 1

2

The Business of Giving

This book came about through my lectures for students on the MSc course in Grantmaking, Philanthropy and Social Investment at the Sir John Cass Business School which is part of City University in London. Unlike some books about philanthropy, it will not tell you what field or what type of organisation to fund. This is the task of the ultimate authority of a philanthropic body – it could be the founder of a charitable trust, the board of trustees or even the government. What it will do is tell you how best to fund it once you’ve made that choice. I’m increasingly convinced there is a right way to ‘do’ social investment and have put into practice the techniques in Part III of the book across a wide, and disparate, range of programmes from funding individuals (Second World War veterans or benevolent fund recipients); to small community organisations (for projects ranging from capacity building in user-led groups to the first UK Lottery programme to target deprivation); to major building projects (such as wind farms or a UK-wide IT network) and multi-million pound environmental schemes. I have even found them adaptable to situations outside the philanthropic world where there is a flow of information into an organisation and a reasoned decision taken. These have included how to select organisations that will use the brand for the 2012 London Olympics and re-structuring the casework of the Parole Board of England and Wales. The techniques endorsed, especially in Part III, come from 15 years of active fund-seeking followed by another 15 as a funder, latterly as Director of Operations of the largest grantmaking organisation in Europe. Working for the UK National Lottery ‘good causes’, I had the task of devising and running around 100 different funding programmes all of which were launched within about a three-year period. This led me and my colleagues, most notably my collaborator Margo Horsley, to think a great deal about what exactly social investment was: what other activities came closest to it and what techniques and principles were relevant? Some of our answers are those that other writers, and funders, have arrived at, such as the adoption of a theory of change. Others are not currently accepted practice; especially the generic process of programme design outlined in Part III. There are several reasons why these principles have not been more widely recognised in the philanthropic world. There is the problem that process improvement is not as high on the agenda as it is for commercial organisations and the fact that the processes involved are rarely considered as important as ‘higher-level’ issues such as what strategy to adopt to change the world. However, the main reason lies in the fact that most commentators on philanthropy tend to fall into three categories: academics, high-level voluntary (nonprofit) sector figures and former foundation CEOs, very few of whom

Introduction 3

have done any actual funding themselves. They may have led organisations that are funders, but have they been responsible for the design of any of the programmes or the construction of their risk registers? CEOs of foundations tend to be people who have been successful in other fields. In the United Kingdom in the past, there was a plethora of foundation directors who were ex-military officers. Today, they come from both the public and commercial world or have run significant nonprofit bodies, but they often don’t really understand the operations side of the subject. The two main CEOs I worked for both had very many excellent qualities but would have been the first to admit they wouldn’t have known where to start if put in charge of actually designing or managing a programme. The last few years has seen the publication of a number of excellent books on philanthropy. In the United Kingdom, there have been Julia Unwin’s The Grantmaking Tango and Fruitful Funding together with Diana Leat’s continuing valuable writings, for example Creative Philanthropy (written with Helmut Anheier). In the United States, Peter Frumkin’s Strategic Giving, Joel Fleishman’s The Foundation and, especially, Paul Brest and Hal Harvey’s Money Well Spent are all very good. The American writers in particular are excellent on philanthropic strategy. They go into great detail about how to define your strategy and your ‘strategic choices’ but then they stop. But, as we will see when we come to discuss strategy in Chapter 5, this is actually the easy bit. The more difficult thing is turning your strategy into reality, how to ‘operationalise’ strategy, and that is where process comes in. It is no surprise that probably the best existing book on funding practice, The Insider’s Guide to Grantmaking, was written by a man who wasn’t the CEO of his foundation but a programme director and Orosz’s remains about the only book that goes into the funding process in any detail. Throughout the book, I use the term funding as shorthand for any form of social investment. But it needn’t be money, and it needn’t be an outright gift. The important point is that it transfers some form of resource from the donor (the funder) to a recipient (often called a grantee). It is the recipient that produces the social return. I explain this more in Chapter 1. The rest of the first part of the book begins with a brief history of philanthropy and then looks at the crucial question of where a funder’s overall aims and objectives spring from (Chapter 3) and surveys the current world of social investment looking at what types and styles exist. Part II – Social Investment as Business Process – reviews which tools from the commercial world can and cannot be adapted for use by a funder and how they should be adapted. Part III – Managing Social Investment – follows the technique of designing, launching and managing a funding programme.

4

The Business of Giving

A note on terminology I’ve already said I will be using the term ‘funding’ to cover all forms of social investment, by which I mean a transfer of resources made primarily for social rather than financial gain. I use the terms ‘grants’ and ‘grantmaking’ less (except where used by others) as they are only one form that social investments can take. There are also a couple of others that require clarification. What is the sector called that social investment fits into? In the United Kingdom, it is usually called the voluntary, community or ‘third’ sector (after the private and public). In the United States and Canada, it is usually termed the nonprofit sector. It is also referred to (especially in mainland Europe) as ‘civil society’. I don’t want to debate the pros and cons of these terms, and I generally use either voluntary or nonprofit sector as interchangeable depending on context.5 Within social investment itself what do you call the people and organisations that seek your funds, and what do you call them after you decide to support them? I generally use the term ‘applicant’ to describe those whom you haven’t yet agreed to fund (even if there is no formal ‘application’ form or process) and ‘recipient’ for those to whom you have committed resources.

Part I The Theory of Social Investment

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1 Philanthropy, Grantmaking and Social Investment

These are some thoughts from commentators on philanthropy covering more than 2,000 years:

Anyone can give away money or spend it; but to do all this to the right person, to the right extent, at the right time, for the right reason, and in the right way, is no longer something easy that anyone can do. It is for this reason that good conduct in such matters is rare, praiseworthy and noble. Aristotle 350BC I can testify that it is nearly always easier to make $1 million honestly than it is to dispose of it wisely Julius Rosenwald, US businessman and philanthropist, ‘Principles of Public Giving’, 19291 Grant making is big business. It is also a business about which very little has been written. Diana Leat, Visiting Professor Cass Business School, 1998 Almost no one has chosen to work in philanthropy because they understand organisational development or management. As a result they cannot diagnose, let alone treat, bad management on the part of their grantees. Edward Skloot, former Executive Director, Surdna Foundation, 1983

So philanthropy has always been difficult and is a major business, but no one in it has been trained in the principles of good management: a pretty hopeless mess. Obviously, these are selected quotes and things may not be quite so chaotic, but it is an indication that, over the centuries, many wise thinkers have considered philanthropy a complex and difficult practice. 7

8

The Theory of Social Investment

Table 1.1 Scale of grantmaking in the United Kingdom Source

Total annual grants (£ billions)

Employment (full time equivalents)

Charitable foundations Central government Lottery distributors Local government

£2.5 £2.2 £1.5 £1.5

1, 000 1, 000 2, 200 1, 000

Total

£7.7

5, 200

Notes: These are very rough estimates from various sources, with totals multiplied up from sample data in some cases. Clearly, we need better research here. The estimated total number of trusts and foundations in the United Kingdom is 8,800. Source: Grantmaking by UK Trusts and Charities, ACF/CAF (2007).

Table 1.2 Scale of foundation grantmaking in the United States Year

Number of foundations

Total giving ($ billions)

Total assets ($ billions)

Total staff (FTE)

1992 1997 2002 2007

35, 765 44, 146 64, 843 75, 187

10.21 15.98 30.40 44.40

176.82 329.91 435.19 682.20

n/a 11, 116 15, 619 17, 040∗

Note: These are far more precise figures from the Foundation Center, http://foundationcenter.org/ findfunders/statistics/listing01.html. However, please note that these are figures for Foundations only. Though government funding in the United States is proportionally less than in the United Kingdom, it is still significant. ∗ This had risen to 19,672 in 2009.

Just how big a business is philanthropy in the United Kingdom and United States today?2 Tables 1.1 and 1.2 only contain funds distributed by organised philanthropy, not by individuals.

There are few courses and no profession There is some training but little academic study in philanthropy. There is no recognised profession of ‘funding’ or ‘social investment’; and unlike fundraisers or finance directors, no professional body exists to represent individuals who practice philanthropy anywhere in the world.3 There are several organisations in the United Kingdom and many more in the United States who offer training in various elements of philanthropy or grantmaking, for example ‘how to assess an application’. A study by the Council on Foundations found that 12 US universities offer at least one module that addresses the topic of social investment. They offer grantmakers theoretical and

Philanthropy, Grantmaking and Social Investment

9

practical frameworks for community development, evaluation and specialist areas. However they don’t offer any courses on foundation management, leadership, fiduciary responsibilities, investments, community relations or funding skills. One or two are now beginning to introduce rather more systematic courses. • Indiana focuses on the history, culture and values of philanthropy rather than its practice. • New York University have three grantmaking modules totalling 29 contact hours (compared to the course at Cass which has 120 contact hours). • Grand Valley State University in Michigan (where Joel Orosz was Distinguished Professor of Philanthropic Studies) offers ‘Advanced Proposal Analysis’ a three-day (25 hour) module though they have others in preparation. In Europe, other than Cass, there are also two recently established Centres that are concerned with ‘social funding’. The first is the Centre for Social Investment at Heidelberg University run by Helmut Anheier and Volker Then, however their Masters programme is a general one in Nonprofit Management and Governance.4 More recent is the Erasmus Centre for Strategic Philanthropy in Rotterdam who commenced operations in September 2009 and concentrate on high-level academic research and executive teaching.5 There is also the Asia Pacific Centre for Social Investment and Philanthropy (APCSIP) based at Swinburne University in Australia. They run a Master of Business (Philanthropy and Social Investment) programme.6

Social investors face serious problems Mark Friedman of the Fiscal Policy Studies Institute in Baltimore has summed up these in his paper ‘Results-Based Grantmaking’.7 • Giving money away responsibly is a surprisingly hard thing to do – he agrees with Aristotle. • The normal process of funding involves: (1) spending several years planning an ‘initiative’; (2) inviting people to lie about what they can accomplish; (3) believing them and giving them money; and (4) being disappointed with the results. • Foundations want to buy change but also want to take credit for it. • Grantees will say anything to get a grant. • Most initiatives and pilots fail. • Foundations preach collaboration but don’t practice it.

10

The Theory of Social Investment

• Cause and effect is hard to show. • Money is desperately needed but can be poison. He concludes that what we need is a theory of social funding – and that is what I hope this book will provide.

What is social investment? And how does it differ from philanthropy? Briefly I would say that philanthropy is a more general term covering all activities for the ‘public good’ both operational (‘doing it yourself’) and ‘enabling’ (giving others the means to do it). Social investment (which includes grantmaking) only covers the latter, providing resources for others. Social investment is a wider term than grantmaking but, first, what exactly is a grant? The dictionary definition is: An authoritative bestowal or conferment of a privilege, right, or possession; a gift or assignment of money, etc. by the act of an administrative body or of a person in control of a fund or the like.8 The key elements are therefore: 1. No financial return A key requirement is that a grant is given without any possibility of financial or personal gain (so a donation to a political party would be ruled out as there may be an inference of gaining personal influence). It is for the benefit of the recipient, who may be an organisation or an individual (so this would include, for example, a college bursary or a credit union). The remarkable American economist Kenneth Boulding9 is one of the very few people who have attempted to examine the workings of the ‘grantmaking economy’, and some of his thoughts are relevant in defining what we mean by a grant. He says that: A beggar approaches me, and I give him a coin. My son is going through college, and I pay for his education and upkeep. I write a check for charity. I receive a bequest from a deceased relative. A foundation makes me a grant for a research project. I pay my taxes to the government. These familiar transactions have one thing in common – they involve one-way transfers of economic goods. A one-way transfer . . . . differs from an exchange, which is a two-way transfer of economic goods [or services].10 But clearly this definition includes far more than what we would usually define as a ‘grant’. So what are the other defining characteristics?

Philanthropy, Grantmaking and Social Investment

11

2. ‘Gift’ – No personal gain or exchange of goods or services, no conflict of interest In legal terms a grant is a gift, even though it may come with quite stringent terms and conditions, and is not covered by the laws of contract – which implies an exchange – even though the document between the funder and grantee may well be called a ‘contract’.11 3. But does have a (social) purpose But this would mean all gifts (birthday presents included) would qualify. So a grant must have a purpose or aim in mind. That purpose needs to be a social purpose, one that benefits society as a whole as well as an individual or group. So the college bursary benefits an individual but also contributes to raising academic standards (but not a bursary for your own family which would give you a benefit). Boulding also has an interesting point to make that he expands in A Preface to Grants Economics: Grants . . . come out of two different motivations and two different subsystems within the larger social framework. On the one hand, grants are products of integrative relationships and of the integrative system; on the other hand, they are also products of threat and the threat system. There are two kinds of grants: gifts, arising out of ‘love’, and tribute, arising out of ‘fear’. Furthermore there are many cases in which the motivations are clearly mixed, as, for instance, in the tax system, so that the grants economy cannot be separated clearly into an integrative sector and a threat sector. I find this quote of interest for its reference to the power relationship. You might think that the sort of grants we will be discussing are entirely within Boulding’s ‘love’ category, but I think there is more than a slice of the ‘fear’ element in the total power wielded by the funder over the applicant.12 4. Doesn’t have to be money It doesn’t have to be a gift of money. Quite often it is goods13 and could be services (professional time, for example). 5. Can be to anyone (including individuals, statutory organisations or private companies) This one is a little controversial. Some definitions suggest that grants are only ‘real’ when they are given to not-for-profit bodies. But surely the distinctive element is the purpose of the grant not who does it? 6. The ‘work’ is done by a third party It’s also relevant, and this is a really key point, that a grant transfers responsibility for carrying out the actual work to a third party (the grantee

12

The Theory of Social Investment

or even further down the line). This point is at the crux of the question ‘why make grants?’ If an organisation has resources and a specific aim in mind, the question has to be asked ‘why not do the work yourself?’ Indeed some foundations do precisely this, at least with some of their programmes or activities.14 It also begs the question ‘what value is added by the grantmaking process?’ If all that happens is that resources are transferred, then is this worthwhile or effective? Is it possible for the funder to really add some value that ensures that the work it funds is more than simply the sum of its parts (the aggregation of the work done by all its grantees)? To my mind, there must be this added value for any social investment to be worthwhile and so funders should always ask themselves ‘what value am I adding to this programme?’15 Given these points, this is about the most succinct definition I’ve been able to come up with: A grant is a non-contractual one-way transfer of assets for a social purpose. I stress that this is my definition and, though based on other definitions, may not be universally shared. Social investment is a slightly wider term in that it allows some financial return to the investor, though this cannot be the prime motivation.

What grants have done Over the last 350 years grants have achieved some remarkable results. You may be surprised at some of them: • The 911 service in the United States that became the 999 service in the United Kingdom was pioneered in Alabama in the 1960s and then other states through grants from the Robert Wood Johnson Foundation. • Hospices were started in the 1950s by Marie Curie Cancer Care in the United Kingdom and in the 1970s by the van Ameringen Foundation in the United States. • Robert H Goddard, recognised as one of the key early pioneers in the development of rocket science, was funded in 1920s by the Hodgkins Fund. • The research that led to the test for cervical cancer (the Pap smear),16 which is the most successful cancer screening technique in history, was funded by private philanthropy. • Libraries accessible free to working people were pioneered by Andrew Carnegie, the Scottish-born steel magnate whose motto was that it would be a mortal sin for a rich man to die with a single penny of his fortune left.17 • Even white lines on the sides of roads were first painted using grant funding, provided by John Dorr (a wealthy engineer) and his foundation.

Philanthropy, Grantmaking and Social Investment

13

• And they’re not new. The Lucasian Chair in Mathematics at Cambridge University, until recently held by Stephen Hawking, was established in 1663 by an endowment by Henry Lucas MP. In the United Kingdom, the Beacon Fellowship recently ran a survey asking what the greatest achievement of British philanthropy had been and the abolition of slavery topped the poll.18

How long does change take? When the Chinese Premier Chou En-Lai was asked in the 1950s for his assessment of the impact of the French Revolution, he paused for a moment and then said, ‘It’s too early to tell.’ It’s interesting in many of the cases of ‘great grants’ just how long their effects took. Think about the abolition of slavery. Campaigning in earnest began around 1783, but the trade wasn’t stopped until 1807 – 24 years later. Consider Table 1.3, it’s rather a broad summary, but what it shows is just how long you need to keep funding things if you really want change to happen: Yet many grantmakers, including many endowed foundations who intend to be around ‘in perpetuity’, have ‘rules’ that limit the maximum length of their grants to perhaps three years. They argue that the reasons for this are that it • Allows them to fund new organisations and projects rather ‘the same old thing’; • Prevents grantmakers getting into ‘cosy’, and potentially ineffective, relationships with grantees; • Prevents organisations becoming ‘over-reliant’ on their grant. Table 1.3 How long does change take? What?

Who?

Hospices (USA)

Van Ameringen Foundation Commonwealth Fund Hodgkins Fund

Pap smear Rocket Science (Robert H Goddard) Anti-slavery public hospitals (UK) Probation service Freedom to roam (UK) Famine relief

Granville Sharp Thomas Guy Church of England Temperance Society James Bryce Oxfam

When?

Impact

1970

1990s

1940s 1926

1970s 1945

1765 1724 1880

1806 1944 1907/1908

1884 1942

2005 ?

14

The Theory of Social Investment

Whilst there is no doubt some truth in these principles, it ignores two very important factors: • Firstly, how long change takes, as we can see from Table 1.3. A funder needs to make a reasonable assessment of just how long their objectives will take to materialise and then what the consequences are for their ‘rules’ on length of funding.19 • Secondly, whether what they are funding will ever be ‘self-sufficient’. If the work or project will always require a grant to keep it going, then they again need to reassess their maximum funding periods. If they don’t, they will simply be ensuring the project ends up on a ‘merry-go-round’ of grants, moving from one funder to the next, what Julia Unwin has termed ‘The Grantmaking Tango’.20

So you want to be a philanthropist? I’ve said that I won’t be trying to cover what social investors ought to fund, but there is one aspect of selecting a field for investment that does need explaining. This is whether or not it is likely that your intervention will have a measurable impact and to what extent you are committed to measuring that impact. There is more detail on this later, but it should be looked at briefly here as it is so fundamental.21 Philanthropists or foundations that utilise privately accumulated wealth start with few restrictions on their field of investment and have (in theory at least) no restrictions in what they fund. On the other hand, many others operate with ‘restricted funds’. They obtain their income either from public sources (such as the UK Lottery ‘good causes’ or government agencies) or they fundraise directly from others (such as Community Foundations, the United Way in the United States or Comic Relief and Children in Need in the United Kingdom). In these cases, their selection of fields for investment is, to a greater or lesser degree, ‘pre-selected’. Nevertheless both should go through this process. If the restricted funder finds through this exercise that their investment is unlikely to have an impact or cannot be measured, they can still usually make some adjustments to take account of this (Figure 1.1). The ‘do I care about measuring’ question is a vital component of this overview and was encapsulated in one of Albert Einstein’s famous quotes: ‘People love chopping wood. In this activity one immediately sees results.’ So you need to decide what your approach is to wanting to know the results of your funding. Are you a woodcutter, a scientist or an artist? (Figure 1.2)

15

• Provisionally select a field of investment

• Calculate your likely impact (see ‘Grant’s Formula’ in Chapter 3)

• Is this impact significant enough to be measurable?

• Do I care about measuring it? (see Figure 1.2)

• Can it actually be measured?

• How can it be measured and at what cost? • Revisit selected field and revise (potentially choose another field or focus in on part of the original)

Figure 1.1

Selecting a field for investment

Figure 1.2

‘Einstein’s Triangle’ – Approach to results

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The Theory of Social Investment

• Are you one of Einstein’s woodcutters who want to see quick and measurable results? • Or are you more like the scientist who is very interested in results but is prepared to wait? • Or are you more like the undiscovered artist who just loves what they’re doing and so you’re not really interested in the results at all as long as you know you’re doing good? Of course the wise philanthropist or philanthropic organisation may well adopt any one of these persona depending upon other issues such as the scale and type of investment or who else may be funding in this field.

What makes a good social investment? You might think this is a very complex question but it’s not. If investments are intended to produce a social impact or effect, then a good one must be: One that maximises the social return or impact. The next question is how to maximise that impact and that is just a little trickier as there are so many problems that social investment seeks to tackle.22 It also raises issues of how you measure impact.

The importance of process One recurring theme in the book will be the importance of process. It is my contention that social investment is a process-related business that can be analysed like any other. This fact has not been acknowledged sufficiently, even by the very best commentators.23 Social investment is a series of decisions I think we’d all agree that social investment entails making a lot of decisions. Decisions about what particular area you want to focus on; what sort of recipients you are seeking; what geographic areas you will cover; and, obviously, which ideas you will fund and which you won’t. • Any one decision will have an impact upon others; • Any decision may limit your choice in other areas or rule out other choices completely; • If you don’t recognise the inter-relation of decisions, the process, you’re asking for trouble.

Philanthropy, Grantmaking and Social Investment

17

Sometimes it appears, or it has been presented, that these decisions can be taken in isolation. Often, in practice, they really are taken in isolation, sometimes by totally different people who never communicate with each other. This leads to serious errors, ineffective funding and huge wastes of resources and money. Instead you should focus on the inter-relationship of these decisions. In other words, it should be recognised that social investment operates as an integrated system. What is the aim of social investment? In most cases, it is to perform a social function or bring about a change in social conditions. Funders themselves don’t do these things; they enable others to do it. They therefore have only indirect control over the outputs, outcomes and impact of the organisations and projects they fund. Where then should their main emphasis be? Most writing about philanthropy has concentrated on what they should fund rather than how they should go about it. While the ‘what’ is a major ethical and policy matter, more emphasis needs to be placed on the process – ensuring the maximum impact at the minimum cost to the funders’ resources. Funders need to be able to identify which projects and organisations are most likely to produce the outcomes and impact they are seeking and then do everything to ensure these deliver the intended benefits. To do this, a robust, thoroughly researched and effective process – an analysis of facts to reach a reasoned conclusion about a potential future scenario – is essential. Such a process is well understood in the commercial world, and there is no reason why social investment should be any different from commercial investment in this respect. Both are investing money to achieve a desired outcome. Where they differ is that the outcomes social investors are seeking are far more complex and require different forms of measurement. Here again, a robust business process will enable you to carry out this analysis. The design of a social investment process needs to start from the end – the outcomes and impacts – and work logically back to the start. What characteristics in funding proposals suggest the applicant will be likely to bring about the effects you are seeking? Once you have such a process, the task of deciding who to support is far simpler. It also frees resources for the even more important task of post-decision management: helping ensure that the investments you have made actually produce results. It’s illogical for funders to think that their job ends after awarding a grant. Until you decide to make an investment, the risk to you that things won’t work is nil. It’s only after you’ve made that decision that the real risks arise. Effective funders, then, need to focus their greatest resources (both staff and board/trustees) on the post-decision phase. ‘Good grantmaking’ is therefore not just about understanding each element of the practice of social investment, it is much more about understanding the inter-relation between these elements – the system.

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The Theory of Social Investment

We’ll be looking at this in much greater detail in the third part of this book. But (and it’s a big but) – social investment is done by people for the benefit of other people. Process should be there to make the really important human decisions easier, not to take over from them. Over-reliance on process can be enslaving when it is directed at funders selfinterests and when the directions of its development are determined by a few internal ‘experts’ rather than their entire organisation and their potential recipients. On the other hand, understanding and utilising operational processes can be liberating when they are directed towards satisfying the funders and recipients needs and towards the ‘common good’ of their social goals.

The challenge for funders One of Joel Orosz’s propositions sets out the key challenges social investors face. He detects a lack of: • • • • • • •

Opportunities for pre-employment education and training; A cohesive culture; A salutary external discipline; Reliable feedback; An accepted body of best practice; Ideological cohesion between board and staff; Ideological cohesion within the staff itself.

These are his Seven Major Challenges of Managing Foundations that he proposed in his 2002 lecture ‘Terra Incognita: Poorly Understood Challenges and Trade-Offs of Managing Private Foundations’.24 I am definitely in agreement with Orosz. Not only are these important challenges for US private foundations, they are challenges for all funders from whatever sector and whatever country. Briefly let’s look at them. Lack of opportunities for pre-employment education and training – Unlike banking, nonprofit management or fundraising, there are very few professional development courses for social investors. Lack of a cohesive culture – This is due to the divergent backgrounds of those who work in funding. It often leads to a clash of cultures between (for example) policy makers, operations/programme staff and finance staff. It also leads to the invention of much jargon to hide behind. This can easily lead to confusions or serious clashes and disagreements between funders’ staff. For example, in developing a new programme for the training of emergent sports stars in the United Kingdom, a group of sports coaches and sports scientists spent 18 months working in isolation from

Philanthropy, Grantmaking and Social Investment

19

those who dealt with the operation of Sport England’s grant programmes. The ‘experts’ came up with an application form and guidelines that ran to nearly 200 pages. It was pointed out that no one, other than another ‘expert’, would ever be able to read this or understand the jargon, so it was back to square one in the planning. Lack of a salutary external discipline – Because foundations in particular are beholden to no one. This is obviously less true if you are a public body or raise your money directly from the public but the principle still broadly holds. Lack of reliable feedback – Because funders are always in a position of power over their recipients, they will hardly ever hear what their ‘customers’ really think about them; a bit like not answering back to the boss. The conservative critic Martin Morse Wooster has summed this up well, even if the target for his criticism is misplaced, ‘the grant maker usually finds himself surrounded by mendicants, courtiers, and flatterers. Faced with all this flattery, he naturally becomes more than a little full of himself.’25 Lack of an accepted body of best practice – I’d possibly go even further than this. There are many working in the funding world who deny there is any comparability between funding bodies and therefore that there’s no possibility of agreeing any common standards.26 This attitude will change; it was exactly the same 20 years ago in the nonprofit field or 100 years ago in private companies. Lack of ideological cohesion between board and staff – This certainly exists, especially as the staffs of foundations usually come from very different backgrounds, usually different class backgrounds, to many of their Board members or Trustees. You only have to scan the membership of the boards of trustees of the leading UK charitable foundations to see this. A good example also comes from a study of US foundations one of whose findings was: One trustee explained that it is very hard to understand the claims and arguments of professional staff about the effectiveness of grants made by his foundation . . . due to the fact that many trustees come from backgrounds in business and law, rather than from nonprofit organizations. Given their stewardship roles, it is hardly surprising that many foundation trustees focus their attention on what they understand and what they can measure.27 Lack of ideological cohesion within the staff itself – Stemming from the lack of a cohesive culture. To sum up these problems then: funders are staffed by people who are untrained for the work, have little in common, face few external pressures for

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The Theory of Social Investment

improvement, receive scant constructive feedback, subscribe to no common standards of performance, have sceptical boards and significant internal divisions. So there’s a lot of room for help, learning and improvement.

Further reading Helmut Anheier and Stefan Toepler, Private Funds, Public Purpose – Philanthropic Foundations in International Perspective (Kluwer Academic/Plenum, 1999). A little variable and legalistic but a reasonable introduction. Robert F Arnove, Philanthropy and Cultural Imperialism (GK Hall and Co, 1980). Especially his introductory chapter. Tim Cook, Reflections on Good Grant-Making (Association of Charitable Foundations, 2001). A good introduction to many of the issues. Joel J. Orosz, The Insider’s Guide to Grantmaking: How Foundations Find, Fund and Manage Effective Programs (Jossey-Bass, 2000). Almost the only book to take you through the entire grantmaking process though it lacks an overall ‘process plan’.

2 A Short History of Philanthropy

Important definitions We’ve already looked at a couple of definitions, but it would be helpful to add a few more.

Philanthropy: It has a very wide meaning, originally it simply meant ‘love of humankind’ and its specific dictionary definition is ‘altruistic concern for human welfare and advancement, usually manifested by donations of money, property or work to needy persons, by endowment of institutions and by generosity to other socially useful purposes’. The W.K. Kellogg Foundation says philanthropy is ‘the giving of time, money, and knowhow to advance the common good’. Foundation: An institution or organisation financed by a donation or donations. So a foundation is an institution. Operating Foundation: An operating foundation is a private foundation that uses its resources to conduct research or provide a direct service itself, rather than by funding others. Many foundations run their own programmes directly and make grants. Trust: A fiduciary relationship in which one person (the trustee) holds the title to property (including shares and other investments) for the benefit of another (the beneficiary). So a trust is the nature of the financial relationship. Endowment: Funds or property donated to an institution, individual or group as a source of income, usually in perpetuity. So an endowment provides the source of income for some foundations.

21

22

The Theory of Social Investment

The history of charitable foundations goes back to Ancient Greece and Plato’s Academy, and there is a long tradition of charitable foundations and trusts from the early Middle Ages in Europe. However, the roots of the modern, grantmaking foundation as we know it began with the Reformation and developed first and foremost in Britain. Why was this? The first reason was philosophical. Charitable foundations for non-religious purposes were outward manifestations of the Protestant Ethic (the term coined by the philosopher Max Weber). The key in this context was that if one was chosen for glory in the next world, then this could be demonstrated in this world by your own actions. In a sense a self-fulfilling prophesy. So if one had wealth, it was important to use it for the benefit of society which would inevitably mean your soul was saved. It could be argued that the Catholic tradition is far more fatalistic – there’s nothing much you can do except avoid sin and pray, which makes ‘good works’ less attractive. Hence, philanthropy was more likely to flourish in Protestant lands such as Germany, Scandinavia, Britain and later the United States. The second was legal. The establishment of foundations was more likely to occur in those countries which favoured a non-interventionist approach by the state and where there was a stable government (who would leave them alone and not appropriate their wealth). In many continental countries, these conditions didn’t exist. Either they favoured state control at various periods (especially in the nineteenth and twentieth centuries), or they viewed foundations as accumulations of wealth that needed curtailing (France was the best example where this happened after the Revolution). Before the rise of the United States, it was therefore only in England where these fertile conditions existed and where the charitable foundation flourished in the seventeenth and eighteenth centuries. However until about 1650, charitable foundations were virtually all established for religious ends and for a single purpose (often the endowment of a building or institution like a hospital). Perhaps the first grantmaker, in the sense of giving money to intermediaries rather than directly to beneficiaries, was Thomas Firmin, the outstanding English philanthropist of the late seventeenth century. Among the projects he established with his estate of around £20,000 (at least £3 million today) were job-creation schemes, assistance for debtor prisoners and support for Continental and Irish refugees.1 Despite Firmin’s and a few others pioneering efforts, it wasn’t until the nineteenth century that there was any significant move away from providing endowments towards providing the operating costs of charitable societies and eventually to grantmaking per se.

A Short History of Philanthropy

23

Philanthropy in the industrial age Of course the major change that prompted this move was the onset of the Industrial Revolution which had an effect upon both the main philanthropists and the target of their philanthropy. Firstly, the Industrial Revolution created a new breed of philanthropist, no longer one based on land ownership but instead with fortunes founded on business empires. With their wealth not tied up in land, their giving became more based on the donation of cash. Secondly, up to this point, it had been a reasonable proposition that the worst ills of society could be alleviated by private philanthropy alone. In a society where few needed to be educated and medicine was rudimentary, it was possible that private giving could fund the country’s health and education requirements. As the nineteenth century wore on, this became an increasingly untenable position. Industrialisation significantly complicated philanthropy. In a rural society, or even pre-industrial London, it was possible to know an area well enough to give directly to those in need or establish an organisation that could do so. In an industrial metropolis, this was impossible. The consequence was to stimulate the growth of charitable societies serving as intermediaries between individual philanthropists and beneficiaries, and from here it was a relatively small step to societies that gave grants to organisations rather than helped individuals. Despite the, to us, obvious fact that charity alone could not solve the problems of an industrial society, there was a staunch rearguard action in the later nineteenth century in the United Kingdom against state intervention from many powerful sources, not least from within charity itself in the form of the Charity Organisation Society (COS). They believed that indiscriminate charity, which is what state benefits would be, would only increase poverty and misery, by encouraging mendicity, reliance on handouts and discouraging work. They failed to understand that most people were poor not because they chose to be or were lazy but because of force of circumstance, illness, infirmity or unemployment. Adherents to the COS and their supporters therefore discriminated in their charitable works between those who were in temporary need through no fault of their own and those who were irredeemable: the deserving and the undeserving poor. It was the state’s role only to provide for the latter, to prevent them starving through the draconian Poor Law of 1834, and charities to ‘save’ only the former. And if scriptural support were needed, one could always balance Christ’s commendation of the Good Samaritan against St Paul’s warning that ‘if a man will not work, neither shall he eat.’

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The Theory of Social Investment

Eventually, of course, this kind of thinking went into decline, and the relationship between state and charity began to change. Indeed even with the establishment of the Poor Law, the state had set out the boundaries and done the defining. Governments, both Liberal and Tory, began to enact legislation in the social welfare field. The change was assisted by an increasing acceptance of the shift in the taxation burden in the United Kingdom. From the first introduction of Income Tax to help finance the wars against Napoleon to the massive increases brought about by two world wars, the British people became used to providing the state with the financial resources to tackle the major social issues of the day. As the twentieth century progressed in the United Kingdom, there was a significant shift in what the state provided. This began with the election of a reforming Liberal administration in 1905 that marked a watershed in provision with the introduction of both National Insurance and Old Age Pensions. Though comprehensive state provision of health and education didn’t follow until the 1945 Labour administration came to power, the realm of charitable activity had fundamentally changed.

Philanthropy in the United States In the United States, there has not been the same shift in the areas of charitable concern that has characterised the British scene in the twentieth century. A far less interventionist, and low-tax, federal administration has meant that health and education in particular have remained a major focus for charitable support. But even here it was not until the early twentieth century that individuals generally began to use their philanthropy to seek ways to combat problems, conduct research and promote science. One of the early proponents of modern philanthropy, and the model on which much modern-day grantmaking is based, was Andrew Carnegie, a wealthy business entrepreneur; originally from Dunfermline, he made his fortune in the steel business. A staunch believer in the Protestant Ethic and Social Darwinism Carnegie viewed the person of wealth as a product of natural selection by the forces of competition. By becoming wealthy, a person became an agent of civilisation, and philanthropy became a tool for improving society while at the same time substituting for radical reforms. Carnegie outlined his ideas in an essay entitled ‘The Gospel of Wealth’2 published in 1889, which gave birth to the idea that the rich should, instead of ‘leaving their wealth to their families, administer it as a public trust during life’. Carnegie explained his thinking by saying:

A Short History of Philanthropy

25

The problem of our age is the proper administration of wealth, so that the ties of brotherhood may still bind together the rich and poor in harmonious relationship. The solution lay in classic ‘Protestant Ethic’ thinking: This, then, is held to be the duty of the man of wealth: First, to set an example of modest, unostentatious living, shunning display or extravagance; to provide moderately for the legitimate wants of those dependent upon him; and, after doing so, to consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer, and strictly bound as a matter of duty to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community . . . the man of wealth thus becoming the mere trustee and agent for his poorer brethren, bringing to their service his superior wisdom, experience and ability to administer, doing for them better than they would or could do for themselves. Surely these ideas are very close to those expounded today by our leading ‘philanthrocapitalists’?3 Carnegie’s philanthropy included starting hundreds of public libraries and other agencies in both the United States and United Kingdom that would provide ‘ladders upon which the aspiring can rise’.4 Carnegie’s essay prepared the way for John D Rockefeller, Senior, who in 1891 hired staff to help manage his philanthropic enterprises. The state of New York chartered the Rockefeller Foundation in 1913, but only after the US Congress had refused to do so.5 During the early years of the twentieth century, several civic and business leaders – like Carnegie, Rockefeller and Margaret Olivia Sage6 – organised their philanthropic giving in a new form, like the business corporations with which they had been so successful. The new corporate organisational structure permitted more flexibility than charitable trusts, the traditional mode of giving featured in English law. Boards of Directors and a professional staff, rather than trustees, were responsible for overseeing their operations. These new foundations, both private and community, were not designed to help people directly but were designed to be the instruments for ‘scientific charity’, of reform, of problem solving, and would address the root causes of poverty, hunger and disease. This idea of systematic, ‘Scientific’ philanthropy is a product of the era of optimism and faith in the ability of science and reason to solve all human problems and is still the rationale for most modern foundations.

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The Theory of Social Investment

Grantmaking in the United Kingdom The first modern grantmaking Foundation in the United Kingdom had its origins in an historical anachronism. By the late nineteenth century the square mile of the ancient City of London had the heaviest concentration of charitable endowments in the country, the great majority of these trusts had been established before 1700. Many of the objects they were formed to serve were now entirely redundant. There were, for example, funds for sermons celebrating the defeat of the Spanish Armada and the failure of the Gunpowder Plot, for the tolling of the bell of St Sepulchre’s before executions at Newgate (which were no longer held there), for killing ladybirds in Cornhill (which no longer bred there), for ransoming Christian captives from the Barbary pirates (who didn’t exist) and, most famously, Werke’s Charity, a fifteenth-century endowment of 6s 8d for the provision of faggots with which to burn heretics. Others were for the benefit of parishes which no longer existed such as All-Hallows-the-Great, now the site of Cannon Street Station and St Christopher-le-Stock, now covered by the Bank of England. As property values had risen so had the incomes of these charities (by more than 50 per cent between 1865 and 1876 alone), but, at the same time, the population of the City had dramatically declined – between 1851 and 1881, it dropped from 131,000 to 52,000; which made spending their money even more difficult as the poorest inhabitants now lived outside the City in places like Whitechapel, Stepney and Wapping. In 1878, a Royal Commission was appointed to investigate the charities of the City. Its report resulted in the City of London Parochial Charities Act, 1883. This provided that the five largest parishes should continue to manage their own charitable endowments, but that the bulk of the remainder should be administered by a new corporate body. The Act defined the area of benefit as both the City of London and the, much larger, Metropolitan Police District of London. The outcome was a Scheme7 declared in 1891 which brought 1,400 endowments together into two funds – a City Church Fund and a Central Fund. Together, these constituted the City Parochial Foundation, a body which still acts as one of the United Kingdom’s leading grantmakers in tackling the root causes of poverty.8 City Parochial was followed in the next hundred years by a number of more ‘conventional’ foundations based on the personal wealth of leading individuals such as the Quaker chocolate manufacturers Cadbury and Rowntree, the motor manufacturer Lord Nuffield and the food retailers Sainsbury. By the twenty-first century, the leading private grantmaking foundations in the United Kingdom and United States were as shown in Tables 2.1 and 2.2:

27

Table 2.1 Largest UK foundations Foundation

Source of original endowment/income

Wellcome Trust

Pharmaceuticals

Garfield Weston Foundation

Food manufacturing and retail (Associated British Foods)

Leverhulme Trust

Sunlight soap

Children’s Investment Fund Foundation

Hedge funds

Net assets (£ millions)

Grants exp. (£ millions)

12,032

525

3,721

52

1,256

45

802

32

City Bridge Trust

Rents, etc.

798

17

Henry Smith Charity

Salter/land

773

26

Esmee Fairbairn Foundation

Unit trusts

725

21

Wolfson Foundation

Department stores (GUS)

639

33

Paul Hamlyn Foundation

Publishing

514

15

Gatsby Charitable Foundation

Sainsbury’s supermarkets

465

31

Comic Relief

Public appeal via BBC

77

47

Rufford Maurice Laing Foundation

Construction

65

31

Prince’s Charitable Foundation

Various including profits from the Prince’s businesses such as ‘Duchy Originals’

22

25

Lloyd’s TSB Foundation for England and Wales

Banking

7

24

Note: Non-endowed foundations in italics. Excludes Big Lottery Fund and the Royal Society. Source: Cathy Pharoah, Charity Market Monitor (Caritas Data, 2009).

Table 2.2 Largest US foundations Foundation

Source

Assets ($ million)

Total giving ($ million)

Bill and Melinda Gates Foundation

Software

38,921

2,011

Ford Foundation

Cars

11,045

526

Robert Wood Johnson Foundation

Pharmaceuticals

10,722

407

William and Flora Hewlett Foundation

Computers

9,285

421

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The Theory of Social Investment

Table 2.2 (Continued) Foundation

Source

Assets ($ million)

Total giving ($ million)

W.K. Kellogg Foundation

Cereals

8,403

303

Lilly Endowments

Pharmaceuticals

7,735

342

John D and Catherine T MacArthur Foundation

Insurance

7,052

232

David and Lucille Packard Foundation

Computers

6,595

308

Andrew W Mellon Foundation

Banking

6,540

300

Gordon and Betty Moore Foundation

Microchips

6,409

291

Annenberg Foundation

Publishing

2,488

267

Note: Excludes operating foundations. Source: The Foundation Center’s Statistical Information Service, 2007 figures.

In the United States, the leading foundations show interesting contrasts in the source of their endowments.

A note on the different models for civil society

The Anglo-Saxon model In Anglo-Saxon societies, civil society organisations (CSOs) are viewed as being a counterweight to government and the state. In an ideal world, they foster pluralism in their societies and cast themselves in the role of critics of the state and advocates of reform. There is usually a strong culture of voluntarism and foundations support civil society and fund issues that governments do not. There is also an enabling legal and fiscal infrastructure that encourages donations and gifts. The most obvious examples are the United States and the United Kingdom. The Rhine model This includes Belgium, Germany and the Netherlands and is characterised by strong CSOs that are institution-like and often receive contracts from the state in a form of ‘societal corporatism’, rather than operating as a counterweight to the state. They function much like subcontractors in

A Short History of Philanthropy

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sectors such as healthcare and education. Paradoxically, they are independent from the state, but predominantly publicly funded. Because of this interdependent relationship and dependence on government funding, the fiscal and legal climate does not strongly favour donations and gifts. In this space, foundations are only recently being recognised as important players, particularly corporate foundations. The Latin/Mediterranean model Here the role of the state is strong with a clear division between church and state. Traditionally, the church does charity work and the state is responsible for delivering goods and social services. The state is a strong economic actor and the relationship between the state and market is different from that in other models. CSOs face a challenge in being accepted as independent and autonomous. There is an effort to control organisations and associations politically, either through representation on boards or by legal measures, such as what happened in Italy with the attempt to bring the banking foundations under political control.10 Gifts and donations are not encouraged by the fiscal system and volunteerism is viewed as a threat to the job market. Foundations have difficulty moving into their role of complementarity – supporting and funding what government does not, thereby fostering pluralism in civil society – because when they move into what is perceived as political territory, they are challenged by politicians who question their mandate. The Scandinavian model Here the state traditionally plays a strong role, but because of the Protestant roots in these countries, personal initiative is viewed as a positive. There is a strong welfare state, but at the same time volunteerism is a powerful force. CSOs typically thrive and fulfil a complementarity role to bridge the gaps in the system. Civil society often identifies a need, which is later filled by government. Gifts and donations are not strongly promoted in the fiscal system. In this environment, foundations have a very strong relationship with government and government agencies.9

Where we are today During the course of this book, we’ll be looking at a number of more recent trends in philanthropy, grantmaking and social investment, so I won’t cover

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them in any detail here. But among the key questions being asked are the following: • Are grants the best form of ‘financial exchange’? • Should those they fund be more tightly controlled through contractual arrangements? • Should funders be more concerned with the outcomes of what they fund and, if so, how should these be measured and ‘controlled’? • Should funders become more like successful capitalists (utilising ideas such as ‘venture philanthropy’)? • Should the full costs of what recipients deliver be covered by funders (including things like fund-raising costs and even adding to endowments)? • Should funders become more concerned with utilising all of their assets (including their reserves and endowments) as well as what they distribute to recipients? • Should funders increasingly move away from funding services to funding for policy change? • What does all of this mean for how you manage your funding?

Further reading Probably the most comprehensive single-volume work on charity on both sides of the Atlantic is that edited by Bernard Harris and Paul Bridgen: Charity and Mutual Aid in Europe and North America Since 1800 (Routledge Studies in Modern History, 2006) which examines the variety of relationships between statutory and voluntary sectors, and considers 250 years of welfare provision on an international scale. There is a good preview on Google Books (mainly of Harris’s excellent chapter on Charity and Poor Relief in England and Wales 1750–1914). However, it does cost over £80 for what is a 250-page book. There is no satisfactory book on the history of UK charity, let alone grantmaking. The two most comprehensive books have significant defects. They are David Owen’s English Philanthropy 1660–1960 which is currently out of print and not easy to find even second hand. It is comprehensive but rather peters out when it reaches the twentieth century (for example, it entirely omits the important periods for charity during the two world wars), and it was written in the early 1960s. Frank Prochaska: The Voluntary Impulse: Philanthropy in Modern Britain (Faber and Faber, 1988). Prochaska is a good writer, but his works are sometimes characterised by the ‘sweeping statement’, such as his contention that the late nineteenth century was the ‘golden age of philanthropy’ which is not

A Short History of Philanthropy

31

supported by the evidence or (in another book) that the introduction of the National Lottery led to a significant reduction in charitable giving which is just plain wrong. The coverage for the United States is far better, and includes the following: The key text is undoubtedly Robert H Bremner’s American Philanthropy (University of Chicago Press, first published 1960 with a revised edition in 1988). Charity, Philanthropy, and Civility in American History edited by Lawrence J Friedman and Mark D McGarvie (Cambridge University Press, 2002). An interesting review of the history of American Philanthropy from a, somewhat surprisingly, left-wing perspective so it is quite critical of some of the United States’ famous grantmakers. Philanthropy Reconsidered: Private Initiatives – Public Good – Quality of Life (AuthorHouse, 2008) by George McCully goes right back to Ancient Greece. McCully also discusses what he sees as a ‘crisis in philanthropy’ in the late twentieth century which is now resulting in the emergence of a ‘new paradigm’ (new philanthropy). I think McCully’s entire case is overstated and that the change (if there was one) was much less significant – see the discussion in Chapter 4. Mark Dowie’s American Foundations: An Investigative History (MIT Press, 2001) takes a different and more critical view. He sets out to examine how ‘large-scale philanthropy has affected the fields of human endeavour they have supported over the last century’. He is highly critical and, in places, cynical, about their achievements although he is also somewhat selective in his approach in order to support his critique. His recommendations include breaking up large foundations so that none have assets of more than $1 billion and, more positively, requiring greater democracy in foundation governance. Katherine Fulton and Andrew Blau, in Looking Out for the Future: An Orientation for Twenty-first Century Philanthropists (Global Business Network and Monitor Institute, 2005), go further by looking forward to possible futures for philanthropy in the section on ‘Imaging the Future’. Their scenarios are clustered around three key themes that donors face: (1) the pressure for accountability, (2) the demand for effectiveness and (3) the need for infrastructure. The final section ‘Choosing Your Path’ offers four principles that they suggest should frame future giving: (1) exploiting philanthropy’s strategic advantage, (2) seeking cooperative advantage, (3) embracing complexity and (4) inviting meaningful scrutiny. Available at http://www.fidelitycharitableservices.com/ documents/Orientation-for-Philanthropists.pdf.

3 Theories of Change and Logic Modelling

The theory of social change Philanthropists and grantmakers use their funding for social purposes, to effect or change the ‘social condition’. Even a very ‘conservative’ funder who strongly believes in the status quo hopes to have a social effect – relieving individual suffering or poverty for example. Many go beyond this somewhat passive role and hope that their funding and programmes will actually bring about some kind of, hopefully permanent and positive, social change. If a funder wants to bring about change, then they also need to have some views about what types and intensity of intervention will best facilitate this social movement. This view of how to bring about change has been termed a ‘theory of change’. Social investors must have some sort of ‘theory of change’ to overlay their activities, even if it is not publicly expressed. Without it, they would have no way of deciding what to fund. Even those who profess to be ‘open to all’ in reality are not – they have some kind of ‘theory’ even if it is highly subjective. Implementing your ‘theory’ requires a model of how the world ‘works’ and, in particular, how a funding process can affect it. It’s a process that is well known in many walks of life in both the private and public sector and can be modelled as in Figure 3.1: This process utilises what is called a logic model. In fact, this diagram is already a simple logic model. A logic model is a variation of the classic flow chart, a diagrammatic representation of how a process works. The term itself is borrowed from evaluation and is usually applied to social processes in order to try to understand how changes have or might come about. It also implies that if a certain thing happens, then it will have a result. This ‘if’/‘then’ relationship is the ‘logical’ part of the model. 32

Theories of Change and Logic Modelling 33

Agree theory

Design model

Implement/ test model

Evaluate results/learn

Redesign model/ adjust theory

Figure 3.1

Simple logic model

Most funders do not go to the lengths of documenting their logic model and may not even be familiar with the term, but it still probably exists as a concept. If it didn’t, they would not have any confidence in their investments having any impact. The more complex a particular problem is or your programme or initiative becomes, the more likely it is that some form of logic modelling needs to be carried out and the model documented – either in the form of a simple ‘time line’ or as a more complex set of interdependent causes and effects.

The W. K. Kellogg Foundation logic model It’s probably easiest to demonstrate a logic model by looking at its components. These are taken from the comprehensive guide to the subject produced by the W. K. Kellogg Foundation.1 It’s also obvious from both Kellogg’s and other work that logic models are equally important for recipients to help them understand how their work is having an effect. Again probably, most organisations don’t document their model or call it by that name but, at least in those that think about being effective, the process certainly goes on.

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The Theory of Social Investment

Kellogg describe a sequence of five programme components: (1) (2) (3) (4) (5)

Inputs Activities Outputs Outcomes Impact.

The first two are your planned work: Inputs are the human, financial, organisational and community resources needed to operate your programme. Activities are what you do with these inputs – if you have access to the resources, then you can use them to accomplish your planned activities. The next three are your intended results: Outputs are the direct and tangible products – if you accomplish your planned activities, then you will deliver the amount of product or service that you intended. These can usually be counted numerically: X people will be using the service for example. Outcomes are specific changes in individual or group behaviour, knowledge, skills, level of functioning, and so on – if the outputs are delivered, if you accomplish your planned activities to the extent intended, then the people who are participating will benefit in certain ways, will achieve certain goals, will be able to apply new skills or have access to new opportunities. Impacts are the fundamental intended changes in organisations, communities or systems – if the outcomes are achieved, then certain changes in organisations, communities or society as a whole might be expected to occur. Kellogg also recommend strongly that you incorporate a time line in the model and emphasise, as we saw in ‘How Long Does Change Take?’ – impact often occurs well after the conclusion of a period of funding and they caution against measures designed to report on long-term impacts being imposed by a funder when, at best, only short-term outcomes can be discerned. This has important implications for evaluation. Are you intending to evaluate these, shorter-term, outcomes or the, much longer-term, impact? Perhaps the main thing missing from this model, which they developed as guidance specifically for recipients not funders, is the question of context. Context is clearly important as it lists the main factors influencing the

Theories of Change and Logic Modelling 35

initiative. These would include the problems the initiative or programme is seeking to address (or, perhaps, the opportunities it is trying to seize) and the things that will be done to understand them: needs assessment, literature searches, stakeholder studies, advisory panels, baseline studies and so on.

The logical framework approach and the logframe One step beyond logic models is the logical framework approach (LFA) and the logframe which was originally developed by the United States Department of Defence, and adopted by the United States Agency for International Development in the late 1960s. Since then, it has been applied and modified by many bilateral donors, including Germany, the United Kingdom, the European Union, Canada and Australia. It has also been widely adopted by international NGOs, though not without reservations and concerns by some. In the 1990s, it was often mandatory for aid organisations to use the LFA in their project proposals, but its use in recent years has become more optional. The logical framework or logframe is an analytical tool used to plan, monitor and evaluate projects. It derives its name from the logical linkages set out by the planner(s) to connect a project’s means with its ends, so not really different from a logic model. Where it differs from a logic model is that it extends the logic model into a more detailed project plan and also emphasises the need to build ‘bottom up’ as well as ‘top down’, involving users in the planning process. It reinforces this with a risks and assumptions analysis and concludes by identifying the controls needed to monitor and manage the project through to successful conclusion. This is done within the framework of the ‘Logframe Matrix’. This crossreferences seven key areas of the project to ensure that the key questions are asked: (1) (2) (3) (4) (5) (6) (7)

Goal – what results do we expect? Purpose – why are we doing this? Outputs – what are the deliverables? Activities – what will we do to deliver the outputs? Indicators of achievement – how will we know we’ve been successful? Means of verification – how will we check our reported results? Risks and assumptions – what assumptions underlie the structure of our project, and what is the risk they will not prevail?

The answers to these questions are put into a logical framework matrix, the logframe, a four by three matrix (Table 3.1):

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The Theory of Social Investment

Table 3.1 Example of a logframe matrix Project summary

Indicators of achievement

Means of verification

Important risks and assumptions

Goal Purpose Outputs Activities

Though logframes are not, currently, used significantly outside the world of NGOs, they could well be of use in funding programmes, especially in the planning stages where you need to rigorously check your ‘if/then’ assumptions with reality.2 They are also useful in checking whether applicants have thought through their outcomes – especially whether they have developed logical indicators of success and means of verification, though you might replace ‘goals’ and ‘purpose’ in the matrix with ‘outcomes’.

Some problems with logic models (and logframes) Whether or not you have articulated a logic model, it’s clear that if you think philanthropy can fund projects that ‘change the world’ in some way then you have to believe in the process. However, you can probably already see that the concept does have quite significant challenges and, like most theories, if used in the wrong way, insurmountable problems. For now, I’ll just touch on five of them: 1. How do you measure intangibles? Obviously inputs and outputs are reasonably easy to measure. But what about outcomes and impacts; how do you measure changes in individual, group or societal behaviour, especially with limited resources? This is a really significant issue if you want to know if a project or programme is having an effect. 2. How do you define terms so that everyone understands them in the same way? Even defining terms can be a problem. The four key terms are inputs, outputs, outcomes and impact. Though there seems to be general agreement about the meaning of the first two, to recap: • Inputs – the resources that are used to run a service, project, organisation or programme. So they include money, people, facilities, equipment and so on;

Theories of Change and Logic Modelling 37

• Outputs – the numbers of people helped, doors painted, leaflets distributed, hits on the web page and so on. There is much less agreement, and lots of debate, about the exact meaning of ‘outcomes’ and ‘impact’ or where one ends and the other begins. Some commentators emphasise the importance of disentangling ‘hard’ and ‘soft’ outcomes and introduce the notion of ‘distance travelled’ as a key element. • Hard outcomes are those that are relatively easy to measure (a qualification for an individual, for example). • Soft outcomes are those that are more difficult to measure (lifestyle changes or the way people feel about themselves). They may also be intermediate steps towards harder outcomes. • Distance travelled refers to the progress people make towards achieving soft outcomes, how near they are to them. By definition, the concept requires measuring at least twice to see if progress is being made. Many of these arguments are no more than semantic (the above three terms are quite adequately covered by the Kellogg model plus a timeline, for example), but the debate has been an intense one. My own view is that outcomes really need to be changes that have a long-term benefit. I therefore have some problems with, for example, ‘gaining of a qualification’ being an outcome; I would consider it to be an ‘aim’. Unless the qualification is used in some way, it might just be a meaningless bit of paper. I would always ask the ‘so what?’ question in defining an outcome; so the outcome would have to be something like ‘gaining a qualification in order to secure a better job’. 3. Where does implementation cease? Implementation issues again touch on what to also involve funders in deciding just ‘where to son why, especially if you have a robust logic not decide to cease their involvement at any model:

measure and when but stop’. There is no reamodel, a funder could of the points on the

• You could simply decide to provide the inputs (money or resources) and trust that everything else will follow; • You could end your involvement after measuring the quantifiable outputs which was a choice of many grantmaking programmes in the 1970s and 1980s;

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The Theory of Social Investment

• You could try to measure the outcomes of the projects as many funders are trying to do today. This will require a greater degree of involvement and resources over a longer period and inevitably raises the question of what you do if they’re not happening; • Or you could go ‘the whole hog’ and try to assess the ultimate impact of the initiative, in which case you’re really in it for the long term, and it will probably cost somebody a great deal of money to do properly. 4. How do you factor in external influences? The other problem you’ll find if you make the decision to evaluate outcomes or impact is that of attribution. How do you know that it was the outputs you helped fund that brought about the change? Might not other, more influential, external factors have been responsible? 5. Is even measuring outcomes and impacts enough? Equally even if you know that it really was the specific intervention that brought about the change, so what? I don’t want to do more than raise the issue here, but let me briefly explain what I mean. Let’s say your desired outcome was ‘reducing teenage unemployment in Bootle’. Let’s say you can demonstrate that the project you funded really did reduce teenage unemployment in Bootle. What does this tell you? That the project, exactly as carried out by these people, had a specific effect, in specific circumstances, in a specific location. How helpful is this if what you want to find are lessons that can be applied to reducing teenage unemployment in any part of the country? Well, unless you know exactly how the project outcomes were achieved and can analyse the impact of any specific external factors, then even this amount of knowledge may be of no more than of academic interest. In other words, it may be more important to know how outcomes and impacts came about rather than what those outcomes and impacts were.

Impact for designing social investment programmes Despite the many difficulties in the utilisation of logic models, they are (whether explicitly or implicitly) a key essential if a funder wants to design a programme to bring about a social change. For a funder who wants to think through this process, there are some other linked elements from the logic model that result from the process (Figure 3.2):

Theories of Change and Logic Modelling 39

Agree theory

Design model

Test model

Learn

• Mission statement • Values

• Aims • Outcomes

• Resources • Processes

• Monitoring • Evaluation

• Even if the programme is a ‘one off’ an analysis should provide information you can use for future programmes Redesign

Figure 3.2

Logic model linked to programme elements

This brief outline is just to indicate the overall working of the process not to go into it in any depth – this will be done in Part III when we come on to examine the development of programmes. The key to all this is that to be able to design a programme (indeed to design anything), you need to know first what the purpose of that programme is. What is the ultimate aim of the programme? What are we seeking to achieve? The obvious next question is: if X is our ultimate aim, how will we know when we’ve got to X? In social investment, this ultimate aim is much more complex than in other circumstances because the aim is social change. It involves people and improving the human condition. Defining X might not be too difficult but actually measuring whether you’ve got there could be trickier. If the ultimate aim is very long-term but your programme can only run for a few years, you’ve got an even greater problem: how do you even know that you’re making progress? For funders there are two big implications here. 1. Firstly, exactly how to measure whether you are making progress towards your aims. This has to be something that must be answered, mainly, through evaluation of project and programme outcomes and impact.

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The Theory of Social Investment

2. Secondly, what do you do if individual projects or entire programmes are not helping you move towards this aim? Let’s look briefly at both these subjects.

Evaluation Clearly if you want to know anything about the real results of projects or programmes (outcomes, impact and how they were achieved), you need to do some kind of evaluation. This involves us in some more definitions, in particular the difference between monitoring and evaluation. Very simply, monitoring is more concerned with outputs, evaluation with outcomes and impact. In more detail, this is how Diana Leat defines the two terms:3 (1) Monitoring is about keeping track of where and how things are going. It is primarily a management tool designed to tell you where you are, whether you are on course, why this may be so and how you might correct it. Monitoring involves deciding what information will be useful, setting up systems to collect it, collecting the information, then reviewing it. (2) Evaluation is designed to assess whether the project achieved what it set out to achieve, but it may also ask whether the project achieved other things. Evaluation may be concerned not simply with the achievements of a project but with those achievements relative to cost. One real purpose of evaluation should be to consider, and if possible to understand, success and failure. Knowing why something did not work may be less satisfying than demonstrating success, but it may be just as valuable. This book does not look in any great detail at how you carry out evaluations, there are many writers who do this, but I want to consider some of the choices faced in considering how and what to evaluate.

The theory of evaluation The idea of evaluation began in scientific research and medical research in particular. It has since been adapted for use in social research but, inevitably, cannot be expected to reach the same degree of experimental validity that it retains in its original context. In evaluating the overall impact of an intervention (medical or social), there are, broadly, three methods that are possible:

Theories of Change and Logic Modelling 41

(1) Randomised controlled trials A randomised controlled trial (RCT) is a study that measures an intervention’s effect by randomly assigning one group into the intervention group, which receives the intervention, and one into a control group, which does not. At some point following the intervention, measurements are taken to establish the difference between the intervention group and the control group. Because the control group simulates what would have happened if there were no intervention, the difference in outcomes between the groups demonstrates the outcome or impact one would expect for the intervention more generally. RCTs provide by far the most statistically valid results of the three types. They are, for example, how trials of a new drug are conducted. However, there are few social investment programmes for which it would be possible to conduct an RCT. There must be a possibility of selecting randomised intervention and control groups – those who will receive a programme intervention and those who will not (or will receive a different intervention). For practical, legal, budgetary and ethical reasons, this may not be possible. RCTs are also likely to cost a minimum of £50,000 (or equivalent) and can cost vastly more. (2) Quasi-experimental or comparison group trials Like RCTs, these evaluations assess the differences that result from an activity and the result that would have occurred without the intervention. For example, for a funding programme, the comparison may be between an intervention group that receives the benefits of the programme and a comparison group that does not. However, the comparison group is not randomly selected. Instead, it is formed based on the judgement of the evaluator as to how to minimise any differences between the two groups, or may be a pre-existing group. Under certain circumstances, well-matched comparison group studies can approach the rigour of RCTs however, use of comparison group trials (CGTs) does increase the risk of misleading results because of the difficulty in eliminating bias in the selection of the control group. Awareness of this risk is crucial to the design of such evaluations. The dangers of CGTs are shown by what happened with research into hormone replacement therapy. Over 30 years, more than two dozen comparison-group studies found that hormone replacement therapy for postmenopausal women was effective in reducing the women’s risk of coronary heart disease, typically by

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The Theory of Social Investment

35–50 per cent. But when hormone therapy was evaluated in two largescale RCTs – medicine’s gold standard – it was actually found to do the opposite – namely, it increased the risk of heart disease, as well as stroke and breast cancer..4 In my experience, few evaluations of social investment programmes have recognised this crucial difference between RCTs and CGTs. (3) Non-experimental direct analysis These evaluations examine only the intervention group receiving the intervention; there is no comparison group. A common example of this type of evaluation is the ‘pre-post study’, which examines only the intervention group with outcomes compared before and after the programme benefits are received. ‘Longitudinal studies,’ which also examine changes over time and relate those changes back to the original condition of the intervention group, are another example.5 Other examples of non-experimental tools and methods include correlation analyses, surveys, questionnaires, participant observation studies, implementation studies, peer reviews and case studies. These methods can be useful for examining how or why a programme is effective, or for providing information that is useful for programme management. For this reason, and because they are cheaper and have fewer ethical problems, this type of evaluation is by far the most common for social investment programmes. They are, however, not particularly scientifically rigorous and may lead to false conclusions if used to measure programme effectiveness.

Evaluations can be carried out externally (often by consultants employed by the funder) or internally (by the recipient). The former is more common, but the latter may often be better if you really want to understand a specific project. That’s not to say there should be no external evaluation – if there isn’t, you couldn’t carry out analysis at a programme level – but there are distinct advantages to the internal approach because good project evaluation contributes strongly to good project management and it can’t do that if the recipient isn’t in control of the process to some degree. Inevitably, this means that funders must be prepared to pay for the cost of internal evaluation. But the funder does need to ensure that internal evaluation is rigorous and objective. Whatever evaluation method is chosen, it must be designed into the programme at the very outset and, where applicable, baseline studies undertaken before projects commence.

Theories of Change and Logic Modelling 43

If you utilise the structure of the logic model, then it’s not particularly difficult to begin to construct the sort of questions one will need to look to evaluations to answer for a particular programme. It’s also important in programme evaluation to consider the whole process, not just the outcomes. Unless you do this, it becomes difficult to improve your role as a funder, and you also need to include evaluation of your entire organisation (including governance, strategy development, etc.) which means some form of performance management, which we’ll cover in Chapter 8.6 Table 3.2 is an example taken from a real funding programme to show you what I mean. This was an ‘open application’ programme designed for wide take-up across the United Kingdom. The programme aimed to improve IT literacy and education amongst disadvantaged communities and the external evaluation concentrated on this. Table 3.2 Example of the evaluation questions for a funding programme Main Processes

Potential evaluation issues – to be looked at from a positive and negative perspective

Inputs

• • • • • •

Promotion and publicity for the programme

• • • • • • •

Outreach

• • • •

Resources allocated – were they sufficient? Resources when? Were they applied at the right time? Were they of sufficient quality – people with the right skills, etc.? Were the external partners briefed well? Did the management controls work? Cost comparisons with other programmes? Was the promotion well designed to reach hard to reach groups? Did promotional materials convey a clear message in an appropriate language? Did the media match the message and the target group? Timing and timetable? Did the applicants know who was providing the funding? Was there evidence that the most disadvantaged applicant organisations applied? Take up of the grants for appropriate and effective projects? Were the appropriate networks used? What effort was committed to get to hard to reach people? What barriers were being addressed and how well? Was the demand there and is it sustainable? Over what period?

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Table 3.2 (Continued) Main Processes

Potential evaluation issues – to be looked at from a positive and negative perspective

Development and support

• What methods of development and support were offered? • Which ones taken up? • Methods not tried – what might have been more successful? • How were hard to reach people enabled to participate in the process and to communicate effectively about their needs?

Grant application

• Paperwork appropriate for target groups? Timing? • Did every question have a purpose, and can it be demonstrated that the information is being used? • How did the applicant/recipient perceive the application process? • Alternative methods that might suit better?

Grant assessment

• Were appropriate assessment criteria used? Timetable, was this sufficient or too long? • Resource effective versus risk? • Were any of the grant programme business processes acting as barriers to applications/receiving grants? • Were any groups excluded because of the process?

Decision making

• Was the make up of the decision-making committee appropriate? Was their training effective? • Were recommendations from staff always accepted, or were they often overturned? If so, why and what did this mean?

Grant Management and monitoring

• • • • •

• •

Speed of payment? Controls? Risk strategy? Reporting procedures from recipient too onerous or just right? Outputs what we expected? Who benefits – how and why? Other ways of achieving same? How did the groups use the money? Would these activities have happened anyway? What difference did the money make? What have they gone on to do? Any problems experienced across the whole programme by recipients? This identifies issues with delivery in relation to outputs and impact. Problems related to individual grants are more likely to be related to the management of the recipient organisation and project.

Theories of Change and Logic Modelling 45

All this clearly has significant resource implications, but just how much should evaluation cost? Joel Orosz, from many years practical experience, suggests the following broad guide for project-level evaluations:7 • If little data need be collected or manipulated in order to answer the important questions for a project, then just 1 or 2 per cent of project costs may be sufficient. I would suggest this would be rare unless your programme objectives were extremely modest. • If data needs are significant but not enormous, and if the complexity level is not too high, 4–6 per cent seems a reasonable range. • If it will be necessary to conduct a very large amount of research, data gathering, analysis and publication of results and if the complexity of these tasks is high, then 10–20 per cent of total project costs would not be unreasonable. I would add that for ‘pilot’ projects where you need to analyse the effectiveness of innovatory new practices or activities even this may be insufficient and 25 per cent would be nearer the mark.8 You then need to add any additional costs incurred from evaluation at the macro, programme, level. How many funders are prepared to agree to a figure of 20–25 per cent for evaluation costs? So you may want to refer back to the ‘Einstein’s Triangle’, Figure 1.2.

Programme impact When it comes to calculating the overall impact of a set of investments or an entire programme the complexities clearly get greater and external evaluation is essential. It is also essential that such an evaluation works hand-in-glove with both the funders’ staff and the recipients. This may seem an obvious point, but I have seen a number of evaluations that have failed to take sufficient account of this principle which has led to real problems. Either the key issues have not been explored or the methodology has not been agreed which can lead to irreconcilable differences in the interpretation of the results. Interestingly, I think that it’s possible to look at the evaluation of ‘social impact’ in a scientific way and using a mathematical formula, if only in theory. This is not to say that the subject is reducible to mere formulas; it’s just a helpful depiction of what’s at work here. I have therefore come up with: Grant’s formula for effective investment R =I N

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The Theory of Social Investment

R = the resources of a programme. N = Need (cost) – an assessment of the total resources that would be required to bring about the change(s) the programme is seeking to address. Obviously, sometimes this can only be in terms of expressions such as ‘unknown’ or ‘too vast to calculate’. I = Impact – the overall impact the programme is therefore likely to have; in other words, the effectiveness of the programme in relation to the intended change(s). To achieve maximum effectiveness/impact to meet a need (bring about the intended changes), the resources devoted would have to be sufficient to fully meet that need. So if the calculation of need is taken to be 100, then the resources to meet that need would also have to be 100 and the ratio would be 1, so the formula would be: 100 =1 100 If the ‘efficiency’ co-efficient is less than 1 (which it nearly always will be in the real world), then the programme/project and so on will be less than 100 per cent effective. For example, if the resources were only half what was required to meet the need, the formula would look like this: 50 = 0. 5 100 If the co-efficient is greater than 1, you’re putting in too many resources (unlikely)! Obviously, the resources required to produce a particular effect (social change) are often very difficult to quantify, but the principle is still valid – especially the fact that efficiency is a corollary of effectiveness and not the other way round.9 Occasionally, you can do an actual calculation and come up with a crude measurement of likely impact. This is most often the case with capital funding programmes. To take a real example: the ‘People’s Network’ was a programme to provide broadband Internet connectivity to every public library in the United Kingdom and thus provide free use of the Internet for those who could not afford access at home. It was possible to accurately cost the capital aspect of the programme: the cost of connecting the libraries plus the IT they would need (terminals, software, special equipment for people with disabilities, etc.). The total cost was estimated at £100 million. The amount provided was able to adequately cover this cost, and so the funding ratio was a rare example of the optimum,

Theories of Change and Logic Modelling 47

which no doubt was a major contributing factor to the overall success of the programme. Programme evaluation of the People’s Network concluded (among other things) that: • The scale of roll-out, achieved within timescale and budget, was remarkable: over 30,000 computer terminals in over 4,000 libraries, providing broadband Internet access and a suite of software. • The People’s Network facilities are heavily used: a recent MORI survey found that 16 per cent of the public aged 16 and over have used the Internet at a public library. • The People’s Network has been markedly successful in broadening the library’s user base: young people and teenagers are a major user group. • The credibility of the library service has been enhanced, helping libraries to reposition themselves at the heart of the local community.10 Another, arguably less successful, NOF capital programme was New Opportunities for PE and Sport. The programme was designed to build new sports facilities in schools to bring them up to a reasonable standard. Though this was a huge programme with a budget of £750 million, this was set against an estimated overall requirement of around £3.5 billion to do the entire job. So using ‘Grant’s Formula’ would suggest the programme was only likely to be about 20 per cent successful.11 More intangible are those revenue programmes designed to tackle serious social issues like health or poverty. The NOF ‘Healthy Living Centres’ programme was intended to improve long-term health in the United Kingdom’s most deprived areas. Clearly, it was not possible to quantify the needs accurately, but the programme had an impressive £300 million to spend. However, it was intended to establish 300 centres; each funded over a period of five years, and each serving a community of around 10,000. So this meant that per person the value of the grant was only £20 a year. Is this an amount that was likely to have a significant impact on people’s health? I have even seen examples of charities that have their objective as ‘tackling world poverty’ but with annual budgets of just a few thousands. Are these organisations constantly depressed? The point of this is: don’t expect miracles when your resources are only a tiny fraction of the overall need. If you still want to have a discernable impact, then set realistic programme aims and outcomes such as tackling health issues or poverty in a small geographical area or amongst a certain category of people.12

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Risk Recently, I have been working with a firm of very prestigious consultants to whom I expounded some of my ideas on risk and social investment. They were concerned that a concentration on risk was rather negative, ignoring what often excites many philanthropists and that is opportunity. I think they miss the point that seizing opportunity is what good risk management is all about. Only through a proper understanding of risk can one seize opportunities. Just consider what happened when all those bankers seized opportunities a few years ago. The whole of social investment involves high risk. This is mainly because you are not ‘in control’ of the projects and individuals that are doing the work – you’re operating at arm’s length through third parties. Therefore risk management is extraordinarily important to funders, which is why there is a chapter devoted to it (Chapter 6). Every funder should think of risk management as permeating everything they do and not as a separate operation on its own outside their routine activities. So risk is very important. But risk is often poorly understood by funders (especially by some of the people that work in their finance departments). Many think that risk is about the danger of their investments being misappropriated. This is one risk, but it is by no means the biggest. The biggest risk is that the investments you make and the programmes you fund don’t have the effect you hope to achieve, in other words that you won’t achieve your aims. Therefore your risk management processes should focus crucially on this point and never let it out of your sight. Inevitably, quite a bit of this is about financial risk but not the key bit. You could have a highly efficient, low-cost programme that creates lots of outputs – staff employed, courses run, information produced and so on – but it would be of no use whatsoever if it wasn’t having the desired effect on the real beneficiaries – for example, improving their health, getting them jobs or whatever. So risk is not really about money, it’s about effects. Therefore, you need to have good measurement of effects. But be careful you don’t go too far – the measures have to be relevant. It’s also not about minimising or even necessarily about reducing risk; it’s about properly calculating what the risks are and then taking known risks – with a plan in place for when things go wrong. Therefore, it needs excellent information and knowledge. So we’re back to evaluation and what you do with the results of evaluation. We can now see how we should follow a logical process in the development of any social investment programme. What you get in effect is a ‘reverse logic model’ for the programme design process (Figure 3.3):

Theories of Change and Logic Modelling 49

1. Agree and define the programme aim

2. Agree and define what measurement will be used to test whether the programme aim is being achieved

3. Design the programme most likely to assist in reaching the aim and one which will allow you to measure it

4. Implement programme utilising optimum risk management and evaluation techniques Figure 3.3

The process of programme design (high level)

Interestingly, today’s best funders are pretty good at the first two stages and the last.13 But even these still leave something to be desired at step three, and this is why Part III of this book focuses most on this stage.

The effective funder The previous description is, I hope, a logical description of the process a ‘thinking’ funder will need to go through to produce a potentially effective programme; but what about the performance of the funding organisation as a whole? To some extent, it will be a sum of its investments or programmes but is that enough? I’d say not. If it was, then funders could simply report the effects their recipients bring about as being the same as their effects. Not only is this ‘double counting’, it denies the possibility that a funder can ‘add value’ to the process of turning resources into social impact.14 But just what can funders add? Potentially the added value falls into two categories: (1) The cumulative impact of a programme to address a specific issue or problem – the fact that many investments can add up to more than the sum of their parts. (2) The ‘transformation’ of resources from funder to recipient – the things that the funder can do on top of simply providing some cash. This second point lies at the heart of all types of funding that go beyond simple ‘gifts’ which we will be exploring in the next chapter. Exactly how this kind

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of transformation can occur is another crucial aspect of understanding the process of social investment, most especially how it relates to the science of Operations Management, a topic we’ll be examining in more detail in Chapter 7. There is more to an effective organisation that just the sum of the external impact of each of its products. We don’t think about Apple or Virgin or Greenpeace as just an amalgamation of their individual products or campaigns. I look in greater depth at this issue in Parts II and III, but here will just pose a few questions and issues that may give you pause for reflection. • What will produce the greatest impact – effective projects or effective organisations? Surely it is the latter, for this assists in producing longer term effects and impact. • What are the characteristics of effective organisations? I look at this in greater depth in Chapter 5. • What are the problems involved in funding effective organisations as opposed to effective projects? There is obviously the problem of less immediate results and whether the organisations will remain effective, especially as they grow and mature. • How do you measure effectiveness, and how does it relate to other concepts like efficiency, both in the recipients and in the funders? Unfortunately there has, in my view, been too much emphasis on efficiency. This leads to fallacies like thinking that organisations with low administrative overheads are more ‘efficient’ and therefore more worthy of funding.15 • Is there any link between innovation and effective social impact? Where is the evidence? • If there is a link, which way does it go? In other words, is innovation a help or a hindrance? Remember most organisations can produce a successful new product occasionally; the question is whether they can sustain or repeat what they did. Also most innovations are not radical breakthroughs but creative re-combinations of existing ideas. • In most organisations (both funders and those they fund), there is a tendency for doing to eclipse planning and planning to eclipse learning. This is because doing things is easier and more directly satisfying for most people (most of us are ‘woodcutters’ by instinct). These are some of the key issues that need to be looked at if you really want to be an effective funder. One obvious implication is that in order to properly assess effectiveness, you need performance management and measurement that really works.16

Theories of Change and Logic Modelling 51

Further reading In this book, I simply state that a funder should adopt a theory of change; I don’t make any judgement as to what that theory of change should be. There are a number of other writers who take on this next step. A straightforward and concise introduction to the various approaches in selecting a theory of change and its development into aims and objectives is: Diana Leat, Theories of Social Change: International Network on Strategic Philanthropy paper 4 (Bertelsmann Foundation, 2005). Available at: http://www. peecworks.org/PEEC/PEEC_Inst/0021E1B7-007EA7AB.0/Leat%202005%20Theo ries_of_change.pdf. For a more in-depth study of what theory of change to select and how this impacts on your entire grantmaking, see Paul Brest and Hal Harvey, Money Well Spent: A Strategic Plan for Smart Philanthropy (Bloomberg Press, 2008). This is probably the best book other than The Insider’s Guide for how to organise philanthropy and benefits from the authors having actually been grantmakers. Part 1 covers strategic choices; part 2 fields of potential investment and part 3 philanthropic structures. It is very good on real examples and is excellent on choosing goals, though this is not developed into an overall ‘blueprint’ for designing a programme. A leader in both evaluation and performance measurement of charities in the United Kingdom is New Philanthropy Capital. For an introduction to their work, see Matthew Bishop and Michael Green, Philanthrocapitalism (Bloomsbury, 2008), pp. 215–218; also their website http://www.philanthropy capital.org/. Dirk Eilinghoff (ed.), Rethinking Philanthropic Effectiveness: Lessons from an International Network of Foundation Experts (Bertelsmann Foundation, 2005), includes contributions on (among other topics): effective boards (by Christine Letts), evaluation (by Edward Pauly) and theories of change (by Diana Leat). Perhaps most interesting is the chapter ‘Philanthropy Program Design’ by Richard Mittenthal which is very good at the early stages – selection of a field and logic modelling, but then stops. I’m not quite sure why that is because Mittenthal has been a grantmaker. It may be because such ‘nuts and bolts’ stuff isn’t expected to be interesting to the potential readers (hopefully not because he thinks that ‘operationalising’ the planning is straightforward!) Available at: http://www.bertelsmann-stiftung.de/cps/rde/xbcr/SID-FD162D65EE17A4CD/bst_engl/xcms_bst_dms_24742_24743_2.pdf. Patrice Flynn and Virginia A. Hodgkinson (eds), Measuring the Impact of the Nonprofit Sector (Kluwer Academic/Plenum, 2001) has some useful chapters: 1 and 3 on problems in measuring effectiveness and 4 which is a history and review of ‘social indicators’ with lots of material on outcomes.

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Peter Frumkin, Strategic Giving: The Art and Science of Philanthropy (University of Chicago Press, 2006) is one of the few books that really begins to understand the actual ‘mechanics’ of philanthropy and, again, prior to being an academic, Frumkin actually worked as a grantmaker. It covers theories of change and logic models, giving styles and issues like time-scales and effectiveness and is very good on the ‘moral dilemmas’ in philanthropy (such as accountability) that he covers in Chapter 2. I’m less sure about his concept of the ‘philanthropic prism’ that he develops in the book, and he doesn’t go deeply into the processes of designing a programme. I also think he’s wrong (in the section on Theories of Leverage and Theories of Scale, pp. 190–216) on what tactics you can use. He suggests that you have a free choice when, if you’ve set your theory of change and outcomes correctly, you certainly don’t. His more recent The Essence of Strategic Giving (University of Chicago Press, 2010) is a condensed and revised version. Joel Fleishman’s The Foundation: A Great American Secret How Private Wealth Is Changing the World (Public Affairs; Paperback edition 2009) takes a similar line to Frumkin. His dictum for foundations is that they should ‘be strategic but remain flexible’, and he covers ‘strategic choices’ very well with good examples of each. However, he stops at ‘drafting an implementation plan’ (roughly my Chapter 9 ‘From Logic Model to Grant Programme’) thus failing to say how you put the strategy into practice. This is why, in Chapter 12, where he lists the reasons foundations fail he doesn’t list one of the main causes – process failure, failure to adequately ‘operationalise’ the strategy. He is also strong on transparency and accountability with good ideas to improve them, though I would disagree with his final contention that in the twenty-first century venture philanthropy will become dominant. A recent, and very good, explanation of how you can utilise theories of change is Making Connections Using a Theory of Change to Develop Planning and Evaluation by Jean Ellis, Diana Parkinson and Avan Wadia for Charities Evaluation Services (2011) which is available online here: http://www.ces-vol.org.uk/ index.cfm?pg=766&dm_i=6FP,DGOO,12ICIG,12DKF,1.

4 Types and Styles of Social Investment

We’ve looked at the relation between a funder’s adoption of a theory of change and the strategy behind their approach to the funding process. In this chapter, I want to examine what the adoption of a theory of change means for the way in which a funder goes about its business. Given a particular view of the world, what choices do you face in approaching social investment?1 Also, and critically, we’ll be considering what the adoption (conscious or not) of a particular ‘style’ means in terms of the operation of a funder, its effectiveness and its impact on its recipients. Some of the earlier ‘models’ are purely descriptive, they could be adopted by funders with very different approaches or ‘styles’. As we go along, the models become more complex and prescriptive, outlining approaches that entail quite detailed decisions about the way in which their processes operate. An important conclusion to draw is that it is counter-productive to decide what type of funder or philanthropist you are going to be until you decide what you want to achieve. One point to bear in mind about all these potential approaches is that it is extremely rare for a funder to have a completely free choice as to what style to adopt. Very often their choices are limited either before they take over the planning (this often restricts choices for funders in the public sector where ‘political’ decisions about their role and structure have already been reached) or are heavily influenced by their available resources: crudely, just like life in general, the more money you have, the wider the choice.

Individual motivation As part of its social responsibility programme, the British supermarket chain Waitrose gives customers a token at the check out that they can then donate to one of three local charities by dropping them in a clear plastic hopper by the door. What factors influence the customers’ decisions? I would suggest there are three main ones: 53

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(1) Personal preference – based on the persons own experiences and prejudices. (2) How much is in each bin – influenced by the decisions of other givers. (3) Knowledge – each bin has a description of the charity and its activities printed above and many people carefully read all three before deciding. I would say that larger-scale philanthropy is no different. You should certainly take account of what others are doing – is this already a crowded field of investment? But very often it is the other two motivations that dominate.

Individual motivation in philanthropy The ‘Seven Faces of Philanthropy’ A model that looks at individual motivation comes from Russ Prince and Karen File’s book The Seven Faces of Philanthropy. It tries to identify common patterns amongst, mainly, rich individual donors and family foundations in the United States in order to enable fund raisers to know what tactics to adopt in dealing with them. It is quite revealing about individual philanthropy and certain foundations – those dominated by a single family or individual. The seven faces are as follows: (1) Communitarians who believe that giving money is good both for business and for their local community. They are typically local businessmen and give locally. They made up the largest proportion of funders, 26 per cent of the Prince/File sample. (2) Not surprisingly the devout give from a sense of religious conviction. They give 96 per cent of their funding to religious bodies. (3) Investors are, in this case, different from the Diana Leat category described below. They give with a view to maximising their personal tax and investment benefits and look for the same kind of views in those they fund, so-called efficient charities. You might say this group doesn’t especially demonstrate the expected characteristics of a philanthropist. They are also probably the ones who are most interested in deciding their funding by crude ‘efficiency ratios’ of direct services to ‘overheads’. (4) Socialites are members of social networks that have their own ‘pet causes’ and gain great satisfaction from personal involvement in the causes they fund. Not surprisingly, a large number engage in funding the arts and culture sectors. (5) Altruists are rather the reverse of socialites. They embody the popular perception of the selfless donor, often wanting to remain anonymous. They do not seek active involvement of any kind in the things they fund and tend to concentrate on social causes. They only made up 9 per cent of the sample.2

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(6) Repayers are ‘paying back’ to causes from which they have received a benefit or had positive personal experience. So they might fund their old school or university or donate to a cancer charity if they have had experience of the disease. (7) Finally dynasts are those who have inherited their wealth and who give through family expectations or loyalty. Like the devout, they see giving as part of their ‘duty’ but give to a far wider group of causes. It is interesting to speculate how many of these types fit with the dictionary definition of ‘philanthropy’ in Chapter 2. Surely all but the altruists, and possible the dynasts, are expecting a personal benefit of some kind?3 Overall the ‘Seven Faces’ is a useful classification about individual motivation but with limited potential for further development for use in classifying funding institutions.

Breeze’s ‘eight logics’ A recent typology of philanthropists has been developed by Beth Breeze (from the University of Kent and a member of the Centre for Giving and Philanthropy the hub of which is located at Cass Business School). Breeze’s analysis, which studied 170 prominent UK Philanthropists, is however significantly different from Prince and File’s and provides a rather more useful classification. They come from an objective analysis of actual ‘donative behaviour’. Thus, as Breeze points out, it becomes possible to identify which types of donor would be more likely to address a certain aspect of what Breeze terms ‘the problem of riches’ – the societal ‘imbalances’ caused by significant variations in wealth and poverty.4 The eight types are as follows: (1) Agenda Setters who predominantly fund projects abroad, usually humanitarian, human rights and environmental causes. (2) Big Fish have a strong local dimension to their giving, with a preference for supporting projects where they live or where their business is based. (3) Salvation Seekers give primarily to projects that benefit members of their own religion. (4) Kindred Spirits support projects that benefit ‘people like me’ such that donors share a similar class background, life experience or trade with their beneficiaries. (5) Patriots and Players give to establishment institutions, especially historic national organisations and causes favoured by members of the royal family. (6) Culture Vultures major focus is the cultural sector, including visual arts, performing arts and museums.

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(7) Big Brands have no discernable pattern of giving beyond recipients being primarily well known or ‘big brand’ charities. (8) Secret Operators provide the minimum legally required information and avoid media coverage, making it difficult to identify the nature of their giving. This category is probably the easiest to see where Breeze’s analysis differs from Prince and File. These people could have a wide range of motivations for their ‘secrecy’.

Organisational types and styles Simple classifications At one level, funding organisations can be classified by what they fund – by beneficiary or activity types (‘arts’ funders, ‘environmental’ funders and so on). An extension of this is to cross-reference the geographical scope of a funder with the complexity of the issues they wish to tackle – a ‘time scale’. This is what Katherine Fulton and Andrew Blau do in Looking Out for the Future where they suggest that a matrix can be used by donors to ‘map’ their giving or plan it (Figure 4.1):

Perspectives and approach

Scope of concern, definition of community

Shorter term response

Longer term response

Personal/local/regional

National/global Figure 4.1

The Fulton/Blau matrix

Source: Fulton and Blau Looking Out or the Future: An Orientation for 21st Century Philanthropists (Monitor Company Group, 2005), p. 64

This matrix may be particularly useful for the philanthropist in formulating their theory of change. You can also classify funders by other ‘given’ characteristics like: • Their source of income; • Their type of governance; • Their size (many directories list grantmakers in this way).

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You can cross-refer source of income and type of governance in a relatively straightforward classification. Though it is a purely descriptive model, it can still have some useful analytical benefits. If one follows through some of the different categories, you can begin to narrow down the choices that are, or are not, open to each category (Table 4.1). What this classification doesn’t do is give us a way of making comparisons between organisations, attempting to understand a funders ‘style’. For example, why are some funders highly ‘interventionist’ and others very much not so? If we have some coherent ‘models’ with which to make comparisons, we can look for patterns in a quest for a better understanding of why funders do what they do in the way that they do it. Clearly, a ‘style’ will be influenced by their view of the world and how to change it, but ‘style’ can be quite eclectic and some funders utilise a number of quite different styles. So the things

Table 4.1 UK grantmakers classified by source of funds and governance Source of funds

Type of governance

Permanent endowment

Contributed ‘involuntarily’: from tax or company profits

Contributed ‘voluntarily’: raised from Public

‘Independent’ trustees

Charitable trusts and foundations

Corporate givers

Appeal-based funders (Children in Need, Comic Relief, etc.)

Semiautonomous

Some funds like NESTA and the NHMF

Lottery distributors

Some run by public bodies like Natural England (often partnership)

Government controlled

Some national and local funds

Most national and local government programmes

Some critics might put NOF and the Big Lottery Fund here

Note: NESTA is the National Endowment for Science, Technology and the Arts which encourages innovation in these areas and was set up with an endowment from the National Lottery distributors. The National Heritage Memorial Fund (NHMF) is operated by the Heritage Lottery Fund as a fund of ‘last resort’ for purchasing ‘national treasures’. It was initially established by an endowment from government in 1946.

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which influence a choice of style (either for its entire practice or for a single programme) are not static, and it is often this fluidity of style that is most interesting. There are other advantages in doing this kind of comparison; it’s not just an academic exercise. For example, if you can understand these styles, it can help you in your learning for the future as a funder. It can also be of real benefit to potential applicants. If you know what style of funder you are dealing with, it can help you in approaching them for assistance. The remainder of this chapter is therefore a look at some models for classifying funding ‘styles’. I’m certainly not proposing one model as ‘superior’ to another. They are all valid approaches and much of the description depends upon the purpose the author was seeking to address. They are also by no means comprehensive. There are several other models out there, including some I’ve probably never even come across, so you may need to do your own reading if you want to pursue this topic in greater depth.5 However, the best models seek to establish relationships between the key factors influencing a funders’ practice. Some have sprung from the fundraising world in order for applicants to better understand their target. Others are there as practical tools for funders to better understand themselves or begin to start thinking about measuring their effectiveness. This would include the ‘Trust Triangle’, Diana Leat’s pioneering work from the late 1980s and early 1990s and Joel Orosz’s ‘4P Continuum’. A further group might be said to be more reflective or analytical and begin to work towards what constitutes ‘good’ and, perhaps more importantly, ‘bad’ practice.

The ‘freedom of action’ model An early view of grantmaking ‘style’ (prevalent from at least the 1930s) is the idea of ‘freedom of action’. This is a relatively straightforward concept regarding how ‘independent’ a funder is in setting their policy and practice. At one end of the spectrum, one would place entirely ‘directed’ grantmakers – like perhaps the New Opportunities Fund was – at the other entirely ‘independent’ charitable foundations with very wide charitable purposes. The idea of using such a classification is clearly influenced by a particular ‘theory of change’, which stems from a traditional view as to what funders should be doing. In the United Kingdom in particular, grantmaking foundations have, at least in the past, emphasised five main purposes of their funding. (1) Doing what the state doesn’t do; (2) Pump priming; (3) Innovation;

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(4) Funding unpopular causes; (5) Emergency funding. There are some real problems with this model and view of funding. Firstly, though it tells you something about how a funder sets its policy (i.e. the relationship between the funder and the state), it says nothing about the relationship between the funder and the recipient (which is what ‘funding style’ is really about). Secondly, the traditional view about what a funder does also has some serious flaws: • Doing what the state doesn’t do means that your funding is always going to be determined by the decisions of others (the state) rather than yourself. It is also difficult to decide where the boundary lies and it belies reality – the areas funded by the largest number of supposedly independent foundations are social care, health and education clearly, in the United Kingdom, major state responsibilities.6 • Pump priming assumes there is someone there to ‘pick up the tab’ when your funding ceases, what if there isn’t? • Innovation means you will always be funding untested ideas rather than ones that have proved they work. Is this sensible? • Funding unpopular causes might have some sense to it (if they have positive effects) but is again allowing others to determine your area of interest and is not what most foundations have actually practised. • Emergency funding again has some logic to it as charitable bodies are often able to respond quicker than governments (witness the response to the Indian Ocean tsunami disaster), but it won’t lead to long-term changes.7 So this model is a bit limited.

Gift-givers, investors and collaborators In several of her writings on the mechanisms and practice of grantmaking in the early 1990s, Diana Leat proposed a classification of three broad types or ‘cultures’. These three cultures represent the key norms, values, beliefs and assumptions that inform the ways foundations approach the task of making grants. Though specifically derived from her work on foundations the approach is certainly applicable to all funders. The three types are as follows: (1) Gift-givers who generally don’t have very clear priorities and are very reactive. Generally, they make a large number of grants in amounts which may not be related to what was requested or needed. The gifts are usually

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‘one-offs’ and there is little need to do extensive investigation of recipients either before or after making the grant. Gift-givers believe that the money will be ‘well used’, but their grantmaking can also stem simply from a desire to make the grantmaker feel good rather than to bring about any significant change. (2) Investors usually spend considerable time deciding what areas to fund and do considerable research before deciding who to fund. Unlike the gift-giver, the investor talks in terms of success and failure. Investors always prefer success but are not afraid of failure as there is always something to be learned from failure. It follows that investors monitor their investments though they do not typically become very involved in the management of the organisations to whom they make grants. (3) Collaborative entrepreneurs have much in common with the investment approach, but there are important differences. If the collaborative entrepreneurs (CEs) discover that what they want to fund doesn’t exist, then they go out to find an organisation to work with to create what they want. There is much negotiation with this ‘supplier’ to agree a ‘price’ (size of grant) and a plan of action. Funding will almost certainly be over a period of years, and its size is closely related to what is needed to make the project work. The relationship with the grantee is seen as a partnership rather than an investment and the funder may be fairly heavily involved in the management of the project. Monitoring and evaluation are key elements in this approach and are likely to be built into the design of the project or programme.8 One might add that the three types would also be indicative of the extent of monitoring and evaluation the funder would be likely to carry out and the comprehensiveness of their funding ‘contract’. Gift-givers would be likely to do very little in the way of monitoring and evaluation and have few conditions; investors would probably need to do quite a bit of M & E and have fairly extensive conditions and CEs a great deal of both. In Leat’s 1992 study of UK foundations9 , she found that by far the most common culture among foundations was that of the gift-giver. Arguably, today a majority of larger ones fall into the ‘investor’ category and there are still very few CEs. We can see that this model moves towards a more comprehensive analysis, and there are all sorts of relationship and other implications that stem from each of the three cultures. The model was certainly only meant to be a very broad classification rather than a highly sophisticated analysis, and it is obvious that many funders show characteristics of at least two of the types (if not all three). Also the boundaries (particularly between the gift-giver and the investor) are rather wide.

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The ‘Trust Triangle’ The ‘Trust Triangle’ (Figure 4.2) is not so much a model as a description for self-analysis. It was developed by Fiona Ellis (later Director of the Northern Rock Foundation) as part of the Association of Charitable Foundation’s ‘Quality Framework’ for foundations. Nevertheless, you can see that it could be used in an analytical, cross-organisational way, to place funders somewhere within the triangle.

Change-making trusts Risk takers, long-term commitment, high administration costs, high levels of monitoring and evaluation, specialist staff and trustees committed to the cause, large or small grants, partnerships to achieve objectives, fast turn round of applications, rigorous application process, proactive seekers of projects, radical agenda

Radical long-term change Risk-taker pro active & specific goals High admin costs Highly informed trustees

Low admin costs – Reactive – Gift giver – General Short-term benefits – Low risk

Gift-giving trusts Low risk, short-term, low administration costs, low levels of monitoring and evaluation, generalist staff and trustees, large or small grants, reactive Figure 4.2

The ‘Trust Triangle’

Source: Association of Charitable Foundations, Good Grantmaking Practice: A Quality Framework, 2002.

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You can see many similarities with Diana Leat’s approach, but it • Takes the analysis one stage further (to engage with the recipient); • Allows subtle differences to be appreciated in making comparisons (as an organisation or programme can be placed anywhere inside the triangle); • Begins to relate the choices of ‘style’ to other implications (resources, risk, timescales, etc.). At the base of the diagram are trusts which are ‘gift-givers’ and at the top are trusts which are ‘change-makers’. It is not meant to imply that changemaking trusts are ‘better’ than gift-giving trusts but simply that the position of a change-making trust is more risky and therefore better suited to the top of the triangle. This is a rather tenuous justification and so the model does suffer a bit from ‘value judgement’. Its link to the Quality Framework is important as it really does start suggesting the linkages between funding style and the ‘nuts and bolts’ of funding process. Either you can assess where a particular funder sits on the triangle by answering the questions in the Framework or, as a new funder or in designing a new programme, decide where you want to sit and be able to see the implications. There are still some problems of over-simplification, and the model confuses some aspects of customer care with more significant relationship issues. For example, I’m not sure fast ‘turnaround times’ are necessarily an implication of adopting a change-making approach. The confusion comes from a mixing of purpose and process; there are values associated with the purpose of funding and values associated with the grantmaking process.10 However, it is supposed to be a simple to use model and the Framework is well worth looking at in more detail. It’s also not entirely clear why it’s a triangle – couldn’t it just be a continuum? The implication is simply that there are more foundations at the ‘bottom’ of the triangle than at the ‘top’.

The ‘4P Continuum’ A very close relative of Leat’s ‘three types’ and the ‘Trust Triangle’ is one put forward by Joel Orosz in The Insider’s Guide to Grantmaking. As Leat recognised herself, one problem of the three types approach is that it suggests rather too clear distinctions between styles when the reality is that one type will always tend to shade into the other. So you’ll have Investors who are closer to the Gift-giving end of the spectrum and Investors who are closer to Collaborative Entrepreneurship.

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The 4P Continuum is, as the title implies, a continuum so a particular organisation or an individual programme can be placed anywhere along it. It still needs descriptive labels, but the boundaries between types are less clear-cut. The key to Orosz’s model is that the 4Ps are directly related to a funders theory of change – as he puts it – ‘its beliefs about what type and intensity of intervention will best facilitate social movement toward the common good’. He has discerned that theories of change in foundations cluster around four main types each beginning with the letter ‘P’. Again he is specifically talking about foundations (and, in his case, US foundations), but the model fits funders of all kinds quite well. The 4Ps are as follows: (1) The passive foundation that responds to unsolicited requests doing little to generate applications. They do little by way of policy formulation and do little communication either to potential applicants or about what they do. (2) Proactive foundations that do a lot more communicating both with potential recipients and about their results. They have well-defined priorities but are still often open to considering unsolicited good ideas. They are more interested in monitoring what happens and evaluating their results. (3) Prescriptive grantmakers that have very clearly defined interests. They tend to do their funding in an initiative-based format and rarely fund outside these. They may also get involved themselves in the operation of programmes though this is more a characteristic of US (and some UK) ‘operating’ foundations. (4) The peremptory foundation is totally agenda-driven and often seeks out its recipients rather than having open applications of any kind. They are even more likely to be involved in the actual management of projects. You can also see that the 4P Continuum has relevance to the ‘independence’ argument as well (less ‘independent’ organisations necessarily having to move more to the right) and to the potential ‘trade off’ between ‘depth’ and ‘breadth’ in philanthropy. What we mean here is that given that all funders have finite resources they, crudely, have a choice between making lots of smaller investments across many fields with little follow up or fewer, larger, ones across a narrower field with more post-funding involvement. Adherents to recent developments in venture philanthropy (VP) and philanthrocapitalism are very dismissive of greater breadth in philanthropy. They ask the question: ‘how can you change the world with a grant of $50,000 for just 18 months?’11 The answer is that you can’t, but ‘changing the world’ isn’t the only possible aim a funder can have. If it was, there would be no point

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in any form of charity that didn’t give millions of dollars. It can be just as valuable for a small charity or an individual to receive a few thousand or even a few hundred dollars as it is for a large organisation to receive millions. Unless you think small-scale charity is completely erroneous, I can’t agree with this philanthrocapitalist view. Moving towards one end or the other of the ‘continuum’ limits your other choices. At the peremptory end is the position of some venture philanthropists who give very intensively to a very small number of projects and organisations. This has the implication that open, application-based processes are unlikely to work. What you need is in-depth research that identifies the projects that will deliver your aims and then you approach them. This, in turn, has the implication that the field you want to fund has to be sufficiently tightly defined to enable you to carry out research into all of the potential recipients. I think some funders at this end of the continuum actually don’t do this very well. At the other extreme, you need to have very efficient application-based processes that will enable you to quickly identify the ‘right’ applications from the many hundreds or thousands you are likely to get. The implication here is that you need sufficient resources to do this processing. Again, I have found that many of the ‘passive’ organisations who you would place here complain of being ‘overwhelmed’ by the numbers of applications they receive when this is a direct result of the type of funder they have chosen to be. If they had well thought-through selection processes and had spent sufficient on their staffing, they wouldn’t have this problem. Their dilemma is that they have decided to be an ‘open’ funder but don’t understand the implications of this choice.

Unwin’s ‘givers’, ‘shoppers’ and ‘investors’ One of the most insightful analyses of styles of funding is found in the work of Julia Unwin. Her two books, The Grantmaking Tango12 and Fruitful Funding 13 , are probably the two best on funding by a UK writer. Unwin suggests that funding styles can be divided into three broad categories though many funders operate a mixture of the three: (1) Givers expect little in return for their gift. (2) Shoppers are seeking a specific product or outcome and will only fund those projects or organisations that will provide it. (3) Investors look to the future and, to some extent, seek to influence the direction those they fund take – to a greater or lesser degree. She links these broad types to other behaviours or typologies. Firstly, she looks at what impact funders are seeking to achieve and again identifies three approaches:

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(1) Funding for activity or services – to ensure something happens. (2) Funding for capacity, or to build organisations – what Americans call ‘institution building’. (3) Funding for system change – the impact the recipient organisation can make on the world.14 Not surprisingly for every funder in the third category there are probably dozens in the second and even hundreds in the first. She also suggests that you need to look at the motivation of the funder and therefore three more categories become important: (1) Reactive funding – in response to applications and supporting the ‘best’ ones. (2) Interventionist funding – frequently with a plan of intent and ‘seeking out’ or ‘targeting’ projects or organisations. (3) Compensatory funding – wishing to make good perceived deficiencies. Though in each case there are only three categories, you can begin to see that Unwin’s ‘model’ can build up quite a sophisticated picture of how you might classify a particular funder or programme with, overall, 27 possible categories. This kind of analysis can also be of significant help in selecting a field for investment in the first place; where do you want to be in this picture? To take just one example from The Grantmaking Tango, you can utilise the two latter classifiers to produce a framework that provides a number of illustrative examples from one particular field, in this case the problem of drug abuse (Table 4.2): Table 4.2 Unwin’s impacts and motivations Reactive

Interventionist

Compensatory

Funding for delivery

Support for the continuing costs of a drug rehabilitation centre

Funding to enable a drug rehabilitation centre to change its operating model

Funding for drug rehabilitation in an area where the services have previously been lacking

Funding for capacity

Organisational development support to enable an existing high-performing organisation to grow

Funding to enable three drug support agencies to merge after the funder concluded that this was the only way to develop a strong organisation

Funding to develop a new organisation where none existed

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Table 4.2 (Continued)

Funding for systems change

Reactive

Interventionist

Compensatory

Support for lobbying by the agency to ensure a change in government policy

Funding for a commission of inquiry instituted by the funder, to investigate new treatment options and seek to get them adopted by government

Research into prevalence of the problem in a particular locality where local government funding had been withdrawn in order to get them to change their minds

Source: Unwin, The Grantmaking Tango: Issues for Funders (Baring Foundation, 2004), p. 16.

I’d strongly urge you to look at both books, which are available free from the Internet.

The ‘Philosopher-King’/‘What Works’ dichotomy This model, or probably critique is a better description, comes from a paper written in 2002 by Lynn Ellsworth, William Duggan and Joel Orosz entitled What-Works Grantmaking – A Strategy for Effective Philanthropy.15 Orosz has already been introduced. Ellsworth is, by background, an institutional economist, but she has also worked as a grantmaker for the International Development Research Centre of Canada and helped establish grant programmes in Romania, Haiti and Mexico. Duggan is a former Program Officer, West Africa representative and Strategy Advisor for the Ford Foundation. Orosz has further refined these ideas in his book Effective Foundation Management 16 . One of the good things about their critique is that it can be read in conjunction with the other models (the Trust Triangle or 4Ps) to help reach an overall view of a funder. Equally, it is utilisable as a tool in categorising a funding ‘style’. The paper examines what the authors call the ‘screening problem’ for funders – how to select what to fund from what not to but is also strongly influenced by the power relationship in philanthropy. They use the term ‘Philosopher-King Solutions’ to describe the approach taken by many, if not most, contemporary funders. The term comes from Plato’s Republic in which he proposed that the best government is one ruled by an educated and skilled elite, who, of course, are self-selecting. This was all very well for the government of a Greek city state, but is it a sound basis for social investment in the twenty-first century? It is certainly one that has, in one form or another, been adopted by many funding bodies.

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Ellsworth, Duggan and Orosz divide the ‘Philosopher-King’ – approach into five main types, each of which has its problems. At the end of the essay, they briefly set out an alternative, more positive, approach which we look at later in this chapter. • Network grantmaking. Giving grants to organisations that are in the personal network of the grantmaker. This has obvious drawbacks, not least fairness and the inevitable limitations of a personal network. Nevertheless, it is still the approach of many foundations on both sides of the Atlantic. • Values-based or personal-expression grantmaking. This is characterised by funding organisations and people whose political or cultural values you share because you think they have the best solutions. Though you might end up funding the ‘good guys’ who have lots of well-meaning intentions, this is hardly likely to succeed as it is not results based. Here there is no plan at all, just a synergy between funder and grantee. • Grantmaking via theoretical analysis. The grantmaker adopts the theories of ‘experts in the field’ to arrive at their ‘theory of change’. They then set the programme criteria and look for submissions that will fit the theoretical framework. This is all very well if the theory corresponds with reality and is also shared by the potential recipients. The problem is when it remains just that, a theory. As the authors say: ‘theoretical grantmakers end up spending a lot of time conveying their vision and ideas and theory about the problem to the world . . . instead of looking at real-world data about working solutions to public problems.’ This is often a fault of publicly funded programmes that ‘force’ applicants into meeting predetermined themes or seeking pre-determined outcomes that are high on the government’s agenda but may not be so high on that of the applicant organisations. • Grantmaking by strategic planning. This is a variation, and improvement on, the theoretical analysis approach. Strategic plans establish a hierarchy of goals, objectives and indicators and are essential to all organisations as we shall see in Chapter 5, but the danger is in thinking that the strategic plan is the be-all and end-all. It too often ignores anything that falls outside the scope of the plan or looks to question it. This approach is often promoted as being ‘best practice’ as it does establish a target for the funder to aim at.17 However, there are some significant drawbacks: 1. It can easily become a ‘top down’ approach imposed from above on funding staff and recipients alike. 2. It can become an internal obsession when funders, even more than most other organisations, should be externally focused. Often the plan is an internal compromise or, though originally based on external consultation, is

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radically amended by internal pressures and disputes. Either way, it ends up being based more in theory than reality. 3. A strategic plan can take on a life of its own, becoming a force of inertia rather than change. Often the staff of the funder end up fiercely defending the plan rather than recognising its limitations and changing it. 4. The strategic plan can over-emphasise the more bureaucratic processes involved and so ignore the innovative and entrepreneurial approach. In some cases, the process takes over completely becoming an end in itself, rather than the means to an end. Staff in this kind of organisation say things like ‘I know it makes sense but the rules don’t let me do it.’ 5. Planners can forget that a good plan is one that is monitored and evaluated. It responds to internal and external forces and changes over time. It is the journey from plan to investment to outcome that is important and the learning that the organisation gains from it – not ‘what was the outcome’ but ‘how was the outcome achieved’.18 I’m sure you will recognise these symptoms in certain funders known to you, and they are worth bearing in mind when we come to discuss strategy in more depth in Chapter 5. • Then there is Venture Philanthropy. This is worth looking at in some detail as it is a style that has received a great deal of coverage over the last few years.

‘New’ philanthropy, venture philanthropy and ‘philanthrocapitalism’ In recent years, there have been a plethora of publications suggesting that a ‘new’ form of philanthropy has been invented. This has been a claim made for both VP and so-called philanthrocapitalism. The latter term is a very loose concept and probably is not much more than philanthropy as conducted by the new mega-rich such as Bill Gates, though in his book Just Another Emperor? Michael Edwards suggests that philanthrocapitalism does have three distinguishing features: (1) Very large sums of money committed to philanthropy, mainly the result of the remarkable profits earned by a small number of individuals in the IT and finance sectors during the 1990s and 2000s; (2) A belief that methods drawn from business can solve social problems and are superior to the other methods in use in the public sector and civil society; (3) A claim that these methods can achieve the transformation of society.19

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These don’t seem very different from the ideas of the ‘scientific philanthropists’ of the early twentieth century, and Edwards’ criticism of the approach is that they take the second and third points too far. Venture philanthropy, on the other hand, does appear to be distinctive enough to be called ‘new’. It is interesting, though, that first use of the term was by John D Rockefeller III as far back as 1969. Basically, VP takes some of the principles of venture capitalism and applies them to philanthropy. Carol Welsh Gray of the Center for Venture Philanthropy which is part of the Silicon Valley Community Foundation20 says that it adapts five key elements of modern venture capital practices: (1) (2) (3) (4) (5)

Investing for the ‘long-haul’ in three to six-year business plans; Having a managing partner relationship; Providing expertise as well as cash; Emphasising accountability-for-results and quarterly benchmarks; Thinking from the outset about exit strategies.

However, there are clearly two things that VP is not (or can’t be). • It isn’t just a copy of the venture capital approach. A key rule of venture capital is to expect four of every ten investments to fail, three to limp along, two to have moderate success and just one to succeed. Could philanthropists accept a similar result? • It’s not the same as programme- or Mission-related investment or socially responsible investment. These are separate (though related) issues about how to utilise all of the financial resources of an organisation (mainly the endowments of foundations) to assist in their mission.

Programme-related, mission-related and socially responsible investments Programme-related investments (PRIs) are investments made by foundations to support charitable activities that involve the potential return of capital within an established time frame, so they are a means of support that go beyond grants. PRIs include financing methods commonly associated with banks or other private investors, such as loans, loan guarantees, linked deposits, and even equity investments in charitable organisations or in commercial ventures for charitable purposes. Mission-related investment (MRI) is the practice of aligning a foundation’s asset investment with its philanthropic mission, using its investments (which are many times the scale of its grants budget) to further its aims, objectives and outcomes.

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Socially responsible investing (SRI), also known as socially conscious or ethical investing, describes an investment strategy (of a foundation’s endowment or reserves) which seeks to maximise both financial return and social good. In general, socially responsible investors favour corporate practices that promote environmental stewardship, consumer protection, human rights and diversity. So SRI is similar to MRI in that it is trying to achieve a social purpose, however that purpose is not necessarily related to the investors own mission, aims and objectives.21

An acknowledged first step in VP was an article published in the Spring 1997 Harvard Business Review. Called ‘Virtuous Capital: What Foundations Can Learn from Venture Capitalists’, it was written by Christine Letts, William Ryan and Allen Grossman.22 A year later, the same authors expanded their article into a book High Performance Nonprofit Organizations: Managing Upstream for Greater Impact 23 where Chapter 9 reprises the original essay. In the article, the authors recognised that ‘many social programmes begin with high hopes and great promise, only to end up with limited impact and uncertain prospects’. To counteract this problem, they suggested that: ‘Foundations should consider expanding their mission from investing only in program innovation to investing in the organisational needs of nonprofit organisations as well. Overemphasis on program design has meant deteriorating organisational capacity at many nonprofits.’ So they were addressing one of the ‘problems’ noted in the conclusion to the previous chapter. The authors said that ‘the venture capital model can act as a starting point for foundations that want to help nonprofits develop the organisational capacity to sustain and expand successful programs’. So they emphasise support for organisational development rather than just projects. They highlighted six ingredients to the model: (1) Fund the general operations of the nonprofit organisations, not specific programmes; (2) Fund long-term; (3) Help organisations achieve financial self-sufficiency as an ‘exit strategy’; (4) Hold organisations accountable for results and ‘reward’ them for succeeding; (5) Take risks; (6) Actively participate in helping organisations to succeed. Given this definition, just how many organisations can currently be described as true venture philanthropists? In their essay Impact of the New Economy on

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Foundations,24 Dietel and Hopps say they believe there were no more than ten in the United States though 42 organisations have ‘self-defined’ themselves as VPs. A recent study identifies 11 in the United Kingdom of which the best known are probably Impetus Trust and Absolute Return for Kids (ARK).25 The latter is a high-profile charity founded by dotcom millionaires who raise huge sums at fund-raising events.26 So one obvious point is that VP is more talked about than practised. However, though there may be few VPs in the field, the principles of the Letts et al. lobby have had a far greater impact, not least because the tenets of VP seem to address some of the key criticisms that recipients have voiced. For example: • A lack of funding for general operating costs and infrastructure; • A lack of transparency in funders decision-making processes; • A growth in ‘funder-initiated’ programmes rather than ones that spring from the needs of the sector; • Arbitrary funding cut-offs (after one, two or three years, dictated purely by the funders’ ‘policy’) that neither reward success nor enable differing needs to be taken into account. Another positive outcome has been that the debate has focused attention on the performance and effectiveness of the funders themselves. But there are clear problems with the VP approach. One of the keenest critics in the United States is Bruce Sievers of the Walter and Elise Haas Fund. In a series of articles and lectures If Pigs Had Wings: The Appeals and Limits of Venture Philanthropy, he argued that there are a number of fundamental assumptions of venture capitalism that become deeply problematic when transferred to philanthropy.27 These are associated with: • • • •

The bottom line; Performance outcomes; Investor control; The exit strategy.

In business there is a single, and elegantly simple, test of success: do you make money or not? In philanthropy there is no single bottom line; there are a myriad of them that often elude simple classification and measurement. The desire for measurable performance outcomes can be taken too far becoming counter-productive or sometimes just plain silly. As Albert Einstein once said: ‘not everything that can be counted counts, and not everything that counts can be counted’. Also the concept of efficiency is definitely different

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in the two sectors, but this is not sometimes appreciated by the proponents of the new philanthropy. For example, in a 2003 article Bill Bradley, a former democratic presidential candidate, and two McKinsey consultants claimed that in America alone there was a ‘$100 billion opportunity’ for the nonprofit sector to improve its efficiency.28 By this, they were talking mainly about the scale of the enterprises and the nonprofits failure to grow or ‘take-over’ other organisations. Bishop and Green in supporting this view contrast the age of organisations in the two sectors stating that ‘the average founding year of the ten largest American nonprofits is 1903. In the for-profit world, companies such as eBay, Amazon and Google have grown into global giants in under a decade.’29 This analysis entirely misses the concept of need in the nonprofit world and the huge differences affecting organisational change. Most nonprofits begin life to serve a specific social need, and those needs are often with us for a very long time. Poverty and lack of health or education provision were major needs in 1903 and still are, whereas in 1903 electronic communication was embryonic. So it’s no surprise that for-profit organisations change much more rapidly than nonprofits. Bradley’s point is one that has been levelled at the nonprofit sector for well over 100 years. ‘Why are there so many charities?’ was a question asked by the Charity Organisation Society in the late nineteenth century. Both Bradley and the COS believe that economies of scale would be beneficial. But would they? There is at least as good a case to be made for saying that nonprofit organisations in particular get less efficient once they expand beyond a certain size. Whilst, especially in industry, larger organisations inevitably have a reduction in unit costs of production, there is also no doubt that they do so at the expense of organisational flexibility and creativity; which are surely two of the key attributes of the best nonprofits.30 Investor control has turned out to be the single most troublesome factor for organisations in receipt of funding from VPs. There has to be a very strong sense of trust between the ‘partners’. This is OK for the funder, but what about the recipient? It is very rare for voluntary sector bodies to say they have such a strong sense of trust in their funders, so it seems to fail to fully appreciate the power element in funding (look back to Kenneth Boulding’s economics in Chapter 1). Therefore VP might only be acceptable for a small number of specialist or start-up bodies or, worse, the last refuge of the desperate. In venture capitalism, the return for the investor occurs at the time of a successful public buyout, typically three to seven years. What is the analogue in the nonprofit world? Lacking a real equivalent, VPs have substituted ‘financial self-sufficiency’, but how many nonprofits can really achieve this? Many will always require subsidy – if they didn’t their role would probably be filled by a commercial organisation.

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Finally, is VP really new or is it just a re-formulation of several ideas that have been around for a very long time? Just compare how similar VP looks to Diana Leat’s ‘collaborative entrepreneurs’. Or consider this quote: As a group they are committed to a philosophy of risk-taking, and they like to think of themselves as providing the ‘venture capital’ of society. You would imagine it was a recent comment about the virtues of VP and yet it was made (about the best grantmakers) by the then Secretary of the Carnegie United Kingdom Trust to the Nathan Committee (whose proposals led to the 1960 Charities Act) in 1951. The strong point of VP, it seems to me, is its emphasis on the managerial competence of the recipient and supporting the building of those competencies. The downside is that it still doesn’t really help you in choosing which organisations to support, especially where the potential recipients are aiming for quite different outcomes. Inevitably then, the VP will have to play ‘Philosopher-King’ in their selection processes. It seems to me that VP can easily slip into the ‘Theoretical Analysis’ trap and/or be over-interventionist. There’s also a worry that an over-emphasis on the performance of recipient organisations could mean forgetting that the ultimate targets for any social investor are the beneficiaries of those bodies. Could you end up funding lots of very efficient looking organisations that provide few direct benefits? And, in the end, does VP come so close to ‘doing it yourself’ that that’s what you should turn your organisation into: a ‘doing’ organisation, tackling social problems yourself, rather than remaining a funder?

‘Reform grantmaking’ Orosz, Ellsworth and Duggan conclude their analysis with an outline of improved approaches that they characterised as ‘reform grantmaking’ – the key elements of which are strong partnerships between funders and recipients based on results founded on the principles of learning. They suggest that this approach can help lead to a ‘what-works’ attitude: looking for something that works (or, at least, best evidence of what works) then, where appropriate, scaling it up, even if this doesn’t fit with your original concept or runs against your programme criteria. This sounds a simple solution but it is far from it. It requires a number of decisions by the funder that may be extremely difficult to achieve: • It implies a great flexibility of approach. Not highly specific programmes but loose, easily amended ones.

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• It implies a great deal of autonomy to those working ‘on the ground’ – the staff of the funder that operate the programmes. • It implies having in place strategies for ‘changing horses’, shifting funding from one organisation to another or even to quite different fields if one isn’t bringing results and another might. • With the emphasis on considerable flexibility, it would be all too easy for the entire scheme to fall into chaos or to be influenced by the prejudices of those operating the system. I don’t intend to go into the implications further here, but you start to see the potential inhibitors to such an approach, admirable though it might be.31

‘Beyond the rhetoric’ – The Center for Effective Philanthropy This analysis32 sprang from research into foundations and their uses of strategy. It uncovered four categories of decision makers that ranged from non-strategic to highly strategic: (1) Charitable Bankers do not use strategy. They mention their external context only when citing their goals, not when describing how they will achieve those goals. They describe decision making solely in terms of processes for reviewing, making or denying individual funding requests. (2) Perpetual Adjusters use strategy very infrequently. Most decision-making frameworks they describe are not strategies. They frequently mention processes they use to review or revise goals and decision making. They typically note many options for focus, decision making, activities and processes. (3) Partial Strategists use at least one strategy to guide their decisions, yet for many of their other decision-making frameworks, they do not articulate hypothesised causal connections between use of foundation resources and goal achievement. (4) Total Strategists are highly strategic. They use externally focused frameworks for decision making that have a hypothesised causal connection between foundation resource use and goal achievement. CEOs and programme officers from the same foundation frequently did not fall into the same category because they describe approaches to decision making that are different. About half, however, did land in the same decision making category as their foundation counterpart. Their other key findings were as follows: • All respondents talked about their goals primarily in terms of creating external social impact.

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• Respondents believe that strategy provides significant benefits to private foundations, and they overwhelmingly describe the use of strategy in positive terms. • Although respondents acknowledge – and often extol – the advantages of having a strategy, the majority of frameworks they describe did not meet the CEP’s basic definition of a strategy. Their findings suggested a fundamental disconnection between what foundation CEOs and programme officers believed about the importance of strategy and their use of it in their daily work. To the extent that those they interviewed are correct that strategies are important for maximising impact, this finding suggested to the investigators that foundations are not reaching their full potential. This gap between what CEOs and programme officers say they believe and what they actually do poses an important challenge for foundation leaders. The authors obviously consider that the closer a foundation is to being a total strategist the better, as long as there are no internal mismatches of approach. There is an interesting comparison here with Orosz’s work. Orosz cautions on the overuse of strategy, suggesting that it can become dogma, a straightjacket that excludes flexible thinking. The Center, in this analysis, clearly sees strategic planning as a highly positive attribute. Is there a dichotomy between the two? Well, perhaps not as much as it at first seems. The Center’s work identifies that many foundations say they are utilising a strategic approach when, in practice, they aren’t. Could these be the ones Orosz cautions about? If so, there may be more common ground between the two analyses than at first appears. The Center’s work does suggest that you can have a strategy that has the flexibility to adjust to circumstances even if it doesn’t quite attain the ‘nimbleness’ of thinking that Orosz (especially in Effective Foundation Management) proposes. So they are perhaps moving towards a suggestion that strategic thinking (what you do) is more important than strategic planning (what you intended to do). The Center has followed up Beyond the Rhetoric with a further paper, Essentials of Foundation Strategy published in 2009, in which they do precisely this.33

‘Strategic’ philanthropy However, I think it is possible to take ideas on ‘strategic grantmaking’ rather too far. To some extent, most funders probably want to be ‘strategic’ in the sense that their individual grants are more than just the sum of their parts, but Strategic Philanthropy has taken on a more specific meaning during the last ten years. It stemmed from the publication of another Harvard Business Review article in 1999: ‘Philanthropy’s New Agenda: Creating Value’ by Michael

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E Porter and Mark E Kramer.34 As such it’s at least a ‘first cousin’ of venture philanthropy. Porter and Kramer argue that Strategic Philanthropy entails doing four (somewhat overlapping) things: (1) (2) (3) (4)

Achieving (measurable) superior performance in a specific area; Choosing a unique positioning; Engaging in unique activities; Forgoing some grantmaking opportunities in order to focus on others.

Strategic Philanthropy also entails deciding what not to do and this, they say, ‘is the acid test of whether a foundation (or any organization for that matter) has a strategy’.35 Kramer suggests, in a later article of his own,36 that the three elements of Strategic Philanthropy are ‘identifying the change one hopes to bring about, clarifying internal values and strengths, and ascertaining external needs’ and that ‘it is only by undertaking all three simultaneously that a fully formed strategy, capable of evaluation, can be achieved’. It’s round about here that this turns what is really research into a supposed universal theory and that Porter and Kramer’s Strategic Philanthropy falls into the ‘theoretical analysis’ trap. Porter and Kramer’s concept has been taken further by some foundations who profess to be Strategic Philanthropists. One such is Rebecca Rimel of the Pew Charitable Trusts who defines Strategic Philanthropy in the following way: For us, strategic grantmaking has a well-defined goal that is larger than that of a single project. A single grant cannot be ‘strategic’ in itself. It must be part of a cluster of grants that have a focus. At the same time, that single grant has an explicit and achievable objective. Strategic grantmaking also has a discernible impact on a problem. We have to do more than offer Band-Aids and, ideally, work on more than symptoms. We aim to identify underlying causes, because attacking them is the only way that finite resources can make a difference.37 In an excellent critique of various ‘new’ models of philanthropy, Stanley N Katz says, and you may be feeling it too, that at this point ‘I am struck by a powerful feeling of déjà vu’.38 Strategic Philanthropy (at least in the Kramer and Porter manifestation) appears to be rather a vague concept that could include many types of grantmakers and, more especially, seems no different from what has been ‘best practice’ in philanthropy since at least the time of Carnegie and Rockefeller.

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Beyond philanthropy? Social bonds and impact investing Earlier I said that social investment differed from traditional investment in that its result was a change in the social condition and that it also involved no financial gain. But what if there is some financial gain involved in the transaction? Is this still philanthropy? Some recent developments in the funding of socially positive projects bring this question into focus. The first is the ‘Social Impact Bond’ (SIB). SIBs invite investment from any source for social projects that might also have a future financial return. If the financial return is achieved, then the investors will be repaid, potentially with a dividend on their investment. The best-known example in the United Kingdom is a project to reduce re-offending rates which, if it succeeds, will attract a payment from the government as this will have proved less costly than the alternative prison sentences. The key point about SIBs is that they are basically high-risk investments, and there is no guarantee that any funding will be returned and so they would still come within our model of social investment.39 I’m not sure they can actually be considered to be a new investment asset class as they don’t seem to fit the accepted definition of a bond because there is no one guaranteeing them. Impact investments are one further stage removed and are currently under development or have been launched by a number of mainstream investment and asset management companies. They intend to go one step beyond socially responsible investing which screens investments and excludes any that have a negative social impact – for example, arms manufacturers or companies who are not environmentally friendly. Instead impact investments are analysed for both their potential financial return and their social return and only included in the portfolio if the social return is clearly, and measurably, positive. In other words, the financial and social returns are considered to be of equal value. Those funds that have been established have demonstrated that impact investments can equal or even surpass the financial growth of social or traditional investments. But is this still philanthropy? I can see no reason why it cannot be included in the totality of social investment providing that, over time, the impact investments are properly judged and demonstrate a clear socially positive return.40

Conclusions We’ve covered quite a lot of ground in this chapter. • We’ve looked at ways of simply classifying funders by what they do. • We’ve begun to examine some approaches that enable comparisons to be made between different styles and how these impact on the funder–recipient relationship.

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• We’ve looked at critiques of certain perceived styles and briefly examined some new approaches. All of these can lead us to a greater understanding of why funders do things the way they do or help in a practical analysis to decide what style to adopt or what the implications will be of adopting a particular approach. The incisive critique in What Works Grantmaking in particular gives some cautionary advice. Just as in the practice of medicine a doctor’s first tenet is ‘do no harm’ so in the practice of management it is just as important to avoid serious mistakes as it is to practice excellence. In social investment, this is even more important and a prime tenet should be to do no harm in ones funding.41 Even if it’s not possible to move wholly over to the style of ‘reform grantmaking’ proposed by Ellsworth, Duggan and Orosz, there are a number of points to bear in mind that will help avoid the drawbacks of the ‘PhilosopherKing’ style. These begin to move in the direction of what constitutes a ‘good’ funder and they include the following: • Remembering your true clients are people not organisations. • Evaluating both the funding organisations achievements internally as well as the recipients to identify the best outcomes and the relationship between the two. • Using ‘good enough’ evidence of results, not waiting for definitive proof or becoming obsessive at measurement. • Funding success rather than work that conforms to the funder’s conceptual frameworks. • Commissioning research regularly to discover organisations and projects that may not find their way to your door on their own. • Being flexible enough to switch to the horse that is getting the best results but in such a way not to be accused of ‘moving the goalposts’ and letting down or alienating applicants. • Focusing your funding (because spreading the jam too thinly will never have a significant effect) but also keeping your peripheral vision. • Being generous not stingy with recipients. • Sharing information about what works with other funders, recipients, potential applicants and other interested parties. • Funding more organisational development, but not just organisational development, make sure it is turned into results that benefit people. • Making your policies and processes transparent to recipients and the public. Not just because this is in itself a ‘good thing’ but because it makes sense, saves time and helps make the whole ‘world of social investment’ more relevant and meaningful.

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Further reading Julia Unwin’s two excellent books are the following: The Grantmaking Tango: Issues for Funders (Baring Foundation, 2004). If it has a fault, it is that it perhaps lacks sufficient ‘linkage’ between the various options. Available at: http://www.baringfoundation.org.uk/GrantmakingTango.pdf. and Fruitful Funding, NCVO/ACF, 2005. Available at: http://www.ncvo-vol. org.uk/products-services/publications/fruitful-funding-guide-levels-engagement. Christine W. Letts, William P. Ryan and Allen Grossman, High Performance Nonprofit Organisations – Managing Upstream for Greater Impact (Wiley, 1998). Also about organisational development but covers the ground of their original essay in greater depth. Helmut Anheier and Diana Leat, Creative Philanthropy (Routledge, 2006). A study of a group of ‘creative’ foundations leading to a view of what twenty-first century foundations ought to be aspiring to. Leat’s early writings on grantmaking types are still worth looking at (if you can find them): Trusts in Transition – The Policy of Grant-Giving Trust and Grant Giving: A Guide to Policy Making (both Joseph Rowntree Foundation, 1992). For the best exposition of the view that the new breed of ‘philanthrocapitalists’ (who include Angelina Jolie and Bono apparently) are the potential ‘saviours of the world’, see Matthew Bishop and Michael Green, Philanthrocapitalism: How the Rich Can Save the World and Why We Should Let Them (A & C Black, 2008). Don’t be put off by the very silly sub-title, which the paperback edition has sensibly changed to ‘how giving can save the world’. This is a good summary of the arguments in favour of ‘philanthrocapitalism’, it gives a sensible historical perspective (it doesn’t say it’s totally new) and provides balance. Perhaps rather ‘self-congratulatory’ but far better than: Charles and Elizabeth Handy, The New Philanthropists: The New Generosity (Heinemann, 2006). A look at the recent influx of ‘practical philanthropists’ from the eminent management writer but very self-congratulatory. For the contrary view: Michael Edwards, Just Another Emperor? The Myths and Realities of Philanthrocapitalism (The Young Foundation, 2008). Available here: http://www.justanotheremperor.org/. For a real example of PRI, see Ford Foundation, Investing for Social Gain: Reflections on Two Decades of Program-Related Investments (Ford Foundation, 1991). A brief, straightforward survey of 20 years of PRI – loans for social purposes rather than grants. Available at: http://www.fordfoundation.org/pdfs/grants/ Investing_For_Social_Gain.pdf.

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Part II Social Investment as a Business Process

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5 Can Philanthropy Learn from Business Methods?

What can philanthropy learn from business? Despite scepticism over the concepts of philanthrocapitalism and venture philanthropy, there are things that social investors can learn from business. One problem with some of the manifestations of ‘business-oriented philanthropy’, to use a catch-all term, is that they have adopted the wrong business principles. They have tried to import the whole business model when they should have been looking far more closely at its internal processes. This is probably because the proponents of the business-oriented philanthropy model come from service industries – IT, banking and finance – rather than more ‘traditional’ areas where operational processes are, perhaps, better understood. If you just think about the major positive social changes in Western society that have occurred in the last 100 years or so, votes for women, the civil rights movement in the United States, the environmental movement today, none of them were driven by market forces or organised just like businesses. The philanthrocapitalists have also been somewhat arrogant in thinking that they have all of the good ideas, whereas the nonprofit world and philanthropy is entirely populated by those who have no head for business. This is clearly, at best, an over-simplification. There are just as many things the voluntary sector can teach business as there are learning points in the opposite direction (not least in relation to business ethics).1 As Michael Edwards has pointed out: What separates the good and bad performers is not whether they come from business or civil society, but whether they have a clear focus to their work, strong learning and accountability mechanisms that keep them heading in the right direction, and the ability to motivate their staff or volunteers to reach the highest collective levels of performance.2 83

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So, in reading these next four chapters please bear in mind the following: (1) The best social investors are as ‘business-like’ as the best businesses and have been so for a very long time; (2) You can’t simply import ideas wholesale from the business world without adapting them to the very different circumstances needed for social investment; but (3) You can still learn from some aspects of business methods though not necessarily the ones that have received the most publicity. There is therefore a very good reason for the Masters course I teach on Philanthropy, Grantmaking and Social Investment being based in a Business School. Several of the sessions in the course, and chapters in this book, could, with very little adaptation, be part of a business studies degree. They certainly aren’t specific to the realm of social investment, or even specific to one sector of the economy. There should be no surprise in this because, basically, good management is good management in whatever sector one is working and good governance is essential and has similar characteristics in all areas. Though commentators will differ about what they consider to be the key principles of good business management these will usually include3 : 1. Strong strategic planning and more especially strategic thinking; 2. Valuing people; 3. Visionary leadership; 4. Customer-driven excellence; 5. Excellence of systems and processes. We’ll look a little at strategy and leadership in this chapter. Valuing people and customer-driven excellence should both be integral parts of an organisation’s performance management which forms Chapter 8. Though I won’t be tackling the theory of people management to any great extent, you can do this through many other books on the topic.4 The final point is at the heart of the rest of the book. If social investment is a business, can we learn things here from other processes? We should first refer back to the idea of the ‘logic model’ and the funding ‘cycle’ which springs from it (Figure 5.1):

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Programme design

Programme implementation (assessment and decision making)

Evaluation (of outcomes & impact – projects, programme & whole organisation)

Monitoring (post-decision management)

Figure 5.1

The funding cycle

The headline activities: design; implementation; monitoring; evaluation; re-design form a universal planning model for any business. It doesn’t matter if what you’re doing is planning the manufacture of widgets, designing and selling insurance, even investigating and prosecuting a crime. For your planning to work, you will need to go through a similar cycle.

Governance in philanthropic organisations It’s very easy for those engaged in philanthropy – especially I would say their boards or trustees – to think that their main job is deciding who to fund. This leads to a second fallacy and that is that the business they are in is the area of work they fund – education, social welfare, the arts or whatever. This is a real danger and one that leads to bad planning, bad management and bad investment. If philanthropy is done through an organisation, then you are in the funding business. It is your task to fund the work of others as efficiently and effectively as possible. You are not an educator, social worker or artist. Unless you want

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to be highly interventionist – and this requires very specialist forms of investment like venture philanthropy – you operate most effectively when you don’t interfere too much with what the deliverers of the service are doing. If social investors think they are unique to their specialism, they will concentrate too much on the wrong things – the ‘quality’ of the ‘product’ on offer to the end beneficiaries – and forget about their own internal workings as a funder. Let me give you an example. During the first phase of projects supported by the National Lottery in the United Kingdom in the late 1990s, the Arts Council of England funded a group of major capital re-developments and new arts buildings.5 The Arts Council were severely criticised for allowing several of these projects to go way over cost without adequate controls. The main reason this happened was that the Arts Council concentrated too much on the artistic content of the projects after they would be completed and not enough on the, rather more mundane, requirement of putting up the buildings to time and cost. When they assessed the applications for these projects, the Arts Council employed lots of people who were highly skilled in judging the quality of the artistic programme, but they were deficient in people who were able to assess the viability of the capital plans. As a ‘specialist’ in the arts, the Arts Council felt their prime role was the judgement of artistic quality when, in fact, their prime role should have been the viability of the capital programme and, indeed, the overall viability of the projects. This sort of mistake is all too common in funding bodies. Even where it is recognised, there is a tendency to value the specialist contribution more highly than the operational one and so, in decision making, the specialists often overrule those who plan and manage the operational process. This is an error that does differentiate the philanthropic from the business world. If a business placed greater emphasis on the ‘specialist’ role (the detail of the product they sell) over and above the wider process issues (production, marketing, etc.), it either wouldn’t be around for very long or would remain a small, specialist organisation supplying a niche market. Equally the governing board or trustees shouldn’t think that their main purpose is to take decisions about funding. Their primary job is to ensure their organisation is well run.6 Again if business were governed in the same way as some foundations, they wouldn’t last 5 minutes. I’ll give you another example from the Lottery world. I use these examples for a number of reasons. Firstly, I know about them. Secondly, they illustrate the points well and thirdly because the Lottery was funding on an ‘industrial scale’7 so you might have thought it should have learned the most from the business sector.

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Again in the early days of the Lottery, one of the distributors used to supply the entire application file to their decision-making board meeting, rather than a summary of each application prepared by officers. In the meetings, the entire board would spend hours poring over the actual material submitted by the applicants. This was when Lottery money could only be used for capital projects and they would, for example, examine the architect’s plans in great detail during their board meetings. This was not only futile (as agreement in such a haphazard setting was virtually impossible), it was also a dereliction of their duty as board members. I cannot believe that any of them would remotely have considered operating their businesses in this way.8

Strategy and tactics Why do situations like those I’ve described above occur? Obviously the first reason is that too often the managers and board members think they are operating in a totally different environment to the business world. Of course there are differences and absolutely critical ones. We’ve already seen where these lie and, crucially, there is the difference in the ‘bottom line’. For business the bottom line is profit. Not quite pure and simple because businesses operate in the real world and so need to take account of human factors, business ethics, customer care and so on, but their key objective is financial profit. Social investors operate to a totally different objective which is far more complex and difficult to define and measure – social change. Nevertheless the path towards these different bottom lines can often be similar, and the navigation en route can share some basic principles. There is a secondary reason why there is often confusion in the management and governance of funders and that is that they can muddle up their longer term objectives with their short-term aims. Basically there can sometimes be confusion between strategy and tactics. What happens is that there is overconcentration on the tactical elements (day-to-day decision making) and too little on the strategic ones (what, overall, do we want to achieve?).

Leadership We have already noted that commentators on good business management stress the importance of good leadership. Indeed some commentators place ‘dynamic leadership’ at the very top of their principles for success and there are many management books on the topic.9 Though I don’t want to run down leadership as a principle for funders, I believe it can be over-rated for several reasons.

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1. Firstly, there are the differences between leading a commercial organisation and leading a public or voluntary sector one. Consensus is far more important in the latter and though good writings on leadership emphasise the necessity for leaders to achieve consensus,10 business leadership in practice rather stresses the need for a leader to ‘do their own thing’ at crucial points and, sometimes, to simply override internal opposition. 2. Secondly, the emphasis on consensus is even more true for funders than for ‘sharp end’ bodies because the former have to work through intermediaries and third parties. 3. Thirdly, funders, almost alone amongst other organisations, are in a unique position of power. Because of the non-contractual nature of grants and the fact that they are entirely discretionary the funder has all the power. It really doesn’t matter what the recipients or applicants think about them, the funder will still go on with their business and even those who loath them will still probably apply to them for funding. If the funding comes from a permanent endowment and the larger that endowment, the greater the power. It is therefore even more important for the leaders of funding organisations to be as humble as possible and not abuse this power. In other words, their leaders may well have to ‘tone down’ some of the principles that commentators say make up ‘great leaders’. 4. Fourthly, when I read many of the books on leadership and the traits great leaders are supposed to embody, I see very little difference between these and the traits great managers should also follow.11 5. Finally, and because of the first two points, leaders of funding organisations often have to avoid being bad leaders rather more than concentrating how to be great ones. So, successful funding organisations need wise leaders who know how to avoid the pitfalls. They also need sound governance from their board or trustees and really great managers. This is emphasised by a summary on leadership from the Center for Effective Philanthropy who found that more strategic leaders differ from less effective ones on four key characteristics.12 They: (1) Have a board approved, written strategic plan that they regularly reference. (2) Publicly communicate their strategy. Almost 40 per cent of the less strategic leaders reported not publicly communicating their ‘strategies’ at all. (3) Are more proactive in their grantmaking, identifying organisations or programmes that target specific issues or directly contacting organisations to initiate grants. (4) Assess their performance, using performance indicators to understand whether or not each of their strategies is helping them to achieve their goals.

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I’m not sure that the Center is entirely right to attribute these characteristics to the leadership element in the organisations. I see these positive traits as those of well-managed organisations led by pragmatic people.

Strategic planning What are the key ingredients of successful strategic planning? • First, keep the plan simple. If it’s over complex, no one will understand the main goals and there’ll be a confusion of targets. • Second, keep it flexible. If you don’t, you’ll soon be thrown off course by unforeseen events. You don’t just need a plan B but a plan C, D, E and F and so on. This is where strategic and risk planning come together. • Thirdly, and absolutely critically, communication is the key to everything, especially good internal communication. Two more important points to keep in mind are the following: (1) The different levels of planning within an organisation; (2) The way in which your organisation is structured. Strategic planning is only one of a number of levels of planning that go on within an organisation as shown in Figure 5.2:

Mission Objectives Strategies Tactics Actions, programmes and policies

Figure 5.2

Levels of organisational planning

• At the top comes the organisation’s overall mission, the impact it intends to have on society; • The objectives clarify the mission into more concrete goals;

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• The strategy incorporates the theory (or theories) of change the organisation intends to employ; • The tactics are the methods which it intends to use (so for a funder this would include the different ways of supporting those it assists); • Finally, there are the actual programmes and policies.13 The second point is a critical one when developing strategy because the way in which your organisation is structured will critically impact on the strategies (and indeed the tactics) you can employ. Certain types of approach simply will not work with certain types of organisational structure. This is why in undertaking strategic planning, you should also review your structure to ensure the two are aligned. There are several basic forms of organisational structure:

Functional structure One based on the functions or activities people carry out. This is a very common form with a manager in charge of each function in turn reporting to a higher level. It is hierarchical and represented by the well-known organisation chart (Figure 5.3):

Senior manager

Manager function 1

Officers

Figure 5.3

Manager function 2

Officers

Manager function 3

Officers

Functional structure

Functional structures work well in organisations where the activities are highly specialised, where there is little need for interdependence between departments and where the environment is stable. Their problems lay mainly in the lack of communication between the functions and that responsibility for outcomes can be unclear. I would therefore suggest that they are not the best way for funders – who require close working between functions if they are to work well – to be organised. And yet, the vast majority of foundations

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are organised precisely in this way – especially larger public ones. This leads to dysfunctions, stifling of innovation and interdepartmental conflicts.14 Divisional structure This structure can only work in larger organisations and basically retains the functional element but groups activities around programmes or geographical regions. It can work better than the simple hierarchy as its units can be kept quite small, but it still has some of the pervious drawbacks. This was how I re-organised the Operations Directorate at both the New Opportunities Fund (a division with around 200 staff) and the Parole Board of England and Wales (with about 80 staff). Matrix structures Matrix structures came to prominence because this was the way in which NASA successfully restructured itself after President Kennedy committed them to putting a man on the moon within ten years. The usual way matrix structures operate is to draw together members from different functions or divisions into project or programme teams. Each individual thus has a dual role: their functional role and their role in the project team. The project manager for each project will not always be the most senior person in the team. This was the way in which NOF re-structured to deliver its later programmes and, as Director of Operations, I was a member of several teams but not the project manager of any of them. There is no doubt that matrix structures significantly improve communications are more flexible and can speed up projects. However they also have their problems. They can lead to over-duplication, can cause confusion of priorities and won’t work unless the project managers have the authority, and feel comfortable, to tell their ‘bosses’ what to do. Strategic thinking Until the late 1980s, most of what was being written about strategy development depicted it as a very deliberate process with thinking, followed by planning, followed by action. Since then, some commentators have questioned whether strategic planning was as critical a priority to business success as had been previously thought. A debate has evolved as to whether strategy should be practised as art, science or a combination of both. Leading writers in the descriptive and integrative literature (Mintzberg for example) have argued that strategy should be practised mainly as an intuitive, creative and divergent thought process – strategy as art. Others still support the view that strategy is a rational, analytical, convergent thought process – strategy as science (Michael Porter is probably the leading proponent of this view)15 . Several writers, particularly in the later part of the 1990s, have argued that strategy should combine both approaches to achieve the best outcomes.

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Leading the ‘strategy as art’ approach is one of the most respected writers on the subject, Henry Mintzberg, who commented in 1994:

Strategic planning has fallen from the pedestal it occupied when it came on the scene in the mid-1960s. Strategic planning failed because it is not the same as strategic thinking. Planning is about analysis – about breaking a goal into steps, formalizing those steps, and articulating the expected consequences. Strategic thinking, in contrast, is about synthesis. It involves intuition and creativity. The outcome of strategic thinking is an integrated perspective, a not-too-precisely articulated vision of direction that must be free to appear at any time and at any place in the organization.16

In an earlier article,17 Mintzberg had proposed that the ideal approach to strategy development should be much more of an art than a science. He likened the activity to a potter crafting an artefact and, overturning much received wisdom, suggested that there were two ways that strategy could develop:

Strategies can form as well as be formulated. A realized strategy can emerge in response to an evolving situation, or it can be brought about deliberately, through a process of formulation followed by implementation.18

You can see here that Mintzberg doesn’t entirely ‘throw the baby out with the bathwater’; he still agrees that analytical thinking is necessary in certain circumstances. But in times of stability, which Mintzberg suggested again against the received wisdom, the emergence of strategy was more than likely. He also debunked the idea that strategies were the creation of great, or inspired, leaders placing much more emphasis on the role of line managers and those ‘lower down’ an organisation’s hierarchy. Indeed, Mintzberg believes top management and the CEO should distance themselves from business units during the strategy process to assist reflection and creativity at that level. Mintzberg also put a greater emphasis on the goal of effectiveness over strategic development:

Managers who craft strategy do not spend much time in executive suites . . . They are involved, responsive to their materials, learning about their organizations . . . through personal touch . . . Most of the time senior managers should not be formulating strategy at all, they should be getting on with making their organizations as effective as possible in pursuing the strategies they already have.19

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A writer who takes a position perhaps mid-way between Mintzberg and Porter is Jeanne Liedtka. She sees strategic thinking as a ‘particular way of thinking, with specific attributes’ and puts forward a model containing five elements. • Firstly, strategic thinking is based on a systems perspective – a holistic view of an organisation. The strategic thinker has a mental picture of a complete system of value creation in the organisation and their own small role within the larger system. • Secondly, strategic thinking is driven by the strategic intent of the organisation providing focus and energy to the staff and the organisation to achieve goals. • Thirdly, strategists need to ‘think in time’ linking the organisation’s past, present and future in their thought processes. There are three components: (1) the predictive value of the past for the future; (2) departures from the past which divert the organisation from familiar patterns; (3) the need for continuous comparison. • Fourthly, strategic thinking is ‘hypothesis-driven’, and the ‘scientific method accommodates both creative and analytical thinking sequentially in its use of iterative cycles of hypothesis generating and testing’. • Finally, strategic thinking is intelligently opportunistic. The organisation whilst following a particular strategy should not lose sight of alternative strategies that may be more appropriate for a changing environment.20 Though this may sound a trifle over-theoretical, it has some clear parallels with the ideas on ‘Reform Grantmaking’ examined in Chapter 4. Liedtka provides a useful comparison between strategic thinking and strategic planning in the form of a table that summarises the differences (Table 5.1): Table 5.1 Liedtka’s strategic thinking and strategic planning Strategic thinking

Strategic planning

Vision of the future

Only the shape of the future can be predicted

A future that is predictable and specifiable in detail

Strategic formulation and implementation

Formulation and implementation are interactive rather than sequential and discrete

The roles of formulation and implementation can be neatly divided

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Table 5.1 (Continued) Strategic thinking

Strategic planning

Managerial role in strategy making

Lower-level managers have a voice in strategy-making, as well as greater latitude to respond opportunistically to developing conditions

Senior executives obtain the needed information from lower-level managers, and then use it to create a plan which is, in turn, disseminated to managers for implementation

Control

Relies on self-reference – a sense of strategic intent and purpose embedded in the minds of managers throughout the organization that guides their choices on a daily basis in a process that is often difficult to measure and monitor from above

Asserts control through measurement systems, assuming that organizations can measure and monitor important variables both accurately and quickly

Managerial role in implementation

All managers understand the larger system, the connection between their roles and the functioning of that system, as well as the interdependence between the various roles that comprise the system

Lower-level managers need only know his or her own role well and can be expected to defend only his or her own turf

Strategy making

Sees strategy and change as inescapably linked and assumes that finding new strategic options and implementing them successfully is harder and more important than evaluating them

The challenge of setting strategic direction is primarily analytic

Process and outcome

Sees the planning process itself as a critical value-adding element

Focus is on the creation of the plan as the ultimate objective

Sources: Liedtka, ‘Strategic thinking: can it be taught?’, Long Range Planning, Vol. 31, No. 1, 1998, pp. 120–129 and ‘Linking strategic thinking with strategic planning’, Strategy and Leadership, Vol. 26, No. 4, 1998, pp. 30–35.

My own view is that there is a great deal of truth in what Mintzberg (and Liedtka) says, especially for social investors. For most funding organisations (and, indeed, nonprofits), isn’t the strategy quite simple: achieving your mission, the changes you want to see in society? So why agonise over it?

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Three key requirements of strong business I’d suggest that there are three clear similarities between the very best businesses in whatever sector they operate. (1) Good governance (part of strategy); (2) Strong risk management (strategy and tactics); (3) High-quality operational process and project management (tactics). We’ll be looking at the role of risk management in the next chapter, though it’s a topic that runs throughout an organisation’s planning and management. The third point is the main ‘theme’ of Part III.

Conclusions I want to conclude this chapter with a brief look at some tips for success in business that can easily be transferred to the philanthropic world. The first comes from a study conducted by Dr Joachim Bauer of the European Centre for Business Excellence which examined whether the successful implementation of business excellence is influenced by the organisational context within which the implementation takes place.21 The study found three relationships between structure and the success of business excellence implementation. They are relationships which echo several of the points previously raised. The most successful implementation occurred in organisations which were • Less formalised in terms of written rules – they were more flexible in their approach. Though this did not mean they had no ‘rules’ or written procedures, what they had were procedures that allowed, indeed encouraged, flexibility when this was needed to achieve their headline aims and objectives.22 • Less complex – they kept things simple. • Less formalised in terms of supervision and autonomy – their workforce was empowered and their management open to ideas. The study concluded that organisations which have simple and informal organisational structures will encounter fewer problems when implementing business excellence than organisations with complex and formal structures. It is interesting that these characteristics are ones more usually found in smaller organisations. Though Bauer also found several very large organisations that successfully operated in this way, they had found ways of retaining the best characteristics of smaller bodies during their growth.23

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The second is from P Ranganath Nayak, vice president of the Boston Consulting Group. He describes four characteristics of product development processes used by world-class companies.24 (1) They treat product development as an organisational process that can be structured, measured and improved. I hope we’ve already shown that you can approach social investment in this way. This is an absolutely crucial point yet is often neglected in the philanthropic and nonprofit world in general. (2) They harness talent and perspectives in the company through the use of cross-functional teams. Don’t leave development in the hands of ‘experts’ or one part of a larger organisation, get everyone involved and ‘bought-in’. (3) They put customers at the centre of the product development process, both by encouraging direct contact between company employees and customers and through new methods of in-depth market research. So get funders out into the ‘real world’ and get them to listen to their potential clients. (4) They support the passion and creativity of employees by creating conducive work environments. Perhaps the most obvious of all, but difficult to achieve if the culture of the organisation has lost the motivation of their workforce. Here we’re getting round to the inter-relationship between good planning, good management and good processes. Finally, I would add three tips of my own. (1) Being the best isn’t really about being the most brilliant or talented it’s about making the fewest mistakes. (2) However much you end up borrowing from business techniques and however superbly you develop your processes, technology and planning this is no substitute for the human element. With social investment, we’re talking a lot about how planning and process knowledge can assist you in becoming an effective funder. Business analysis, project, operations, risk and performance management can be of huge assistance and, again, help you avoid those traps. But, in the end, philanthropy comes down to subjective human judgement and decision making, and you mustn’t forget this and let the process take over. (3) Listen to John Ruskin. Ruskin, has been called ‘the greatest Victorian bar Victoria’.25 He was an artist, scientist, poet, environmentalist, philosopher and the pre-eminent art critic of his time, providing the impetus that gained respectability for the Pre-Raphaelites. Many of his aphorisms are still quoted and I’m a great fan. Some are relevant in this context. For example, Ruskin wrote about leadership that:

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Every great person is always being helped by everybody; for their gift is to get good out of all things and all persons. However leaders should take care as: In general, pride is at the bottom of all great mistakes. He would certainly endorse one of my previous points as he wrote that: The first test of a truly great man is his humility. By humility I don’t mean doubt of his powers or hesitation in speaking his opinion, but merely an understanding of the relationship of what he can say and what he can do. But one should be positive: Do not think of your faults, still less of other’s faults; look for what is good and strong, and try to imitate it. Your faults will drop off, like dead leaves, when their time comes. In writing books you should: Say all you have to say in the fewest possible words, or your reader will be sure to skip them; and in the plainest possible words or he will certainly misunderstand them. I’m not sure how closely I’m following that one. But most of all my favourite quotes for funders and philanthropists to remember are: To give alms is nothing unless you give thought also. And in designing thoughtful funding: It is far more difficult to be simple than to be complicated; far more difficult to sacrifice skill and cease exertion in the proper place, than to expand both indiscriminately.26 Here he would be in agreement with another great thinker, Albert Einstein, who commented: Everything should be made as simple as possible, but not one bit simpler.

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Further reading Bertelsmann Foundation (ed.), Effectiveness, Efficiency and Accountability in Philanthropy: What Lessons Can be Learned from the Corporate World? (Bertelsmann Foundation, 2006). The contributions explore the role of foundations in society and their interaction with other sectors, as well as their strategic marketing and planning activities, entrepreneurial approaches and their controlling and quality management. The book also addresses evaluation tools and sustainability considerations. Caroline Copeman et al., Tools for Tomorrow: A Practical Guide to Strategic Planning for Voluntary Organisations (NCVO, 2004). Developed by a group of Cass Associates, it’s a good first guide especially for smaller organisations. Another straightforward introduction to strategy is Neil Ritson’s Strategic Management which is available free to download from http://bookboon.com/ uk/student. Joel J Orosz, Effective Foundation Management: 14 Challenges of Philanthropic Leadership – and How to Outfox Them (AltaMira Press, 2007) which is equally as useful and thought-provoking as his first, though much of the content is a reprise of previously published essays.

6 Three Key Business Processes – 1: Risk Management

Introduction: Why do we need to know this? At some point since the early patrons of seafaring exploration sent Columbus and his peers on their way to the new world, philanthropy has lost its understanding of the upside of risk.1 It is perfectly possible to be a really effective social investor without knowing any more about the theories of Risk, Operations or Performance Management than is contained in the other chapters of this book. However, I have found that having some additional grounding in these disciplines has hugely assisted me in avoiding the mistakes that I referred to in Chapter 5. It is far easier to design risk management procedures and deal with problematic situations if you understand the principles of how risks arise and the various options you have to ‘treat’ them. I’ve often seen people who don’t have this knowledge ‘tearing their hair out’ trying to completely eliminate risks that can’t be eliminated, only mitigated. I don’t know of any other writing on philanthropy that explicitly acknowledges the insight you can obtain from a study of Operations Management. Of these principles that of Operational Process Design is probably the most important. If you understand the relationship between the stage of development of a process and its cost, you can avoid some extremely expensive errors. For example, understanding how important it was to get the process design right and document in detail all the processes before beginning the design of the software saved tens of millions of pounds in the development of the New Opportunities Fund grants management system. Unfortunately at NOF we still made mistakes. A late ‘design change’ in the programme to support Out of School Activities across the United Kingdom led to the administrative costs of the programme going up by 500 per cent, using up precious resources that could have gone to supporting projects. This decision was a political one, but if we had explained the consequences of the decision, ministers might have 99

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changed their minds. Unfortunately no one, at the time, understood what the implications of the decision would be in cost terms, as they very often don’t in social investment. If those involved had studied Operations Management, even superficially, the implications would have been clear. I have already emphasised the importance of measuring results if you are going to be an effective funder. Only part of this is measuring the results your investments and recipients achieve. In order to be fully effective, you need to go on to measure the overall effectiveness of your organisation. This means including things like how effective your strategy planning and implementation is, how effective is your governance and, critically, how good is your HR management and how effective are your staff? You can’t do this without some form of overall performance management system, but too often performance management is shrouded in jargon which, by their own definition, only expensive consultants can understand and tell you about. I well remember the first time I heard about the ‘Balanced Scorecard’. It was introduced at a session ‘facilitated’ by an external (and very expensive) consultant and most of us there didn’t understand a word he was saying. I couldn’t believe it when I went away and started reading about the principles behind balanced scorecards and realised how elegantly simple a concept it was. Performance measurement and management is very important, far too important to leave to external consultants. A performance management system imposed on an organisation from outside without ‘buy in’ from the board and from staff at all levels will simply be an expensive failure. So having established the value of knowing more about these ideas, you will hopefully want to take a more in-depth look at each; concentrating on those principles that are of the greatest assistance to social investors of all types.

The purpose of risk management Good risk management allows an organisation to • Have increased confidence in achieving its desired outcomes; • Effectively constrain threats to acceptable levels; and, critically • Take informed decisions about exploiting opportunities. Exactly what funding bodies should be striving to achieve. The key aim of risk management is not, as many believe, trying to eliminate risk wherever possible because if you do this you’ll not achieve the third purpose and miss out on real opportunities. This mistake happens too much in the public sector and in many foundations. What then happens is that these organisations achieve some very ‘worthy’ results and pat themselves on the back, but

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they fail to take sufficient risks to do even better. So the ultimate purpose of risk management is to achieve: The optimum response to risk, prioritised in accordance with an evaluation of the risks. You therefore need good evaluation of what the risks are, place these in a priority order and devise the optimum response to each dependent upon both their priority and the cost of tackling them.

Risk appetite In 1987, Michael Hooker wrote that ‘caution rather than boldness . . . guides foundations’ selection of proposals . . . they can be likened more to commercial bankers than to venture capitalists.’2 Despite their many protestations to the contrary, I would suggest that most grantmaking organisations still tend not to be risk taking but risk averse. One reason, among many others, is that they have never considered the concept of risk appetite – just how much of a risk are we prepared to take? For a social investor, risk appetite should be considered at three levels: (1) Corporate risk appetite – how much risk are we prepared to take as an organisation? (2) Programme risk appetite – how much risk are we prepared to take with this programme? (3) Project risk appetite – how much risk are we prepared to take with this application or project? It is very likely that though you wouldn’t want to take huge risks as an organisation – perhaps by concentrating solely on one type of funding or investing all of your reserves in speculative, but potentially high-yielding stocks – you may decide to go for a very ‘risky’ programme that could achieve huge impact or a few very ‘risky’ projects as part of an overall programme.3

Levels of risk Risks occur at all levels in an organisation, but the management of risk between these levels needs to be closely integrated. If this is done, the risk management strategy of the organisation will be led from the top and embedded in the normal working routines and activities of the organisation. All staff should be aware of the relevance of risk to the achievement of their objectives. Thus

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risk management is not something that is an ‘add on’ or only the responsibility of a small group of people in the finance department. It should be part of everyone’s day-to-day work, and they should be clear how the risk management they implement contributes to the risk management strategy of the whole organisation. You will see that exactly the same principle applies when we discuss performance management. Your risk management planning and documentation should make it possible for anyone in the organisation to identify risks that they cannot (or should not) manage at their level in the organisation but, because of their nature, should be escalated to a higher level. This is true even of the smallest organisations.

Risk levels in social investment In larger funders, these different levels are likely to be: • Management of risk in individual investments – usually handled by an individual officer; • Management of risk in groups of investments – maybe handled by a particular staff team; • Management of risk in an entire programme or thematic area – handled, perhaps, at a departmental level; • Management of risk across the entire organisation’s funding which would generally be the responsibility of the senior management team, CEO or board.

Key areas for attention There are some key points that good risk management will always address: • Corporate governance – including more open ways of managing risk across the organisation. • The need for a ‘risk owner’ at senior level, usually called a ‘single responsible owner’ (SRO) and risk owners at every working level. Despite everyone being involved in risk management, you need to assign each key risk to a specific person, part of whose job is to keep a check on that risk. They may not be the person who does something about the risk if it happens, but they are responsible for instigating this action. In small organisations, this may well be the same person all the time and so emphasises that in smaller bodies you need to very clearly define your key risks in order to ensure you’re not overloaded. • Consistently improving reporting and upward referral of major problems.

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• Ensuring there is a shared understanding of risk at all levels combined with a consistent treatment of risk. The former is easier to achieve than the latter. • Risk interdependencies. Risks are rarely ‘independent’, most often there is a relationship between them. For example, if you have a recipient that operates poor financial controls, your first instinct would probably be to try to tighten these up. However, if this recipient works in some of the most unstable parts of the world where ‘getting a receipt’ may mean the project can’t go ahead, this risk control could destroy precisely what you’re trying to achieve.

The risks of risk management You need to be very careful in adopting a systematic approach to risk management in an organisation however. This is because though life is full of risks, if you attempt to eliminate all of them, you will also eliminate the opportunities that come with them. It is a risk to spend £1 on a Lottery ticket, but you could win millions, even though the odds are infinitesimal. In sports, the person that never wants to risk losing will rarely win, and we’re all familiar with the phenomenon of over-zealous ‘health and safety’ legislation that puts ridiculous restrictions in place to ‘manage’ virtually non-existent risks. I rather like this way of depicting the different ways that an organisation can respond to risk (Figure 6.1):

Management of risk

Good

Poor

Averse

Seeking Attitude to risk

Figure 6.1

Approaches to risk – Hiding, suicidal, dead or wise?

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Which animal should you seek to emulate? • The ostrich who manages every risk but has his head in the sand when it comes to spotting opportunities? • The dodo who hasn’t a clue how to manage risk but knows that whatever it is he’s against it? • The lemming that thinks he’s spotted an opportunity but hasn’t realised that he’s going to fall off the cliff before he reaches it? • Or the wise owl who sums up the risks and then seizes the opportunities?

The risk management process This involves three stages: (1) Identifying risks in relation to key objectives and deciding which risks are not critical. (2) Evaluating the key risks to establish: • The probability of those risks occurring; • The potential impact if they did occur; • Your attitude to those risks in terms of your willingness to accept them or not. (3) What to do about them. You can decide to do one of four things: • • • •

Transfer them; Tolerate them; Treat them; Terminate them.

Risk identification How do you identify the key risks? Among the things you need to bear in mind are the following: • Look at what is a risk and why. • Consider the opportunities opened up by current activities (for example, your programmes or projects) as that may also clarify where risk lies. • Aim to identify the 20 per cent of risks that would have 80 per cent of the potential impact. • Ensure that everyone involved has a sound understanding of the mission, aims and objectives and plans for delivery for your organisation. If you don’t have a shared understanding of these, you won’t be able to agree on what the key risks are.

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• Check that there are realistic plans for how ‘external providers’ could deliver the outcomes sought from the activity; check that there is shared understanding of the risks, whilst recognising that customers’ and providers’ perspectives on risk will not be the same. This is clearly a key area for funders who don’t deliver outcomes directly. Don’t be surprised if this process sometimes exposes quite significant differences in the perception of risk across different parts of the organisation. It is then the task of management to decide the hierarchy of risks and, very importantly, to explain their decision. For example, if a unit of the organisation has identified a key risk which management decide is not a high priority, this will need careful explanation to the unit involved.

Risk assessment/analysis Having identified your risks you then need to • Assess the probability of risks occurring and their potential impact. • Set tolerances for individual risks, with reporting arrangements for escalating problems if risks exceed agreed tolerances. There are three important principles for assessing risk: (1) Ensuring that there is a clearly structured process in which both likelihood and impact are considered for each risk; (2) Recording the assessment of risk in a way which enables monitoring and the identification of risk priorities; (3) Being clear about the difference between inherent risk (the likelihood and impact before applying an appropriate control) and residual risk (the likelihood and impact that remains after the application of your control). Some types of risk lend themselves to a numerical diagnosis – particularly financial risk. For other risks – for example, reputational risk – a much more subjective view is all that is possible. In this sense, risk assessment is more of an art than a science. A categorisation of: • High • Medium • Low

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In respect of each may be sufficient, and should be the minimum level of categorisation – this results in a ‘3×3’ risk matrix. A more detailed analytical scale may be appropriate, especially if clear quantitative evaluation can be applied to the particular risk – ‘5×5’ matrices are often used, with impact on a scale of: • • • • •

Insignificant Minor Moderate Major Catastrophic

and likelihood on a scale of: • • • • •

Rare Unlikely Possible Likely Almost certain

There is no absolute standard for the scale of risk matrices – organisations should reach a judgement about the level of analysis that they find most practicable for its circumstances. Colour ‘traffic lights’ can be used to further clarify the significance of risks. However, the more options you have means you must have more ways of dealing with them, and if you haven’t either the ways or the resources, the categorisation can become redundant because in practice nothing happens. Once risks have been assessed, the risk priorities for the organisation will emerge. The less acceptable the exposure in respect of a risk, the higher the priority should be given to addressing it. The highest priority risks (the key risks) should be given regular attention at the highest level of the organisation, and should consequently be considered regularly by the Board or Trustees. Risk priorities will change over time as specific risks are addressed and prioritisation changes.

Responding to risk and risk controls You can respond to risk in four main ways: Tolerate it – The exposure may be tolerable without any further action being taken. Even if it is not tolerable, your ability to do anything about some risks may be limited, or the cost of taking action may be disproportionate to the potential benefit gained. In these cases the response may be to tolerate the existing level of risk. This option should be supplemented by contingency planning for handling the impacts that will arise if the risk is realised.

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The three other responses involve the application of what are known as internal controls: Transfer it – For some risks, the best response may be to transfer them. This can be done by conventional insurance, or it might be done by paying a third party to take the risk in another way. This option is particularly good for mitigating financial risks or risks to assets. It is important to note that some risks are not (fully) transferable – in particular, it is generally not possible to transfer reputational risk even if the delivery of a service is contracted out. The relationship with the third party to which the risk is transferred needs to be carefully managed to ensure successful transfer of risk. This control is one frequently encountered in social investment. The funder transfers a proportion of the outcome risk to the recipient which is then embedded through the funding contract/agreement and enforced through ‘terms and conditions’. However, it needs to be really clear here who ‘owns’ the risk. Many misunderstandings between funders and recipients occur when there is confusion as to where the ‘risk buck stops’.4 Terminate it – Some risks will only be treatable, or containable to acceptable levels, by terminating the activity. It should be noted that this option may be severely limited for a social investor as a number of activities are conducted because the associated risks are so great that there is no other way in which the output or outcome, which is required for the social benefit, can be achieved. Treat it – By addressing the probability or impact and so contain it to an acceptable level. By far, the largest number of risks will be addressed in this way. The purpose of treatment is that whilst continuing with the activity giving rise to the risk, action (control) is taken to constrain the risk to an acceptable level. These controls can be further sub-divided according to their particular purpose: • Preventive controls are designed to limit the possibility of an undesirable outcome being realised. The more important it is that an undesirable outcome should not arise; the more important it becomes to implement appropriate preventive controls. The majority of controls implemented in organisations tend to belong to this category. Examples of preventive controls include separation of duty, whereby no one person has authority to act without the consent of another or limitation of action to authorised persons, such as only those suitably trained and authorised being permitted to handle media enquiries preventing inappropriate comment being made to the press. • Corrective controls are designed to correct undesirable outcomes after they’ve happened. They enable some recovery against loss or damage. An example of this would be design of funding contract conditions to allow recovery of

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an accidental overpayment of grant. Contingency planning is an important element of corrective control as it is the means by which organisations plan for business continuity/recovery after events which they could not control. • Directive controls are designed to ensure that a particular outcome is achieved. They are particularly important when it is critical that an undesirable event is avoided – typically associated with health and safety or with security. Examples of this type of control would be to include a requirement that those working with children have all been appropriately checked and have appropriate qualifications. • Detective controls are designed to identify occasions of undesirable outcomes having been realised. Their effect is, by definition, ‘after the event’ so they are only appropriate when it is possible to accept the loss or damage incurred. Examples of detective controls include stock or asset checks, reconciliation (which can detect unauthorised transactions), ‘Post Implementation Reviews’ which detect lessons to be learnt from projects for application in future work, and monitoring activities which detect changes that should be responded to. In designing a control, it is extremely important that the control put in place is proportional to the risk. Apart from the most extreme undesirable outcome (such as loss of human life) , it is normally sufficient to design a control to give a reasonable assurance of confining likely loss within the risk appetite of the organisation. Occasionally funders are accused (and are sometimes guilty) of a lack of proportionality – for example, ‘over bureaucratic’ monitoring that checks in minute detail how a grant has been spent but has little connection to the key outcomes the project or programme has been designed to achieve. The level of risk remaining after internal control has been exercised (the ‘residual risk’) is the exposure in respect of that risk and should be acceptable and justifiable – it should be within the risk appetite. Another principle of risk response is to put in place processes that will actively encourage cooperation and open dialogue between ‘customers’ and ‘providers’. In a funding context, this will ensure that recipients share information about problems at the earliest opportunity so that small issues do not escalate.

Communication and learning Communication within the organisation about risk issues is important: • To ensure that everybody understands, in a way appropriate to their role, what the organisation’s risk strategy is, what the risk priorities are, and how their particular responsibilities in the organisation fit into that framework.

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If this is not achieved, appropriate and consistent embedding of risk management will not be achieved and risk priorities may not be consistently addressed. • Because there is a need to ensure that transferable lessons are learned and communicated to those who can benefit from them. For example, if one part of the organisation encounters a new risk and devises an effective control to deal with it, that lesson should be communicated to others who may also encounter that risk. • Because there is a need to ensure that each level of management, including the board, actively seeks and receives appropriate and regular assurance about the management of risk within their span of control. They need to be provided with sufficient information to allow them to plan action in respect of risks where the residual risk is not acceptable, as well as assurance about risks which are deemed to be acceptably under control. As well as routine communication of such assurance there should be a mechanism for escalating important risk issues which suddenly develop or emerge.

Further reading Some of the best explanations of risk management can be found in official publications. Much of the basis for this chapter is drawn from the UK Treasury’s Orange Book: Management of Risk – Principles and Concepts (OPSI, 2004), available here: http://www.hm-treasury.gov.uk/d/orange_book.pdf. Another excellent source with plenty of examples and explanatory tables is the website of the Office of Government Commerce, see http://www.ogc.gov. uk/guidance_management_of_risk.asp.

7 Three Key Business Processes – 2: Operations Management

What is ‘Operations’? The best way to start understanding the nature of ‘Operations’ is to look around you. Everything you can see (except plants and animals) has been processed by an operation. Every service you consume today (a radio station, the bus service, the teacher’s lecture, etc.) has also been produced by an operation. Operations Managers create everything you buy, sit on, wear, eat and throw away. Operations management views businesses (of whatever type) as a system. Albert Porter has outlined this definition as follows: ‘A system is a group of interrelated items in which no item studied in isolation will act in the same way as it would in the system.’1 This is a crucial definition as it emphasises exactly what I said in the very first chapter – social investment is a series of linked decisions, each one impacting upon the other. In other words, a social investment programme operates as a system. All operations are transformation processes, they take ‘raw materials’ and ‘transform’ these into something else.

The strategic role of the operations function Very often the operations department which is at the heart of most organisations – in a funder they are the people who actually ‘do’ the funding – is not considered to be carrying out a strategic function. Strategy is something considered elsewhere, at a ‘higher’ level where operations staff may be involved (though often they are not!). This is to entirely misunderstand the nature of operations which is absolutely at the heart of an organisation’s strategy. This strategic role is illustrated by three key attributes that contribute to strategy. Operations has a role in: 110

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• Implementing strategy by ‘operationalising’ strategy, by being dependable and explaining practicalities. As we noted in Chapter 5, planning a strategy is not terribly hard, putting it into practice is and that’s where operations come in. • Supporting strategy – by understanding strategy, doing things in an appropriate way at an appropriate time and contributing to decisions. • Driving strategy – by providing the foundation for strategy, being innovative and developing long-term capabilities. Operations management suggests that there are five key performance objectives. In a commercial context, the operations function can provide a competitive advantage through its contribution to these performance objectives and all of these contribute to any organisation’s effectiveness, so these are all relevant to social investors: Being right – You want your work to be considered to be the highest quality (by those in the field and by recipients) and fund quality work. Being fast – As funding is, in itself, not a productive process you don’t want to delay things, you want your processes to be as quick as possible. Being on time – You want your processes to deliver to time for everyone concerned – failing to achieve this can have disastrous results at the project end. Being able to change – You need to be able to adapt to circumstances – remember the idea of ‘What Works Grantmaking’. Being productive – And you want to be as cost effective as possible to ensure that as many of your resources as possible are spent on changing the world not on your administration. The dynamic interaction of these objectives contributes to excellence in efficiency and effectiveness. There are however differences between operations in manufacturing and service industries like social investment. In social investment, the link between the ‘product’ (a grant) and the funding process is very close, much closer than in a manufacturing process. This is why process – how you do it – is even more important than product – what you create from the process, things like forms and guidance notes for applicants.

Operational process design The concept of process design is well understood in the commercial world. It develops from an initial idea through appraising options and testing, to the launch of the idea, product or service. It then governs how the process

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operates in action, evaluating performance and making improvements to reach a final design, after which the cycle restarts. This concept-design-test-evaluateredesign model underpins every process from the manufacture of cars to social investment programmes and reflects exactly what we’ve already seen in logic modelling. The key point is that it is possible to trace back all productive processes within a specific field of activity to a generic design, the supply network design, which can then act as a ‘blueprint’ for all future process design in that field. This is a critical concept for social investors. The processes they use can be illustrated diagrammatically, and this mapping can form the basis for all the operational planning of a funding programme or an entire philanthropic organisation.2 As an example, the grant programme design process that I introduced at the New Opportunities Fund enabled nearly a hundred separate programmes, in fields as different as individual grants for Second World War veterans and multi-million pound wind-farms, to be set up, with all the required assessment, resource, risk management and other elements, within, potentially, a few days from agreeing the concept and answering key questions about the outcomes sought. It is therefore my contention that there is a supply network design or generic model for all social investment processes. It is this model that is explained in detail in Chapters 9–12. Another key principle of operational process design is that relatively early in the design activity, the decisions taken will commit the operation to costs which will be incurred later. Though this concept may well help you save more money in larger organisations it is just as, if not more, critical in small ones, where resources are even more precious. Decisions that cost you little in the design stage will have significant implications for the operational costs. Another way of looking at this concept is that as a project progresses, the ability to change the project design decreases and the cost of any change increases (Figure 7.1).

High

Ability to change design Cost

Low

Time Figure 7.1

Design/cost relationship over time

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This basic principle of operations management is critical in designing funding programmes but, because the relative pressures for cost control are significantly less than in other sectors, often gets ignored and sometimes is simply not comprehended.

The three operations objectives of time, quality and cost The other concept from operations management I want to stress is also related to time and cost. In any project, there will be competing objectives and funding programmes can often have the same, potentially competing, objectives. The three variables are as follows: (1) Time – how long a project takes or when it will be delivered; (2) Quality – the standards it will meet, often a direct reflection of its likely effectiveness or how closely it will meet your original objectives or specification; (3) Cost – what it will cost to deliver. These variables can be represented as the three apexes of a triangle (Figure 7.2): Cost

Time Figure 7.2

Quality

The time, quality, cost triangle

The triangle demonstrates two things: • Firstly the interrelationship between the three variables and • Secondly the unvarying truth that though you can control one or two variables you cannot control all three at once. What you usually need to do is to decide which of the three is most critical and then do what you can about the others. For example, if it is absolutely critical that your project is delivered to time, you can either decide to keep quality high but understanding that this will be costly or you can try to minimise cost but understanding that quality will suffer. In probably the vast majority of projects cost is a deciding factor or, at least, you have a cost that you can’t exceed however this isn’t always the case.

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Consider the example of delivering the Olympic Games. You have an absolutely unbreakable time factor – the Games must start on time. You also have a highly complex set of quality criteria laid down by the International Olympic Committee (IOC) that you cannot compromise. Why then do people try to pretend that you can accurately predict the cost of the Games? This is the one factor least under your control for this project. In social investment, you obviously want to produce the highest possible ‘quality’ of programme supporting the very highest quality projects. You will, however, usually have a finite budget to do this (remember what we said in ‘Grant’s Formula’ about the effectiveness of a programme being dependent upon need versus resources) and may often be up against significant time factors both of which will work against optimising the ‘quality’ of your programme.3 Another way in which the ‘Time, Quality, Cost Triangle’ can help is in seeking to improve your processes. You can ‘map’ whereabouts on the triangle your programme (or your entire organisation) is at present and decide, say for the forthcoming year, in which direction you want to (or have to) move. What becomes obvious here is that (unless you are currently squandering resources) you can’t improve both quality and timeliness and deliver cost savings. So whatever politicians tell you about being able to ‘improve efficiency’ (by which they mean lowering costs) without compromising time scales or reducing the quality of services don’t believe them!

Further reading Operations Management by Nigel Slack, Stuart Chambers, Robert Johnston and Alistair Brandon-Jones (Financial Times/Prentice Hall, 6th edition, 2009) comes with access to the Companion Website. It really is the only book you’ll need on the topic, easy to understand and comprehensive.

8 Three Key Business Processes – 3: Performance Management

Do we need performance management? Have you ever bought a piece of equipment or something that you thought would change or improve your life but then found that you hardly ever used? Why didn’t it get used? Sometimes it’s just because the thing is so complicated it’s not worth it. But more often it’s that the way you live your life simply doesn’t match up. The simple fact is that however wonderful the piece of equipment is it can’t change your life for you, only you can do that and then you might just find the equipment helps you. Well, performance measurement and management systems are just like this. A brilliant theory will not make the slightest difference to your organisation unless it is part of an overall, accepted strategy for improvement. If you have a de-motivated, demoralised workforce with big management problems, no performance system known or unknown will put things right. So, the first question to ask before embarking on the implementation of any system of performance management is, are we strong enough to stand it? I think this quote encapsulates what we’ll be talking about in this chapter: Social investors share a common purpose – using resources to achieve social objectives. Direct assessment of a funder’s performance, therefore, depends on measuring total social benefit achieved in relation to the resources expended. Direct measurement of this sort is a critically important objective, but it remains difficult – if not impossible – to implement on an organisation-wide basis and can often take place only over long time periods. It’s (slightly adapted) from the Center for Effective Philanthropy’s paper Indicators of Effectiveness: Understanding and Improving Foundation Performance. Is such a task of attempting to assess total social benefit achieved in relation to the resources expended really worthwhile and, if so, how would you do it? 115

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We’ve already seen how critical it can be to monitor and evaluate the outcomes and impacts of projects. This should give you information about the effectiveness (or lack of it) of individual projects. You may also carry out comparative studies across a number of projects to try to determine something about the effects you are having within a particular field of operation. These comparative studies can be quite small (a group of similar projects) or much broader (a study of an entire programme, for example). What neither the individual project nor the comparative evaluation tackle however is the question ‘how effective an organisation are we?’ Just what overall effect is your organisation having on its chosen field? Assuming you have a clear mission and goals, are you reaching them or not? A recent survey of US grantmakers1 found that though 78 per cent believed that they were effective in creating impact, only 26 per cent were using performance indicators, metrics or other tools to assess all of their strategies. So the obvious question is how did the other 52 per cent know? Well it was because someone, quite often their recipients, told them they were effective and, of course, they have to be telling the truth! And I’m not sure that the 26 per cent should rest easy. After all they carried out this research on themselves and note what we’ve said about evaluations sometimes needing to be independent. As Pablo Eisenberg has commented, ‘the irony . . . is that while foundations seem increasingly obsessed with evaluations of grantees, only a handful of them have ever undergone an independent evaluation of their own performance’.2 Before we start looking at what models of performance management you could adopt, it is important to stress what we mean by effectiveness and how it relates to that other concept, efficiency. Effectiveness is about achieving the desired effect. For an organisation engaged in social change, this means initiating external, social changes in line with the organisation’s mission and aims. Efficiency is improving (or optimising) the ratio of resources (money, time, staff, etc.) to effects. But how do social investors measure whether or not they are being effective in achieving these high-level aims? How do you measure effectiveness? There are probably two main indicators: (1) Performance measures (which are generally internal measures); (2) Evaluations (which are generally external). Clearly, these can simply be two sides of the same coin, as you can’t have one without the other. However performance measures are things you can set and

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(mainly) measure internally, evaluation involves examining the programmes and projects the organisation runs for, usually, its impact on ‘end users’ or beneficiaries.

Performance management – Its uses . . . and abuses Like so many other concepts, the idea of performance management has reached the public and nonprofit sectors from the realms of the private sector. The theories that have proved most useful certainly share one key characteristic. They concentrate on performance at an organisational rather than an individual project level. They recognise that even the most brilliant single product will remain only that unless there are effective ways of replicating that success over time. As one influential book has commented: In the for-profit sector, organizational capacity is valued as the primary means for succeeding in the marketplace. Investors, corporate boards, CEOs, and managers all understand that success comes not from a product or service alone, but from an organization’s ability to market, distribute, and improve it . . . The question is whether they can sustain or repeat what they did.3 This concept has not been one that has achieved a high degree of acceptance in the nonprofit world where, in the past, the emphasis has very definitely been at the individual project or, occasionally, the programme level. As Letts, Ryan and Grossman said: ‘Most frequently, nonprofit funders tend to see any investment in organizations as overhead, deadweight costs that takes money away from program beneficiaries.’4 There is no doubt that funders have been even worse in this respect, at least until very recently when the concept of ‘full cost recovery’5 has begun to be accepted by some. Why this negative attitude? These are some of the arguments put forward against significant investment by funders, and the voluntary sector as a whole, in organisational development, performance management or ‘high overheads’: • It is seen as against the ethos of the voluntary sector (by being too competitive). • It is seen as a being a distraction from the ‘real’ business of helping people. • It is seen as either too difficult or too costly (because ‘doing things’ is easier and more short-term than ‘analysing’).

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• They see themselves as unique (to their field) so no ‘off-the-shelf’ technique could work, whether ‘borrowed’ from the commercial sector or another voluntary or funding organisation. • They see their work as an art and not a science (therefore, their work is not measurable or open to ‘objective’ analysis). • They see performance management as the same as performance-related pay (and many organisations have helped in this misuse of the concept). In reality, achieving results is what motivates most people not pay.6 • Funders are more interested in outcomes (what happened) rather than the processes that produced them (why they happened). In fact, the evidence is entirely the other way. The Nonprofit Overhead Cost project, an in-depth quantitative and qualitative study carried out by the Urban Institute and Indiana University, found categorically that low overheads (and thus lack of investment in organisational development) lead to inadequate infrastructure which limited their effectiveness.7 However, the commercial sector has found that performance management has proved effective and, despite many negative feelings like those mentioned, it has now been significantly adopted by the public and, parts at least, of the voluntary sector. Let’s now look in a bit more detail at some performance management techniques and whether they might be adaptable for use in funding organisations. Just before we do this, it’s important to be clear about the distinction between: Performance management – the theories, techniques and methods for measuring performance and Performance measures – the actual, individual, measures used within a performance management framework. Broadly speaking, performance management is about the overall outcomes of performance, performance measures make up the outputs.

Performance management – Introduction and more caveats One thing that should be said is that the voluntary sector should have no fear of performance management or measurement. Some are worried about comparisons between the private, public and nonprofit sectors but they shouldn’t be. Where in-depth, sophisticated research has been undertaken (for example, in the fields of health care, nursery provision, schools and residential care for

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the elderly), the results have demonstrated much greater differences within the sectors than between them.8 Over the past 20 years, various consultants, policy analysts, government bodies and voluntary sector leaders have urged a range of performance improvement ideas. But though performance management is so ubiquitous, it has also been highly controversial as Austin and Larkey have pointed out: Performance measurement has a chequered history even in the traditional manufacturing and bureaucratic settings ostensibly most conducive to measuring outputs and causally attributing outputs to individuals and organizational sub-groups. There are many more instances of dysfunction – instances where performance measures stimulate less than optimal or even counter-productive behaviours– than there are instances of demonstrable success.9 One problem has been the temptation for management to use the information ostensibly collected for learning purposes for other things, most often related to pay or resourcing. As well as the point made above about performance-related pay, we have all been aware of the issues about government’s obsession with targets where meeting a specific, single, target (such as, in the United Kingdom, reducing waiting lists in the NHS or class sizes in schools) takes precedence over things like quality of service. Another critical factor is that of attribution. What exactly was it about the process that produced enhanced (or reduced) performance? Often several factors are so closely inter-related that attribution is impossible so that even though everyone agrees an improvement has happened no one can agree why. Interestingly in the private sector, dissatisfaction with performance measurement systems has been reported as increasing and the life expectancy of measurement systems is falling.10 One clear lesson from the private sector is that in some circumstances performance measurement is more successful than in others. It is usually more successful where: • The scale of operations is large enough to spread the costs of designing and operating the measurement systems; • Conceptions about the meaning of performance are shared (note what we said earlier about the lack of a shared culture in funding bodies); • Measurability factors are high (things are easy to measure); • Cause-effect relations are well understood; • Attribution is possible.

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You can immediately start seeing the problems for the nonprofit world as these characteristics are less usual than they are in commercial organisations. So if a clever management consultant offers you the performance solution for your organisation, be ready to treat their espousal of their own preferred model with a degree of healthy scepticism. There are, as well, some obvious limitations to performance measurement: • Performance data do not, by themselves, tell you why the outcome occurred or the extent to which the results were caused by the intervention. • As we noted in relation to evaluations, some outcomes cannot be measured directly. • The information provided by performance measurement is still only part of the information managers need to make plans and take decisions.

Performance management – Theories and models Let’s now take a more detailed look at the pros and cons of some of these techniques.

Outcomes measurement We’ve already looked at outcomes in some depth, and clearly they can be part of a performance measurement system. Here I’d like to take a closer look at the theory of ‘outcome measurement’ and what’s actually occurred in practice. The general idea of outcome measurement is to focus on the lasting benefits produced, not just the activities undertaken and their immediate results or outputs. The concept stems from the 1991 book by Arthur Webb, Bill Phillips and Hal Williams entitled Outcome Funding: A New Approach to Targeted Grantmaking.11 The authors take the approach that grantmakers are investors who track the value of their investments through specific results achieved with their money, and it has become the seminal work on the subject. Whilst what I’ve said in this book up to now obviously supports this idea in a broad sense, the important question is whether the more complex world of social investment can be sensibly reduced to uni-directional service delivery outcomes. In practice, the theory has been rather watered down and is used much more loosely as a way of referring to broader programme evaluations.12 This is also how we have used the term up till now, but this approach is one the original authors (Williams and Webb) regard with great suspicion. Another tendency of outcome measurement is that its proponents tend to write as if validated outcome measurement systems already exist whereas in many cases what they actually report is research on outcomes undertaken in the hope that measurement systems can be devised.13

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Even where studies focus on those believed to be ‘advanced’ in collecting outcome information, discrepancies between aspirational and operational descriptions of outcome measurement are often apparent and it is unclear if one set of outcome measures could meet all of the internal (performance related) and external (reporting and monitoring) requirements of a single, simple, integrated system. Thus a performance measurement system that relied solely on outcome measurement – most especially if it was relying on the outcome measurement systems of third parties is still unrealistic as outcomes measurement in the nonprofit sector remains far from universal, indeed one might argue embryonic.14 That’s not to say that outcome measurement is not worthwhile; it’s simply that it is unlikely to ever do what its ‘evangelists’ claim and needs to be used for the right purposes. In his excellent book Managing and Measuring Social Enterprises, Rob Paton says: Outcome reporting can be useful in its own terms, and at the same time be used to satisfy institutional concerns about effectiveness. But it is seldom managerially useful – and it is very explicitly not what the early proponents of outcome measurement (e.g. Williams and Webb) intended.15 As originally propounded by Williams and Webb, there really aren’t any actual examples of the theory in practice. Paton says that during the preparation of his book, he met a senior manager from one of the US organisations regularly cited as having made a success of outcome measurement. Still hoping to find a clear example he asked about how she used the information. The result was immediate and unambiguous: not at all. The data had been of some use to local groups in helping secure funds (because it was ‘what grantmakers wanted to hear’), but it was really just research, and gave her no guidance in planning and decision making. So social investors should be extremely careful in asking for outcome data as the potential costs of setting up the systems to capture relevant data on a regular, routine basis are likely to be beyond the means of all but larger bodies. A more optimistic response, and one that I would support, is that outcome measurement is better understood as a potentially worthwhile journey rather than an actual destination, useful, like evaluation, for the dialogues that surround it and the shared purpose of understanding to which it can give rise. But this is quite definitely not what its original proponents claimed and neither can it form the basis of an entire measurement system. Paton concludes: Whether one is an optimist or a pessimist, the message for policy-makers and funders is more or less the same: go easy on outcome measurement lest you discredit a useful aspiration, waste resources and start to stimulate dysfunctions.16

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Social return on investment The methodology for calculating social return on investment (SROI) was first developed in the late 1990s by REDF (formerly the Roberts Enterprise Development Fund), a San Francisco-based venture philanthropy fund. Since then, the approach has been extended to take into account developments in corporate sustainability reporting as well as ways developed in the field of accounting for social and environmental impact. Interest in SROI has been fuelled by the increasing recognition of the importance of metrics to manage impacts that are not included in traditional profit and loss accounts, and the need for these metrics to focus on outcomes over outputs. While SROI builds on the logic of cost-benefit analysis, it is different in that it is explicitly designed to inform the practical decision making of managers and investors focused on optimising their social and environmental impacts. By contrast, cost-benefit analysis is a technique rooted in social science that is most often used by funders outside an organisation to determine whether their investment or grant is economically efficient. Simply put, the SROI process involves • Talking with stakeholders to identify what social value means to them; • Understanding how that value is created through a set of activities; • Finding appropriate indicators, or ‘ways of knowing’ that change has taken place; • Putting financial proxies on those indicators that do not lend themselves to monetisation; • Comparing the financial value of the social change created to the financial cost of producing these changes. The steps are exactly those that you take in constructing, implementing and measuring the impact of a theory of change with one key addition. SROI measures the financial value of the benefits relative to the costs of achieving those benefits. It is a ratio of the net present value of benefits to the net present value of the investment. For example, a ratio of 3:1 indicates that an investment of £1/$1 delivers £3/$3 in social value. SROI =

Net present value of benefit Net present value of investment

An SROI ratio is a comparison between the value being generated by an intervention and the investment required to achieve that impact. So the key difference between SROI and other evaluation methods is that it places a financial value on the changes that projects bring about using either a direct cost comparison or some means of proxy.

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The advantages claimed for SROI are that: • It describes the real values of changes to stakeholders by using financial proxies to represent values not usually captured in a market economy – social, community and environmental benefits; • It is based on standard accounting and commercial investment principles; • It makes sense to funders as a way of representing the value created by an activity and helps communicate the value of the work to ‘the people that matter’; • It gives a voice to stakeholders that have been excluded in the past; • It involves measuring change – what funders are really looking to invest in.17 I think the last two points are somewhat debatable as several other approaches can involve stakeholders and measure change, not just SROI. The key point for an SROI analysis is that you need to find ways of expressing the indicators in financial terms. This process is sometimes referred to as ‘monetisation’, and it is the step that people tend to struggle with most. This is what the New Economics Foundation (nef) has to say about this stage of the process: The good news is that this section is not as difficult as it may seem from the outset, and gets easier each time it is completed. In addition, as SROI becomes more widespread, monetisation will improve and there will be scope for pooling good financial proxies. Sometimes monetisation is a straightforward process; for example, where it relates to savings to the State which are publicly available. This might be the case where the outcome you are interested in is an improvement in physical health and the indicator you have chosen is a reduction in GP visits. Data on the cost of GP visits is available from the NHS and you could use this as your monetised value. For other indicators, monetisation requires a bit more creativity and digging around. In selecting financial values there is a trade-off between cost, data availability and accuracy. When data is unavailable or difficult to obtain, you may choose to use proxies. A proxy is a value that is deemed to be close to the desired indicator, for which exact data is unavailable. Proxies are very useful because they enable you to include outcomes for which there is no direct monetary value. In your report, however, it is important to be clear which assumptions have been made in selecting proxies so that others can track the rigour of your analysis. Proxies should not be seen as conveying a hard-and-fast value on a particular outcome but as a way of expressing it in financial terms that ensures it can be included in the analysis. Clearly this is a subjective process and for this reason we carry out sensitivity analyses to test different assumptions.18

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However, it is quite possible to see some significant problems in the use of SROI: (1) As nef suggest, proxies are only able to convey very indirectly the actual value of something and should therefore be treated as being very subjective. The danger is that very often they are not; they are portrayed as being just as objective as indicators that provide a direct financial comparison. (2) You need to be careful to ensure that the indicator has been selected because it really is related to the outcome it refers to and not just because it is easy to assign a monetary value to it. (3) SROI requires a lot of measurement and calculation and you need to ensure the figures really do add up. For example, if the financial benefit for a very small sample of people can be calculated, this does not mean you can automatically multiply the benefits up to include everyone who was affected by the initiative. (4) It is self-selecting and subjective as it has been put together by the organisation reporting the SROI ratio. Is it likely that they will report a negative result? Or, will they instead seek to substitute another measure (which may be less relevant) which paints a more positive picture? (5) It requires very accurate costings not only of the outcomes but also of all the inputs into the project. For example, I have seen calculations that appear to demonstrate that a project has a highly positive SROI ratio only to find that hundreds of volunteer hours that were donated to the project hadn’t been included in the input figures. (6) Over-concentration on monetisation. It is all too easy for organisations to simply follow the steps of assigning and calculating the monetary value of the intervention but not the rest of the process involved around the identification, verification and implementation of a theory of change. An organisation must be clear about its mission and values and understand how its activities change the world – not only what it does but also what difference it makes. This clarity must inform stakeholder engagement. Therefore, if an organisation seeks to monetise its impact without having considered its mission and stakeholders, it risks choosing inappropriate indicators; and as a result the SROI calculations can be of limited use or even misconstrued. (7) Many activities organised by nonprofit organisations are extraordinarily difficult to even find proxy financial measures for. These include many cultural activities; improved family relationships and quality of life (for example, for patients in a hospice). As SROI now enjoys the support of government, it seems likely that it will become more widely adopted over the next few years but it is important to understand that:

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• The whole of the process must be carried through; • It must be done rigorously and exclude ‘distortion factors’ such as substitution/displacement (where the benefits claimed are simply at the expense of others) and ‘deadweight’ (what would have happened anyway); • The indicators must be robust and, ideally, externally verified. If these principles are at all short-circuited, then SROI can simply become a crass exercise in reductionism and, thus, worse than useless.

‘Best practice’ benchmarking The previous discussion on outcomes measurement has shown some of the difficulties involved in aggregating non-financial indicators into an overall measurement of ‘return on social investment’ that would match the ‘return on capital’ utilised by commercial organisations. Perhaps instead it is possible to break down overall performance into manageable and definable components – or individual processes and then measure the costs and results achieved? This is the essential idea behind best practice benchmarking (BPB). BPB developed in US corporations in the 1980s in response to the challenge of Japanese manufacturing success. By the mid-1990s, the UK government was promoting benchmarking to industry and, more recently, within the public sector, it has been proposed as a constructive alternative to imposed comparisons or ‘league tables’. It’s worth noting that, despite government backing, BPB has been more noticeable by its absence in government performance setting. A good recent example would be the ‘target’ of a 2.5 per cent year-on-year saving on administrative costs set for government departments and non-departmental public bodies (NDPBs). Such a ‘blanket’ saving is, of course, easy for inefficient bodies but very difficult for lean, mean, high-performing ones. So the target becomes entirely counter-productive whereas BPB on administrative costs could have been used instead. In its original, commercial conception, BPB involves • A careful study of a defined set of activities (often specific key operational processes); • Defining and measuring performance (often utilising non-financial measures); • Identifying ‘industry leaders’ (either in the same organisation or a competitor) who are doing the same things more efficiently or effectively; • Setting targets in relation to external standards (rather than comparisons with your own past performance); • A certain amount of collaboration and sharing of performance data expressed in the idea of ‘benchmarking clubs’ or ‘benchmarking partners’;

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• Adopting and adapting ideas used elsewhere to one’s own situation; • Formation of project teams to carry out the study and champion the required changes. Like many other models BPB has also ‘metamorphosed’ as time has passed and so when people now use the terms ‘best practice’ or ‘benchmarking’ (or both together), they often mean something quite different from the original model. This is definitely the case in the nonprofit world where people usually refer to ‘benchmarking’ as being a fairly superficial comparison between their organisation and a few similar ones. Funders in particular would be extremely reluctant to identify another funder as an ‘industry leader’, even if it were possible to agree a definition of what an ‘industry leader’ looked like. The other problems most often reported in the use of BPB include the following: • The time and resources it requires (especially the cross-industry research to identify best practice); • The difficulties in finding suitable partners; • The difficulties in finding reliable comparisons to use; • Internal resistance to change. The last point can be a particular problem in the nonprofit sector as so many people insist that comparisons simply do not exist. In his analysis of BPB Paton found that: • BPB is very rarely used in the public or voluntary sector and then only by the largest organisations. Though many claimed to be doing it, when interviewed, it was clear they were only doing some of the steps. • Public and voluntary sector leaders use the terms ‘best practice’ and ‘benchmarking’ to describe other activities. • Most see BPB as a means of comparison with other organisations which had both an appeal and problems. • Where BPB was ‘followed through’ it did lead to real improvement, though at a significant cost. • Both the context and purposes of BPB were quite different to the original use of the practice. Again BPB is a method that can have real benefits but requires significant resources and ‘buy-in’ if it is to work. This doesn’t entirely invalidate the use of benchmarking by social investors, and indeed I would encourage the idea of identifying ‘best practice’ and how it can be more widely used. However, as a performance management system for funders I think BPB has too many problems.

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Quality models for self-assessment – Total quality management and the excellence model Total quality management Another fairly recent phenomenon is the concept of total quality management (TQM) and, again, it can have interest to those in social investment organisations not least because it derives from the field of operations management. The basic idea behind TQM is that in managing operations we are trying to do two things: making our processes better but also preventing them becoming worse. It suggests a five-point measurement of performance, against the same parameters we noted in Chapter 7 that operations can deliver: (1) (2) (3) (4) (5)

Dependability; Cost; Flexibility; Speed; Quality.

You can then ‘map’ your own performance within these five parameters to see an overall visual representation of both your current performance and any changes over time. The TQM approach stresses the following points, it • • • • • •

Includes all parts of the organisation; Includes all staff of the organisation; Includes consideration of all costs; Includes every opportunity to get things right; Includes all systems that affect quality; Never stops.

You can see immediately that it, again, is costly to achieve as it requires a great deal of detailed information.

The EFQM excellence model The excellence model was derived from the TQM approach and introduced in 1991 having been developed by the European Foundation for Quality Management (EFQM). The model is structured into nine elements; five ‘enablers’ (how things are done) and four ‘results areas’ (actual achievements). These are subdivided into 32 sub-criteria. There is a weighted scoring system which is represented diagrammatically. It can be used by individuals, teams or organisations. Scores can be compared with other organisations and tracked over time.

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Advocates claim that these systems focus attention on important issues, especially as they place customers at centre stage. Sceptics have seen the quality concept as too loose, confused and rhetorical, promising far more than it actually delivers and being best understood as a means of managerial control. With regard to the excellence model, there are significant doubts about the reliability of unvalidated scoring. For example, in one organisation, the Directors produced a rating of 750, managers around 350 whereas those on the ‘shop floor’ only a score of 180! As with externally validated systems, there is a significant gap between the way self-assessment is presented by advocates and the diverse experience of its use. Its promoters imply a well-defined procedure capable of producing an informative, dispassionate and fairly reliable appraisal out of the responses to a series of clear and specific questions. The reality seems to be a process that is rather loose and uncertain, that can be used in quite different ways, and that can generate anything from deep scepticism to enthusiastic commitment – usually dependent upon the degree of unity between management and staff. In any valid performance management system, there isn’t any doubt that you must try to measure things like customer and staff satisfaction and staff competence but again these are systems that have both limitations and problems.

‘Just-in-Time’ and Lean Systems More recently a further approach has come across from the commercial to, at least, the public, if not the nonprofit sector (yet). Certainly if you look at any senior recruiting advertisements, you will see organisations wanting people trained in the ‘Lean Systems’ approach. ‘Just-in-Time’ (JIT) is a philosophy first developed by the Japanese car maker Toyota and the basic idea is to produce only what you need, when you need it. Seven dangers of waste were identified and are sometimes referred to under their Japanese name ‘muda’. These are (1) (2) (3) (4) (5) (6)

Overproduction; Unnecessary transportation; Inventory; Motion (of people rather than things); Defects; Over-processing (over-engineering rather than simply producing too many); (7) Waiting.

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Some sources have added a further five dangers to this list: (1) (2) (3) (4) (5)

Latent skill (not using your workers skills to their optimum); Danger (unsafe working); Poor information; Material (losing materials); Breakdown (due to poor maintenance).

Though this sounds simple, it’s actually very difficult to reduce waste to negligible proportions and even if you don’t look into JIT in more detail it’s at least worth bearing in mind. For example, how often when you go into an organisation’s office do you see piles of old literature lying around?19 ‘Lean Manufacturing’, often known simply as ‘Lean’, is the way in which JIT is put into practice. It was first coined by John Krafcik in a 1988 paper based on his experience as a quality engineer at Toyota.20 The concept of Lean is not restricted to manufacturing and applies to the whole enterprise, including the supply chain, the new product development process and the provision of services. In the book, Lean Thinking,21 five Lean Principles are defined: • • • • •

Specify what creates value from the customer’s perspective; Identify all the steps across the whole value stream; Make those actions which create value flow; Only make what is pulled by the customer just-in-time; Strive for perfection by continually removing successive layers of waste.

So Lean works from the perspective of the customer who consumes a product or service. ‘Value’ is defined as any action or process that a customer would be willing to pay for. Basically, Lean is centred on creating more value with less work. Lean essentially aims to compress time. Typically, the theory goes, if you quarter your leadtime (time taken to produce something), you will double productivity and take 20 per cent off your costs. So the concept certainly has some relevance, especially over timescales in funding processes but not really for an overall performance management system.

The balanced scorecard and beyond The development of the balanced scorecard began in 1986 at Analog Devices, Inc. (ADI), a mid-sized semiconductor company, who hired Art Schneiderman as Vice President of Quality and Productivity Improvement. Schneiderman introduced goals for a series of quality measures that corresponded to what he considered to be the critical success factors for ADI. As part of the five-year

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strategic plan of ADI, Schneiderman also developed a one-page report, called the scorecard. This scorecard showed three categories of measures: financial, new products and quality improvement process. In 1990, Bob Kaplan invited Schneiderman to the Nolan-Norton study group on performance measurement where they presented the use of the scorecard at ADI. During a second Nolan-Norton study the participants’ implemented scorecards within their organisations. David Norton, who served as the project leader and facilitator, and Bob Kaplan wrote up the experiences of the participants with the scorecard and devised a ‘balanced scorecard’ in 1992.22 Kaplan and Norton’s framework was elegantly simple, representing four key perspectives in a company’s performance (Figure 8.1):

Financial perspective

Customer perspective

Vision and strategy

Internal process perspective

Learning & growth perspective

Figure 8.1

The balanced scorecard

The measures utilised in each perspective, often termed Key Performance Indicators or KPIs, need to be carefully selected and derived from the organisation’s strategy.23 The scorecard should, if applied correctly, also go beyond being a performance measurement system to also be a strategic management system and communication tool. The authors argued that a company needed to use only a few measures within each of these perspectives in order to meet their required goals, but the choice of measures was down to the individual organisation. Because the measures had to come from all four perspectives this would reduce the risk of prioritising one

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area over another (or what was being measured over what wasn’t), hence the ‘balance’ in the scorecard. Though acknowledging the primacy of financial reporting in the for-profit sector, the scorecard legitimised a range of non-financial measures and exposed the dangers of concentrating purely on short-term financial results. Unfortunately, even in the commercial sector, Kaplan and Norton’s emphasis on greater ‘balance’ is too often ignored; witness the obsession of the banking industry with short-term profit and its disastrous consequences. However, the original four box model has now been mainly superseded by the ‘Strategy Map’ in which the objectives in each perspective underpin the objectives in the next so that you create a model of interlinked objectives, more akin to the idea of an integrated system that we have already discussed, as in Figure 8.2:

Financial perspective

Figure 8.2

• Long-term shareholder value • Improve productivity • Grow revenue

Customer perspective

• Gain market share • Satisfy customer needs • Improve company reputation

Internal processes perspective

• Manage operations • Manage customers • Manage innovations • Manage regulatory processes

Learning & growth perspective

• Grow our human capital • Improve our information capital • Build our organisational capital

Strategy map template

The balanced scorecard concept has attracted huge interest. About half of major companies in the United States, Europe and Asia are using balanced scorecard approaches and it has ‘filtered down’ to both the public and, more recently, nonprofit sectors.24 For the private sector, the challenge of defining a well-rounded but focused suite of measures was posed and answered by Kaplan and Norton in their Harvard Business Review articles and subsequent book on the ‘Balanced

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Scorecard’ (1996). The Harvard Business Review hailed the Scorecard as one of the 75 most influential ideas of the twentieth century. Some significant successes in utilising the scorecard in the public and voluntary sectors have been reported but there have also been several difficulties: • The absence (again) of a single bottom line for social as opposed to financial enterprises, though this point has been tackled in some of the adaptations of the scorecard for nonprofit organisations such as that by Niven.25 • The need to differentiate ‘customers’ between, say, beneficiaries and funders for a voluntary sector organisation or between recipients and government for a public funder. • The significant resources needed for the scorecard introduction and maintenance. • The fact that it is very abstract and leaves a lot of subsequent work for interpretation into action. • Some of the proponents of the scorecard (especially consultants) have overcomplicated the original concept making it far less easy to use. • In the model it is difficult to track major, internal change – it is too focused on other factors. • It won’t work if you don’t have your mission agreed and your strategy well planned. • It won’t work if you don’t have buy-in at all levels of the organisation and agreed measures. However, its very simplicity (at least in its original conception) is also a strength and, with some adaptation, it might have significant benefit for further investigation as a tool towards performance and effectiveness measurement in both social investors and wider social enterprises. For funders, the scorecard also emphasises that you really do need to measure more than simple outcomes in your recipients. Figure 8.3 sums up in a simple way how all the different aspects of a nonprofit organisation need to interact and be included in your performance system. It is possible to use the principles of the balanced scorecard, but adapted specifically towards the perspective of nonprofit organisations. This helps keep in mind the problem that Jed Emerson has noted with performance systems: There is a very real danger of our simply lifting the metrics of business and applying them within the civil sector without adequately modifying or developing those frameworks.26

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Branches & leaves: Programmes & projects

Fruit: Overall performance

Trunk: Organisation and management

Roots: Mission and values Figure 8.3

The ‘Fruit Tree’

Figure 8.2 therefore requires some changes. For example the financial perspective should be ‘downgraded’, though exactly how and by how much should be a matter of individual circumstances. There are no right or wrong answers and your scorecard should be unique to your organisation. So Figure 8.4 is a suggested approach for a funding organisation to take with suggestions for the indicators to be included under each perspective.

Balanced dashboards Balanced scorecards are strategic tools, whereas dashboards are intended to be operational, monitoring and measuring progress rather than reflecting strategic objectives. Like a car dashboard that checks your speed, fuel level and engine temperature at a glance, dashboards should capture events as they happen and warn users when things occur that deviate from what is expected.

Effectiveness frameworks These are not very different from scorecards as they are concerned with similar areas and their inter-relationship. The main difference is that they attempt to say a bit more about why things happened by attempting to map ‘cause and effect’ to a greater extent. To date, the work on effectiveness frameworks with

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Stakeholder perspective

Internal processes perspective

• Manage operations • Manage innovations • Manage regulatory processes

Learning & growth perspective

• Grow our human capital • Improve our information capital • Build our organisational capital

Financial & resource perspective

Figure 8.4

• Delivery impacts & outcomes • Satisfy stakeholder needs • Satisfy customer (applicant & recipient) needs

• Better manage our resources • Better utilise our investments

Strategy map template (social investor)

regard to nonprofit organisations has mainly been confined to the United States and, in particular, is associated with the work (both practical and theoretical) of the Center for Effective Philanthropy based in New York. Building on the external and internal measures of effectiveness, it’s possible to aggregate these into any number of areas, however whatever areas you choose need to be debated and agreed. You might, though, include the following: • Impact on individuals – are the projects and programmes achieving the desired outcomes in changing individual beneficiaries’ lives? • Wider social impact – are these programmes having a wider positive effect on communities and in their policy area? Are the approaches to the ‘problems’ the programmes are tackling the most appropriate and are the outcomes realistic and achievable? • Cost effectiveness – are the operational details consistent with the objectives? Are the delivery methods chosen the most appropriate and efficient? Do we have the right staff trained to the right level? Are the methods chosen the most cost effective? What’s it costing? • Optimising governance – (which could incorporate major change projects as required). Finally, is there appropriate internal accountability for performance and are we using the board’s or trustees’ expertise appropriately in the achievement of success?

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The first two are, broadly, external impacts, the other two internal. Likewise the first and third are, broadly, short-term, the other two longer-term. Where can you get the information? • • • • • • • •

Evaluations (single project, programme and cross-programme); Beneficiary and user perceptions (customer surveys); Outside expert opinion (stakeholders, academics, government); Public perception (opinion polls, market surveys); Benchmarking data (cost/benefit analysis, comparative); Staff perceptions (independent surveys); Senior management performance (appraisal process); Board/trustee performance (self-assessment).

An Impact Measurement Framework like this can also, potentially at least, have other benefits. It can • Focus an organisation on its prime purpose (achieving social change). • Help in identifying new methods that work quickly rather than relying on anecdotal information (yours or someone else’s) or relying on the ‘tried and tested’. • Increase confidence in key decision taking as decisions are more soundly based on actual evidence. The Center also claims that the framework has the potential for a number of important side-effects: • Improved focus and strategy; • Increased innovation in utilising resources to achieve impact; • Alignment of goals and strengthening confidence in decisions. The Center has gone on to devise an ‘effectiveness framework’ that encapsulates the key information that an organisation could utilise.27 Some US Foundations are now working with this framework, but it is perhaps rather too early to know if they have found it of genuine practical use in both day-to-day and strategic management. Nevertheless it is a concept that organisations should seriously consider as, for about the first time, it takes the best elements of current performance management thinking (mainly in the form of the balanced scorecard) and relates it directly to the nonprofit world, including the world of philanthropy – where an indirect social benefit is the ultimate aim.

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Going beyond performance management – ‘Adaptive Learning’ and the ‘Learning Organisation’ A step beyond Scorecards and Performance Frameworks is the idea of Adaptive Learning Systems. They are based on the premise that no single initiative by one organisation (funder or even government) can solve major social problems. Adaptive Learning Systems are intended to provide a collaborative process for the participating organisations to learn, support each other’s efforts and improve over time, offering ways to increase the efficiency, knowledge and effectiveness of the entire system of interrelated organisations that affect complex social issues. Adaptive learning therefore involves a large number of organisations working on different aspects of a single complex issue in a process that establishes comparative performance metrics, coordinates their efforts and enables them to learn from each other. The benefits that should accrue include improved alignment of goals among the different organisations, more collaborative problem solving and the formation of an ongoing learning community that gradually increases all of the participants’ effectiveness. One problem is that shared measurement systems may take several years and millions to develop, yet its proponents claim that cumulative annual savings among participating organisations can dwarf the initial time and money invested. The fundamental components of an effective Adaptive Learning System include the following: • An organising framework and agreement on goals. This may be difficult to achieve between funding organisations that are not very well known for their collaboration. • A highly structured (but flexible) process that is data-driven. The process should include a well-defined set of steps and tools that help organisations work together to identify or develop effective interventions, define outcomes, measure and analyse results and continuously improve their efforts. Each network can progress at its own pace, however, while participation is voluntary and should be open to all relevant organisations. • Highly engaged professional support, which is obviously costly. • Collaborative problem solving. A collaborative approach to problem solving enables different constituencies to identify their areas of common interest and work together towards achieving mutual goals. These are, as you can probably see, not at all easy to achieve, and Adaptive Learning is obviously in its infancy. Funders do not have a very good record

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of collaboration or sharing information, especially when things go wrong. For example, Bishop and Green state that ‘by one count, only four foundations [in the US] have ever admitted a failure’ and few ever publish their full evaluations.28 There are, however, a number of examples operating in the United States and some examples in the United Kingdom where funders are collaborating on shared issues.29

Creating real measures of effectiveness So where are we in developing a framework for determining the effectiveness of a social investment organisation? We’ve seen the problems associated with a number of performance measurement systems. Nevertheless, with caution, elements of several might be adapted for use in our system. Is it really worth it? You certainly do need to ask this question and it’s possible the answer will be ‘no’. But it’s still worthwhile as long as you understand your selected method, use it appropriately and it is not consuming too great a proportion of your time and resources. The key questions are as follows: • Are our programmes effective? • Is the organisation well run? • What are the links between the two? And, in each case, there need to be two different perspectives, the ones we have previously noted in Chapter 5: ‘Tactical’ – Information useful for day-to-day management (are we doing things right?); ‘Strategic’ – Information useful for longer-term, strategic planning (are we doing the right things?). We’ve already noted that some performance management systems are far better at one than the other with some, in trying to get the latter right, producing little of value for the former. This dual role is sometimes termed ‘double-loop learning’ and is often, and crucially, missed out of many planning or information systems thus confusing the two irrevocably. What happens if you commit this confusion is that either you base long-term decisions on the wrong information or end up in a daze of constant ‘cultural change’ trying to re-invent the organisation over-and-over (a trap not infrequently encountered in the public sector). It’s an absolute essential that in considering adopting any sort of framework for performance or effectiveness that it has ‘buy-in’ at all levels, from board

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to ‘shop floor’. Sometimes the very introduction of a performance system can bring about a unity of purpose but this is very rare. More often performance management can have very negative effects without this shared perspective. As I emphasised at the beginning, the introduction of any new system to a disunited organisation with serious divisions between staff and management or significant morale problems is doomed to fail.

Selecting performance measures – Key performance indicators Within any system of performance management, it’s clear that you need to select relevant performance measures for the system to work. Let’s look back at the quote with which I started this chapter: Social investors share a common purpose – using resources to achieve social objectives. Direct assessment of a funder’s performance, therefore, depends on measuring total social benefit achieved in relation to the resources expended. Direct measurement of this sort is a critically important objective, but it remains difficult – if not impossible – to implement on an organisation-wide basis and can often take place only over long time periods. Harry P. Hatry in his practical guide Performance Measurement – Getting Results30 summarises what he sees as the key elements of a results-based performance measurement system: • Services are for the benefit of the public (beneficiaries) not service providers. • There are a number of prerequisites for a successful performance measurement system. It needs: • • • •

Data processing staff support; Analytic staff support; Top-level support from management; Patience and time.

• Outcomes and outcome indicators to be tracked should be developed primarily by the organisation itself to be appropriate. • There needs to be clarity between outputs and outcomes and between intermediate and end outcomes. • The limitations of performance measurement should be made clear to everyone involved – it’s not a panacea. • In order to track outcomes, most organisations will need to go beyond currently available data. • To provide a sense of whether the performance information is good or bad, and to help guide adjustments, outcome information needs to be

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•

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compared to other data. In other words for it to really work, some element of benchmarking is essential. Performance information can be of significant use in strategic planning. A results-based orientation must penetrate to all levels of an organisation, not just top-level managers and the board. A really critical point is that in-depth programme evaluation and performance measurement should be considered complementary activities. Training is essential for everyone. A performance measurement system can be said to be fully implemented when it is taken for granted and its data are used regularly to help make programme and policy changes. It cannot be emphasised enough that the performance measurement process is only one source of information for managers.

As part of their ‘Successful Delivery Toolkit’31 , the United Kingdom’s Office of Government Commerce also has some sensible advice about selecting performance measures. Firstly, they make the point that performance measures lie at the heart of performance management. They provide the foundations for improvement and therefore the careful selection of performance measures is vital. It is important that performance measures are linked to the organisation’s strategic objectives, or to desired outcomes. Therefore: • Measures should reflect those activities, outputs and services that are most important to the organisation as a whole. • Linking measures and targets to strategic objectives helps to put them in context and communicate their importance to the organisation. The OGC also make the point that understanding business processes is the first and perhaps the most important step in building a performance framework. Some activities in the organisation will be more important than others, and you will need to identify those processes that are most critical to delivering business success as doing so will create a clearer picture of what needs to be measured. They add that to fully understand a business process, it may be helpful to analyse it in terms of its inputs and outputs, and the relationships between them; it may be useful to create flow diagrams and flowcharts. So what is being emphasised here is the essential link between performance management and operations management in the context of the public and social sectors. They are making the very same point I have emphasised throughout this book.

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Within your overall performance management framework, the OGC remind us that there are, broadly, three main types of measure which again emphasise the relationship between efficiency and effectiveness: (1) Economy measures – which express the relationship between resources and inputs (the costs of inputs); (2) Efficiency measures – which express the relationship between inputs and outputs (how well the process performs with the given inputs); (3) Effectiveness measures – which express the relationship between outputs and outcomes (how the process contributes to business, strategic, organisational or policy goals). We’ve already mentioned the fact that nonprofit organisations will concentrate on the last two in performance measurement. The first is, generally, an issue for resource planning but, this definition reminds us that resource planning too (or, rather, the results of resource planning) is part of your performance measurement. A balanced performance framework should include measures of all three types. If you focus too much on one type of measure, this may lead to bias or gaps in coverage, for example focusing purely on economy neglects the wider concept of value for money. It is also worth reiterating that effectiveness measures are often necessarily subjective. However, this is not a reason to exclude them; you should avoid a focus on outputs simply because they are easier to quantify. The performance measures you choose, at whatever level, should be • Focused – You should exclude measures that are interesting but not directly relevant. Make sure everyone involved agrees that the measurements are going to be useful. • Reliable – The information you gather must be accurate, as you will be basing your management decisions upon it. You also need to collect them regularly, not just once or twice. • Worthwhile – Remember that measurements and analysis have resource implications. The benefit of each measure must be in proportion to the effort required to take it. Existing information sources should be considered before new ones are created. • Balanced – You should choose measures for all important areas and at all levels – costs, output volumes, efficiency, quality and progress towards strategic aims – even if the measures have to be subjective. • Avoiding perverse incentives – that is, those that encourage behaviour that exists to meet a target rather than to improve. For example, measuring the

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quantity of letters answered or the timeliness of the response but not the usefulness of the responses may not produce a better service. • Ready for change – Measures that are relevant both before and after a radical change are useful in judging its success; those that focus on temporary aspects, or those that may change, are less useful.

Conclusions There are some commentators who are highly sceptical about the adoption of performance measurement in the voluntary and nonprofit world. This is a point made most forcibly by Michael Edwards who notes that it really is impossible to measure the things that really matter such as ‘social transformation.’32 This is certainly a valid point and one that needs very careful consideration when setting performance measures, but it is not just the ‘end result’ that performance management tackles; it is all the outcomes, indicators and outputs along the way. Even if you can’t finally judge the ‘social good’ done by your funding, I believe the right form of performance management will have positive effects. If you simply can’t measure something, then don’t. Whatever performance management system you adopt or measures you choose, we can summarise some final, key points: • Performance measurement and measuring effectiveness is essential in some form for nonprofit organisations if they are at all concerned with ‘making every pound count’ and knowing they are ‘doing good’. • Nevertheless, performance management in particular can take considerable time and resources and, used in the wrong way or at the wrong time or for the wrong motives, be positively destructive. • Many techniques have sprung from the commercial world and therefore need careful adaptation by people who fully understand the business processes and imperatives concerned if they are to be used positively by the voluntary sector or social investors. • Any overall measurement of effectiveness must include internal and external, short-term and long-term measures. • Any system must be useful both for internal planning and in external communication and reporting. • There is no ‘magic formula’, and the best techniques are ones that are flexible and adaptable. • They must include a strong element of ‘what the world thinks about us’ not ‘what we think about ourselves’. • Performance management will not correct dysfunctions in an organisation and in already dysfunctional ones are likely to make things worse.

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Further reading Most of the titles referred to in the text add further to the vexed debate of performance management but perhaps the most important are the following: Christine Letts, William P. Ryan and Allen Grossman, High Performance Nonprofit Organisations (Wiley, 1998); Paul R. Niven, The Balanced Scorecard Step-by-Step for Government and Nonprofit Agencies (Wiley, 2003); Rob Paton, Managing and Measuring Social Enterprises (Sage, 2003).

Part III Managing Social Investment

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9 From Logic Model to Investment Programme

In solving a problem of this sort, the grand thing is to be able to reason backwards. That is a very useful accomplishment, and a very easy one, but people do not practise it much . . . There are fifty who can reason synthetically for one who can reason analytically. The Adventures of Sherlock Holmes, Sir Arthur Conan Doyle

Aims of this chapter The key aim of this chapter is to gain an understanding of how to construct an optimum Social Investment Model. This may be the design of a funding programme, but it need not involve funding of any kind. What it covers is how to design a process of resource transfer from one individual or organisation (the funder or enabler) to another in order to bring about some kind of social change. We will look at the theory behind the identification of key outcomes and then at how to operationalise this theory, to the point of producing such ‘hard’ outputs as: • • • • •

An evaluation plan; A programme plan; A resource plan; Eligibility and assessment criteria; A risk management plan.

Background In the non-commercial sector, operating in the social sphere and with the broad intention of ‘making the world a better place’ there are broadly two choices an 145

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organisation can make. You can either follow an Operational Model which means running programmes or activities yourself or you can follow an Enabling Model by which you provide resources to others for them to do the work. In the social history of the United Kingdom, government has been portrayed as having moved largely from the latter to the former (through the formation of the welfare state). Non-public (‘third sector’, nonprofit or voluntary organisations) mainly began in the former category and the majority still belong to it. It wasn’t until the late nineteenth century that any significant number began to work as enablers. From then until the last few years, the majority of enablers have worked through the giving of grants – non-contractual ‘gifts’. More recently, there has been a clear tendency for the public sector to move back towards being an enabler, resourcing nonprofit bodies, and for nonprofit enablers to work through resourcing methods other than simply grants. In this book, I have concentrated on enabling organisations (in whatever sector and utilising whatever means of resourcing) and how they should operationalise their work.

The theory If you are involved in social investment, then you broadly believe that the social realm can change and that, if done in the right way, organisations can intervene in this change in order to move it in a certain direction. Victorian philanthropists believed that they could alleviate the worst impacts of the Industrial Revolution, pioneers of the welfare state believed they could raise educational and health standards, Bob Geldof believes that the right sort of investment can improve the lot of people in the developing world. Whatever stance you take as an enabler if you are going to change the world, you need to have some kind of idea about how you think the world can be changed. This view, termed a ‘theory of change’, we looked at in Chapter 3. You might want to look back at this section. Of course this is a very broad model that could encompass the whole of society and few social investments are trying to be that broad. Instead, they are usually focusing on quite a small (often a very small) aspect of society and attempting quite subtle changes in the social economy. The key thing from this model of change is that if you are serious about changing things, you need to be able to know if changes really have taken place (someone has to do some measuring or evaluation) and you need to learn from what you’ve done (so you or someone else can do it better in the future). So knowledge and learning are extremely important things.

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There are some significant problems with measurement in the philanthropic sector, some of which have already been discussed. Another is linked to the tension between the accountability relationship inherent in measuring performance in a grantee or recipient and the philanthropic relationship. Using measures of performance to ensure accountability and improve effectiveness is informed by agency theory. Agency theory examines problems that can arise in relationships where one party (the principal) engages another (the agent) to achieve some desired objective and where the agent’s interests are not the same as the principal’s. Though originating in the business world (to, for example, describe the conflicts between shareholders and managers), it is easy to see the parallels between a funder and a recipient, especially the more the funder tries to tie the recipient to measurable outputs or outcomes. It is arguable that the closer one gets to an accountability relationship, the further one departs from a philanthropic one. So this tension needs to be borne in mind by all social investors.

From theory to goals The outline I’ve given of a ‘Theory of Change’ is highly theoretical. In order to start moving towards an actual social investment plan (such as a grant programme), we need to look more closely at the theory, specifically how do you design a model for social change’? What elements need to be present in order for change to take place? The elements of a logic model describe the components that will make up the ‘change mechanism’. Again, we’ve already considered these and they are • • • • •

Inputs; Activities; Outputs; Outcomes; Impact.

Clearly, this is a sequence that is applicable for both enablers and operational organisations – they all have inputs, activities and so on. But let’s have a look at what these components mean for an enabler. From now on, for the sake of simplicity, I will describe a funding programme and recipients (assumed to be organisations) but remember that your programme could easily be a transfer of resources other than money and could be targeted at individuals.

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Let’s look in slightly more detail from the bottom up: The Impact you hope your programme to have is the overall change you are seeking. It is unlikely to be achieved by any one organisation you fund but from the combined effects of all the organisations covered by the programme. You will therefore only be likely to discover if it is happening by the evaluation of all of the contributors to that programme – both your recipients and you (including your processes) and any external factors impacting upon the area of work. Outcomes will occur in the organisations you support or be influenced by them. This has several implications: • Firstly, you need clear outcomes, know over what timescale they are likely to be manifested and how to measure if they are happening or not. • Secondly, the recipients must share your interpretation of what the key outcomes are. • Thirdly, the recipients ought to be the main people to ‘measure’ if the outcomes are being achieved. There will be two kinds of outputs: (1) Those occurring in the recipient organisations that you both hope will be ‘signposts’ towards the outcomes. (2) Those occurring internally that will signal if you are hitting the targets you need in order for sufficient impetus to be built up to have an impact (things like number of investments made, to whom and where). Equally there are also two kinds of activities and inputs: (1) Those occurring in the recipient organisations. Like the outputs, funders will need to make a judgement about the likelihood of one leading to the other in their assessment of prospective recipients’ plans (so assessment is partially about judging the quality of an applicant’s project planning). (2) Those determined in the funding organisation. So, in designing a programme, where do you start? Historically many programmes have started at the top (the inputs) and worked downwards, but this is the opposite of what you should do if you really want to achieve impact. The logical way to design a programme is shown in Figure 9.1:

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Agree what impact you want to achieve

Work out what resources will be required to deliver these activities

Decide what activities will be required to achieve the outputs

Figure 9.1

Decide what outcomes will contribute to this impact

Agree what outputs will best contribute to achieving the outcomes

Investment programme design process

Unfortunately, in the real world, things don’t often allow you to plan a programme quite like this. Very often you start with a finite set of resources. However, this still doesn’t mean that you should do things ‘the other way round’. In doing this theoretical (or, more accurately, policy level or purpose) planning, you should still start with the impact but keep referring back to the likely resources that will be available. If the resources are such an overwhelming mismatch with the overall goal, then you need to scale down your thinking (or massively increase your resources). So if you know you’ve only got £100,000, don’t think you can solve world poverty. However, what you might be able to do is to have some impact on some aspect of poverty in a specific location or an aspect of policy relating to poverty. The other principle you need to follow is that throughout the development of your funding programmes, you ensure that the processes you intend to adopt will complement your intended purpose. You can represent the funding programme planning process as a triangle, with the organisation’s vision at the top. The process then moves to needs analysis, programme aims, objectives, approaches to delivery, resources and costs. At each stage, there are issues to consider that must align to your purpose (Figure 9.2). Let’s look at how this works in a little more detail. ‘Purpose’ decisions impact on the aims and outcomes of the funding programme, sometimes referred to as policy decisions. ‘Process’ decisions are about the way in which you will select and manage relationships with those you support. The two should be developed in parallel as they are inextricably linked and

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Vision

Needs analysis Purpose-led

Aims

Defines aims and highlights best practice in delivery

Process-led

Outcomes Approaches to delivery Resources Costs of resources

Figure 9.2

Investment programme planning diagram

decisions in one will affect the other. You should usually take purpose decisions first (with the usual exception of constraints on resources) and then develop the process at each stage to reflect them, reviewing how purpose and process work together. Let’s assume you are setting up a programme for the first time. To do this, you will need to do the following:

(1) Clarify your vision for the programme – You need to ensure that the overall programme fits within the mission, aims and values you have established for your organisation. The programme should have a theory of change which relates to a clearly identified need. (2) Relate aims to outcomes (the fewer the better) – Getting this one right is the most important stage of the programme plan. Without SMART outcomes, you will not be able to judge the success of the programme or the investments you make within it. Outcomes are changes; they require measurement at at least two points: before the intervention and at some point later on. But changes in themselves may or may not be outcomes, that’s because they are aims! Many organisations make the error of simply defining the change (the aim) without defining what the impact is that they anticipate.

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For example: ‘To improve the educational attainment of young offenders’ This is a change, an aim, but not as yet an outcome. ‘To improve the educational attainment of young offenders in order to reduce their re-offending’. This is an aim followed by an outcome. The outcome makes the link to the theory of change for the programme which would be that that there is clear evidence that increased educational achievement is linked to reductions in offending. (3) Identify indicators that will tell you that the aims and outcomes are likely to be achieved – Indicators describe a place on the journey between the aim and the outcome that tells you something is changing. In our example, this would need to measure two things: the increasing educational attainment of the beneficiaries and their rates of offending. You should also have set some targets regarding how quickly and by how much these changes are likely to occur. So it probably wouldn’t be enough if one person had reduced their offending in a minor way after five years. Again your research into need and theory of change should have enabled you to take a pragmatic view. Remember though, that you also need to build into your plan what to do if these indicators are not being met. (4) Determine objectives linked to the aims you have defined – Our definition of objectives combines activities and outputs. Objectives must be SMART. The activities that happen must be related to the indicators you have selected, which in turn will deliver the aim and then the outcome. Outputs provide numbers and timetables so that you can quantify the numbers of people to benefit, their profile and over what timescale. This decision about how many people you are going to reach and the timescale is linked to resources. Do you go for a profound effect on a small number of people or a smaller impact on a large number? Your theory of change should help you with this decision. ‘Depth’ or ‘breadth’ should therefore not be the huge problem some commentators suggest. For example, if your theory of change suggests that your young offenders’ behaviour will only change if they very significantly improve their educational attainment, then you must decide on an intensive intervention with a smaller number of people than if the theory suggests that even a small increase in educational attainment leads to reduced offending. (5) Identify approaches to delivery which are critical to its success, if any – As part of your research into need which enabled you to come up with your theory of change, you might have identified approaches that are more likely

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to prove successful. For example, research on young offenders has demonstrated that voluntary organisations with long experience of working with these groups achieve higher success rates than more generalist organisations who include young offenders alongside others. This may lead you to restrict applications to certain organisations rather than running an ‘open’ programme. (6) Identify resources needed – This tells you what recipients are likely to spend your money on. For example, to run extra curricula activities, there will be venue costs, tutor costs, transport possibly, materials and so on. You may take the view that venues need to be provided free. You will also need to take a view on what overheads you are prepared to cover as part of the funding – full cost recovery? This should help you determine the likely cost of each project or, indeed, a cost per beneficiary.1 (7) Cost it – You can then decide whether or not you should fund each project to its full cost. Funding programmes usually have a finite sum allocated to them. The challenge here is to estimate whether you have sufficient funds to deliver what you have just described in terms of numbers and resources needed; if you don’t, you will need to adjust your plans accordingly. When you have completed the process-led bit of planning, you will need to come back to this stage, feed in the costs you have committed to processing each investment and application and possibly revise your plan. Of all of these points probably the most important question to ask at this stage of planning is the following: Given the likely resources, what is the most we can expect to achieve in our given sphere of impact? Once you have decided this perhaps the most important things from Figure 9.2 you need to do are as follows: • Decide how you are going to measure if the programme is having/has had any impact. • Start thinking about how to design a programme that will make the optimum contribution to this impact. The first is a question of designing an evaluation plan, usually over the long term and often with other stakeholders. The detail of this is outside the scope of this book (though you can find references to an evaluation plan in Chapter 3) but is covered in detail in several other publications.2 The second moves us on to the next section.

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From agreeing impact to programme plan You need to start from a realistic view of what your programme might achieve. Many programmes fail this simple test. They either have unrealistic expectations about what can be achieved with the likely resources or simply haven’t got an ultimate aim in mind. If the former is the case, this will lead to lots of unrealised hopes (in both funder and recipients) and lots of recrimination. If the latter, there is likely to be an argument at some point about what recipients are supposed to be doing, measuring or achieving. From this broad policy perspective (which can be quite general), you need to agree one or much more specific outcomes. This is probably even more critical as there needs to be a far greater degree of ‘shared ownership’ with potential recipients. If there isn’t, you will get what happens in another large group of funding programmes – a mismatch between the aims of the funder and the aims of the recipients leading to misrepresentation, distrust and downright lying at every stage of the process.3 What is therefore the obvious corollary to this point? Surely, it is that the potential recipients, or at least representatives of them, need to be involved in some way with the design at this point to ensure ‘unity of purpose’? There are three other ‘traps’ to avoid at this stage: (1) Remember that outcomes are changes, too many ‘outcomes’ set by funders (including those who claim to be ‘outcome funders’) are nothing of the sort as they involve no change. (2) Outcomes (like lots of other things) need to be SMART (specific, measurable, agreed – internally and externally, realistic and timetabled). (3) The number of outcomes needs to be small or the programme will lose focus and become over-complex and very costly to measure. One is ideal, two good, three OK, four acceptable, five not so good, six probably too many. If you can’t get the number below five or six, think about splitting the programme. This is by far and away the most important stage of any funding programme planning process and yet (even in those ‘outcome funders’ mentioned before) often happens too quickly or without the input of key people internally or any external consultation. Traditionally, this stage has taken place in a few days or weeks amongst a small group of people none of whom will have any role to play in the operational delivery of the programme. It is best to spend months on this bit if that’s what’s needed. If you adopt the planning process in these chapters for your programme plan, the rest can actually be done in a matter of days.

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Programme plan overview Only once you have a clear set of outcomes for your programme should you start the detailed planning. Very often funders don’t do this. They plunge straight into some of the planning – like trying to write an application form – before they are clear about the outcomes the programme will try to achieve. This is a bit like writing a job application without knowing what job you are applying for! Others have a fixed view about what sort of process they want to use: they may be enamoured of two-stage processes or converts to a particular ‘style’ like venture philanthropy. In this case, it’s like a doctor saying that they are going to prescribe a particular remedy before they know what’s wrong with you! Planning an investment programme is a logical process, just like planning a project and you need answers to certain questions before you can move on to the next planning stage. Figure 9.3 is a simplified outline of the process. It demonstrates the order in which you need to do things: Figure 9.4 begins to show the inter-connection between assessment criteria, decisions (about which applications to fund) and, for those you fund, their terms and conditions. It also acts as a diagrammatic representation of the Risk Plan for a programme as the criteria are there to test the level of risk – that projects and organisations will or won’t meet the programme aims. Terms and ‘events’ are there to mitigate remaining risks; they act as risk controls. This will become clearer as you read the rest of this chapter as well as Chapters 10 and 11.

Risk and assessment criteria Some organisations appear to view risk as something separate and outside of their ‘normal’ activities of assessing applications and managing investments. Hence some sort of ‘risk rating’ gets tacked onto their other processes, an application is given a ‘risk rating’ and that’s about it. This is both wrong and dangerous. As I said in Chapter 6, risk is an integral part of your other processes. Indeed, the entire application and investment management processes are basically risk-control mechanisms. In social investment, there are really just two fundamental risks (there are more than two but these are really fundamental): (1) The risk that the investment will not produce the outcomes you hope for. (2) The risk that the recipient will do something that impairs your future ability to make effective investments (this usually means either a financial risk – misuse of funds or fraud – or a reputational risk).

155

Plan stages Derived from your logic model (the overall impact of the programme)

Outputs From each of the plan stages

Fix programme outcomes

Your evaluation plan and its timetable

Agree outcome measurement

What data collection you will need from monitoring

Agree outputs

HOW YOU SELECT RECIPIENTS

THE DETAILED PROGRAMME PLAN

RfPs, application forms and guidance notes

What will projects to produce these outputs look like?

How to test if these are the ‘right’ projects and organisations:

Which organisations are capable of delivering them?

Assessment criteria

Re-Test assumptions including:

How to reach the ‘right’ organisations? communications plan

Resources

Enter return to top or

‘Mission match’

Continue into implementing the funding programme specification (see next chapter)

Figure 9.3

Planning an investment programme

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Programme plan

Application

Application form

Assessment

Guidance notes

Eligibility check

Successful applications

Unsuccessful applications

Investmentspecific monitoring events

Reject reasons

Figure 9.4

Assessment criteria

Investmentspecific terms

Programme terms

Programme monitoring events

Outputs from the programme planning process

Impact

Generally speaking, the first is far more likely than the second. Though the second may have a greater impact and certainly needs managing, spotting misuse of funds or fraud can be treated as a special topic and is covered in more detail in Chapter 12. During the assessment phase, you need to try to test the first risk and this isn’t easy unless you already have evidence that a project will work (which might be a reason for not funding innovation!).‘ In managing risk, you may already be familiar with modelling risk through a ‘risk matrix (Figure 9.5)’:

Line of tolerability

Likelihood Figure 9.5

The risk matrix

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The horizontal axis indicates the likelihood that a risk will occur, the vertical axis the potential impact of that risk. The area below the line of tolerability is the ‘safe zone’ with both reasonably low likelihood and impact. The area above the line is the ‘danger zone’ with both high likelihood and impact. Risks in this zone are so serious that, in this model at least, they fall on the other side of the ‘tolerability’ line. This indicates that you will need to have controls in place in order to ensure they don’t happen or significantly reduce their impact if they do. If you use a matrix like this to position a group of applications against risk, then (assuming you had the funds) you should: • Fund those that lie well towards the bottom left; • Reject those that lie entirely in area above your line of tolerability; • Think carefully about those that lie below, but close to, the line and, if you fund them try to do something to reduce the risk. For example, place terms of funding on them. But for a funding programme, you can’t quite do this as ‘likelihood’ and ‘impact’ of risk are too loose concepts to enable you to place a complex thing like a project for a social purpose in a single spot. Impact usually has to do with the size of the investment or who the applicant is and so we concentrate on risk likelihood instead – the likelihood that the project will attain the programme outcomes. That is why we use assessment criteria. These criteria attempt to simplify the complexities of an application into more easily interpretable data – essentially to judge if the project will deliver the programme outcomes. The basis of this has been understood by funders probably ever since the end of the nineteenth century. More recently some grantmakers in the United Kingdom, most notably the original National Lottery Charities Board and then the Community Fund, attempted to convert the results of the assessment criteria into a ‘score’ to enable a quick and easy comparison between groups of applications. In operation, these scoring mechanisms have led to distinct problems.4 This, in turn, has led to scoring mechanisms getting a rather bad reputation. However, the reason for the problems was that these funders all committed one fundamental error. The assessment of the likelihood of the success of a project is not made up of a single set of conditions but two. These are as follows: (1) If the project happens to plan will it work – will it deliver the outcomes? (2) Will it happen to plan? In other words – can this organisation deliver it?

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The latter question is actually slightly easier to decide because it is rather more objective. You can look at the structure of the organisation planning the project: its management and project planning skills, its track record and so on. The former can be extremely hard and very subjective unless the project has been done several times before. So if you want to ‘risk score’ applications, you should do this in two ways: (1) A rating based on your view (and what evidence you can gather) that the project, if it happens to plan, will deliver the intended benefits. I call these the ‘programme qualifiers’, criteria that help you judge whether the programme outcomes will be achieved. (2) A rating based on the organisational and management capacity of the applicant to successfully carry out the project. I call these the ‘management qualifiers’, criteria that judge the ‘fitness for purpose’ of the applicant organisation. If you use these two sets of scores you can produce something that looks very familiar (Figure 9.6):

Programme qualifiers

X

Y

V

Z

W

Management qualifiers Figure 9.6

The Grant/Horsley risk matrix

Note: Like many of the principles in this part of the book, the ideas were developed with my colleague Margo Horsley at Sport England and the New Opportunities Fund.

In other words, a risk matrix for applications to your programme, which can be a considerable aid when it comes to decision making. However, please note that this is a scoring matrix with the high score to the right of the horizontal axis and top of the vertical axis. So the ‘highest’ score (and lowest risk) is to the top right rather than the bottom left as in the previous risk matrix diagram.

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If you have five applications, V–Z, which you assess and place on the matrix then: • Y – is an application that strongly meets the programme priorities and has a management score that suggests that it would be low risk. You would certainly fund this one. • Z – doesn’t meet the programme priorities and has a low management score. You would not consider funding this application. • V – is middle of the range for both programme priorities and management ability. This one would promote some discussion. • X – is an application that strongly meets the programme priorities, but you know there is a high risk because of their low management score. You could take a calculated gamble on this one, as long as you manage the risks. This is an example of the ‘good’ application that single axis scoring systems fail to cater for. • W – scores well on management ability but doesn’t meet the programme priorities. Despite its apparent ‘low risk’, you wouldn’t fund this application, though it may well score quite high on a single-axis scoring system and is, I think, the type of project many funders routinely support. You can therefore begin to appreciate why the Charities Board and others had so many problems with their scoring systems. With a single ‘risk score’, funders have continual issues with applications that score the same but appear very different. This is because a well-planned project from a ‘risky’ organisation will score similarly to a poorly planned one from a ‘safe’ organisation. The temptation in this case is to go with the ‘safe’ option (like W on the matrix rather than X) when this is almost certainly the wrong thing to do and will definitely result in less overall impact. It may well be a ‘better bet’ to fund at least some ‘risky organisations’ (and put in place some controls to moderate the risks) that have the potential to deliver significant benefits. With a matrix such as this the decision makers in a funding organisation can take far more informed decisions and draw their ‘line of tolerance’ where they choose.5

Risk and post-decision management If you adopt the risk strategy I’ve just suggested, it will become much clearer during assessment where the potential risks lie and what the nature of them is. If your assessment criteria cover all the key risks for your programme, then you will be able to associate a set of risks with every application you receive. For those you decide to fund, you should therefore have a reasonable view as to what risks you are taking.

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What do you then do? Again many funders just stop here, hope for the best, hand out the money and come back a year or two later and see what happened. They often do this because they say they want the maximum amount of funding to go to projects and not to their monitoring processes, or that they want to be ‘hands off’. Well, if they want projects to succeed and unless there is another organisation supporting the recipient, this is not very sensible. If you want the projects you fund to work, then you need to put far more effort in after you’ve decided to fund them than you did before. After all, before you make a decision to fund you’ve really taken little risk yourself, but once you make a commitment you have a considerable investment riding on the success of the project. Another reason funders don’t ‘interfere’ too much in post-decision management is because they don’t want to put an extra burden on the recipient. This is entirely commendable. But, done in the right way, post-decision management is not intrusive but supportive and recipients can benefit from it. Finally, they don’t do it because they don’t know how. They don’t know what it is they should be concentrating on. If they haven’t properly assessed the risks, then this is not surprising. But none of this is at all complex. What you manage in post-decision management are the risks that the project won’t succeed. These will come from two sources: (1) Risks that you have assessed as existing as part of the assessment process. These are risks that are unique to this project – what I call ‘investmentspecific risks’. (2) Risks that are always associated with this type of project. For example, not obtaining planning permission if your programme is to fund buildings or that people won’t be properly qualified for a programme dealing with children. These general risks I call ‘programme-specific risks’. In each case, you need a risk control to be in place. These controls come in the form of the terms and conditions that you place on the investment. During post-decision management, you will need to check whether these controls are working (either through receiving information, by visits or by other means). These checks are ‘monitoring events’ and should, as far as possible, be tied into the payment schedule (as this acts as an incentive to the recipient to ensure they ‘pass the control’). The investment-specific risks should enable you to give each investment a ‘risk rating’ (the more risks there are the higher the rating) and this, in turn, should determine the level of contact you will have with the project through the post-decision period (the length of the investment) with riskier projects getting more contact.

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As the control points are passed, you should also review the risk rating. If, for example, a project starts with lots of risks and lots of terms but meets them all, then its risk rating should be reduced. If, on the other hand, you learn something new about a project that entails a risk, then you should impose a new term (or another control) to mitigate it and increase the risk rating. Finally, you also need a ‘problem-solving’ process for when things fall outside the standard risk procedures, and this is described in more detail in Chapter 12. Figure 9.7 illustrates the construction of the investment management process, how risks are ‘collected’ and what processes and events (such as

Programme-specific risks – from programme strategy

Determines risk on individual investments

Investmentspecific monitoring events

Investmentspecific terms

Programme terms

Post-decision management

Establish funding contract

Monitoring events

Payment schedule

End funding contract

Problem solving

Figure 9.7

Programme monitoring events

Risk and post-decision management

Determines risk from programme strategy

Investment-specific risks – from assessment criteria

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establishing a funding contract) you should put in place. They are described in more detail in the subsequent chapters.

Further reading There really aren’t many books to assist you as you get down to this level of planning in grantmaking. As usual, Orosz’s Insider’s Guide has useful advice but otherwise probably the best practical help is a publication from New Philanthropy Capital by Padraic Brick, Angela Kail, Justine Jarvinen and Tim Fiennes, Granting Success: Lessons from Funders and Charities, http://www.philanthropycapital.org/publications/improving_the_sector/ grantmaking/granting_success.aspx, which covers topics such as: how large should grants be; what length of time should they be for; and what restrictions should funders place on them. It is particularly informative on ‘mission mismatches’ between funders and grantees. For a whole range of information on evaluation, the website of Charity Evaluation Services is invaluable: http://www.ces-vol.org.uk/index.cfm? pg=112.

10 Designing the Programme

The programme specification Chapter 9, ‘From Logic Model to Investment Programme’, concentrated on how you should proceed to develop the outcomes for a specific programme. This will give you the main elements of the ‘programme specification’ – the aims, objectives, principles and outcomes your programme will be designed to meet. The specification should start from the strategy, theory of change and any policy decisions set by your governing body or board, though soundly based on research from many sources. This must be interpreted into a set of parameters that: (1) Enable you to judge the success of the programme. (2) Enable assessors to provide your board or decision-making committee with information that enables them to judge the relevance of an individual application (to answer the question to what extent that application is likely to help meet the overall aim of the programme) and the ‘fitness’ of the applicant organisation (relative to the scale, etc., of the proposal).1 Development of a funding programme is a process just like the process of planning a project. In conducting this process you should: • Establish that there is a need for the programme (what needs the programme is seeking to address). • Establish the overall aims and outcomes that will meet the need(s). • Decide how you will know (measure) whether the programme has been successful in meeting these needs. • Design the programme that is most likely to achieve these outcomes. The programme specification brings together all of this analysis, setting out what the programme is there to achieve and includes the policy decisions (and 163

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Create programme specification

Application

Create application form from generic template

Assessment

Create guidance notes from generic template

Create eligibility check from generic template

Successful applications

Unsuccessful applications

Derive reject reasons

Create risk assessment from generic template

Derive terms of funding

Derive risk level

Figure 10.1 How elements derive from the programme specification

restraints) that will be applicable to it, for example what sort of organisations will, and won’t, be eligible. Figure 10.1 shows how all elements of a funding process relate to the specification created for the programme. The programme specification derived from the development process provides the foundation for the application process, the assessment process and the post-decision management process.

What you need to produce By considering all these elements you can derive the following: • An application form. Often this is a request for proposals (RFPs) rather than an actual form but the two perform exactly the same function; • Guidance notes for applicants;

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• An eligibility check and assessment criteria that will establish how closely an application matches the priorities for the programme; • Risk assessment procedures; • Reject reasons; • Terms of funding; • The post-decision management process and its procedures. These are the outputs from the Programme Design Process and, as Figure 10.1 suggests, it is possible to produce them from generic templates based on a generic design – the supply network design – for social investment that I referred to in Chapter 7.

Quality control Despite originating in a generic process, each output element (application form, terms of funding, etc.) will be unique to the specific programme, and it is important that each of them is rigorously checked and tested before launching on unsuspecting applicants. Done properly, this doesn’t need to take a great deal of time. When completing a quality control check, application materials and the programme guidance notes must meet the following standards of clarity and relevance: • Are the programme aims and objectives clearly defined and is jargon kept to a minimum? Can you describe, in simple terms, just two or three bullets, what the purpose (aim) of the programme is? If you can, fine, if not, you’re going to have real design problems and difficulties in selecting recipients. • Are expectations and priorities from applicants clearly defined? • Does the rationale for selecting the type of organisations defined as eligible for funding under the programme stand up to scrutiny, and has it been arrived at based on the added value and strategic contribution the organisations can make to the programme as opposed to the convenience of the funder? For example, do applicants have to be registered charities or is this simply ‘what you’ve always done’?2 • Are eligibility requirements clearly defined and are the types of organisations and projects ineligible to apply made clear?3 • Are the criteria and judgement points selected applicable to the nature of the programme – are only applicable criteria included and irrelevant criteria excluded? • Does the rationale for choosing either a one or multi-stage application process stand up to scrutiny?4 Have programme guidance notes been appropriately adjusted to reflect this? For example, do criteria and judgement point questions split appropriately between first- and second-stage

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applications and don’t simply repeat themselves? (For more advice on singleand multi-stage application processes, see the Appendix). • Are expert advisors (if relevant) being used appropriately to provide advice, and are they aware of the need to declare conflicts of interest and be objective? Are they also aware of precisely what their role is in the assessment process so that they don’t contribute outside their competence?5

Classification/data collection One of the first decisions to take about a funding programme is what data you will need to collect for reporting purposes – including for the purposes of monitoring and evaluation. For evaluation, it may be essential to collect ‘baseline data’ regarding the state of affairs before the project commences. Indeed for many evaluations, it will be impossible to decide if anything has changed unless you have this information. For this reason evaluation is one of the first and not the last things you need to consider in detail. This is sometimes not an easy decision as various bodies (not least governments) may request (demand?) information about projects and beneficiaries at a point several years in the future. What is exceptionally irritating for recipients (and, I’d say, unacceptable in terms of customer care) is to go back to projects you have already funded and ask them to start collecting new data. So this is not an easy decision. Sometimes it requires you to ‘second guess’ what information might be needed or requested at a future date. At the very least, the data you collect (or more accurately your recipients collect) should be • Tested for its relevance – Do you really need it to tell you if the project was successful or for some unavoidable reason of compliance with a regulation or the law (for example, to ensure equality of access)? • Tested for its reasonableness – Is it reasonable to expect your recipients to collect it and is it reasonable for beneficiaries to provide it? For example, it may be perfectly reasonable to ask people questions regarding their ethnicity if they are paying for a service over an extended period (attending a training course, for example) but not if all they are doing is attending a performance. • Tested for its feasibility – Is it even possible to collect this data and can it be stored in a way that will make it easily retrievable? At the New Opportunities Fund, we used a sophisticated classification system that included descriptions of people and activities that our programmes aimed to support. It dealt with both projects and what they intended to do rather than with the nature of the organisations that ran them. The system was designed as

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a hierarchy that tried to group descriptions in a logical way. It was divided into three sections: (1) Beneficiaries (information about the types of people who would benefit, such as their age, ethnicity and specific needs). (2) Core activities (divided into health, education and environment,6 and used to describe the main aims of the programme). (3) Supporting activities (used to describe the types of activities that projects undertook to meet their own aims and those of the programme). Within each section, available classifications were set out in a hierarchy of up to three levels with the first level being the most general. For instance, in the beneficiaries section there was (Table 10.1): Table 10.1

New Opportunities Fund classification levels

Level 1: (which included) Level 2: (which included) Level 3:

‘Socially and economically disadvantaged people’ ‘Offenders’ • • • •

Young people at risk of offending Ex-offenders People on probation Prisoners.

Most of this classification data should be stored electronically on your ‘Grants Management System’ (GMS) which is another reason for keeping it as simple as possible.7 You need to ensure total data accuracy and completeness and devise relevant reports to extract from the data. These reports should tell you something that is either: • Relevant in the day-to-day management of the programme (so is relevant to monitoring) or • Relevant in the longer-term evaluation of the programme (in judging it against its aims and outcomes).

The application form or request for proposals Application forms seem to cause many funders huge problems. For years, there has been extensive debate about whether it is possible for different funders to use the same application form or not. This point can be easily answered if you understand what purpose application forms serve.

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What is an application form or RFP trying to do? Fundamentally, it is seeking to do three things: 1. Collect standard data This is data regarding the applicant organisation; a brief project description; budget and other details. The data serves a number of purposes: • It enables you to identify this specific project (useful for reporting purposes). • It is the key information held on your GMS (so it relates to things like payments if the application is successful). • It provides the basic information to enable you to judge if the application meets the programme eligibility criteria: is the applicant organisation eligible to apply, and is the project they are applying for eligible? This is why this information should come first on the form because if it isn’t eligible, the application can go no further. In this section, you usually need a short project description. Many applicants find this difficult to do and so an example is often helpful in the guidance notes. The rest of the section can often be short text answers or tick boxes. Clearly, with a bit of effort, this section could well be common to every application form and even to every funding programme ever devised. The other two sections are programme specific and, as the programme specification is drawn up, choices have to be made which affect the content of the application form. Nevertheless, it is also possible to narrow down these choices to a set of generic data or classification criteria (see above) and a set of assessment criteria. But, as they are programme specific, they will be different for each programme. So unless two programmes have exactly the same targets and outcomes, no two forms will be exactly the same. 2. Collect data related to the classification of beneficiaries, activities and programme focus This is the data that will form the basis for monitoring. As mentioned above, NOF devised a standardised set of categories divided into three sections: (1) Beneficiary information – age, ethnicity, disability and so on (these are generally numbers). (2) Main focus of activities – used to categorise what the main purpose and aims are (mainly yes/no – tick box – answers). (3) Supporting activities – used to select the main type of activities that you want information about (mainly yes/no – tick box – answers).

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Within each main category, you could select at any one of three levels of detail. The data in this section is also held on the GMS database and can be reported on. 3. Questions related to assessment criteria This information – the bulk of the ‘text questions’ on most application forms – is used to decide the priority this particular application has against others for the programme. As the intention of the programme should be to attain certain outcomes, the questions asked in this section need to enable you to decide to what extent this project as carried out by this organisation would achieve these outcomes. You can start to see that the questions usually relate to one of two different areas: (1) The project intended; (2) The organisation carrying out the project. The exception to this would be a programme intended to support the capacity of organisations rather than deliver a specific project. In these cases, the questions need to refer to the latter category (but should also ask questions about the organisation’s ability to carry out successful projects). ‘Project-related’ criteria need to focus on the question: If this project was successfully carried out, to what extent would it deliver the outcomes of the programme? I call these criteria programme criteria because they help to answer the question whether the application will help meet the programme outcomes. ‘Organisation-related’ criteria need to focus on the question: Does this organisation have the experience/capacity and so on to successfully deliver this specific project? I call these criteria management criteria because they concentrate on the quality of management within the applicant organisation in relation to the project they are proposing. There are three key points to make in relation to this ‘two-tier’ division of criteria: (1) In an outcomes-based funding programme, the first question is the more critical. This is because it may be possible to improve the managerial capacity of the applicant organisation by imposing specific terms but not to fundamentally alter the aims of their project. (2) As we have already noted, the two things need to be assessed separately. If you conflate them into a single assessment system (for example, a single

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‘score’), you invite the probability that you will fund some projects that are unlikely to meet the programme outcomes. (3) The information you obtain from these questions is really only used during the assessment of an application (after this you transform it into things like a risk rating). Therefore, it really isn’t essential that you capture it on your GMS – which frees up lots of space on the database. With an understanding of the purpose of application forms, it is relatively straightforward to devise a generic form – one that is divided into three sections (as above) and has various alternative criteria for programmes with different outcomes. What you can’t have is a common form for programmes with different intended outcomes.

More on criteria and guidance notes The questions that relate to assessment criteria usually comprise the ‘bulk’ of any application form. Assessment criteria are selected that will test how well an application is likely to meet the priorities for the programme (achieve the best outcomes). So the assessment criteria relate directly to your programme outcomes. Under each main criterion (depending upon the complexity of the programme), you can then ask questions that help determine if the application meets the criterion. These questions, or ‘judgement points’, should be as specific as possible, trying to ascertain one critical piece of information each and be able to be answered as succinctly as possible. For example, at NOF one criterion was: ‘is there evidence of need?’ (a criterion of many funding programmes). The scale and complexity of the application determined how much detail the applicant supplied. The guidance notes would say that a small-scale, simple project (equipment for a children’s playground, for example) need only answer briefly whereas a complex and costly scheme (say a proposal to run a national programme for children’s play equipment) needed to give much greater detail. Despite the fact that NOF ran over 100 programmes for things as different as offshore wind farms, childcare, support for Second World War veterans and digitisation of learning materials we were able to determine a set of just ten standard, or generic, criteria. Each was broken down into a small number of second-stage judgement points. For example, one of the judgement points under ‘evidence of need’ was ‘does the application demonstrate meaningful and appropriate links with existing local, regional and national strategies’? The question as it appeared on the form would then be along the lines of ‘Are there any local, regional or national strategies that your project supports?’ or, if there was a single strategy that the project must support, ask them to say how their project would support it.

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Not all criteria or judgement points had to be selected for a particular programme, only those relevant to its outcomes, and the accompanying guidance was specific to that programme. The NOF criteria were that the application demonstrated: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

Evidence of need; Clear aims, objectives and target beneficiary groups; A plan to reach beneficiaries and to encourage participation; User involvement in design and management; Community development (geographical or interest group); The lead organisation is ‘fit for purpose’; Adequate partnership management; Adequate operational management; Adequate financial accuracy and risk assessment; Sustainability.8

The first five formed the programme criteria and six to ten the management criteria. I often say to funders that you only really need to ask applicants one critical question, especially at stage one of a multi-stage process. This question is: If we fund your project, what changes will happen? This is slightly over-simplifying things, but if you ask an applicant what the purpose (aim) of their project is (summarised in just two or three bullets), you should be able to judge whether this is a sufficient ‘match’ with the aim of your programme. If the answer is, broadly, ‘yes’ then the application has potential and you can go on to ask further, more detailed, questions to see how far it will meet your criteria. But if the answer is ‘no’ however good the project or worthy the applicant, you should turn it down. If you don’t, then you’re going to have problems because your ultimate goals are different. This ‘shoe-horning’ where applicants desperately try to meet your criteria is hardly surprising given their need for resources and some funders are very poor at turning away such obviously ‘deserving’ proposals. They are also the funders who end up being most disappointed with their results, so resist this temptation.9

Risk assessment and ‘scoring’ As we’ve already seen, assessment of applications and management of successful ones is all about the assessment and management of risk. Failure to meet any of your selected assessment criteria entails a ‘risk’ for that application or project. With some of the criteria (evidence of need or fitness for purpose for example), there is nothing you could insist on or the applicant

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could do (at least in the short term) to change things. Therefore, failure to meet these criteria should lead to immediate rejection. Others highlight issues to be checked during assessment to ensure that the application can go forward. Some may be mitigated at a later stage by terms and conditions that can be monitored during post-decision management. So assessment criteria have a dual purpose. They are used both to assess whether or not a particular application is supportable and also to determine the level of risk associated with the application and what measures it will be necessary to take in post-decision management should the application be supported. As noted previously, assessment criteria fall into two categories. You therefore need to establish risk in relation to both: (1) Programme risks – Programme criteria assess to what extent the project plan will achieve the programme priorities. (2) Management risks – Management criteria assess the ability of the applicant organisation to deliver the project plan. To do this, you need to decide if each judgement point has been sufficiently met. If the point is not a simple matter of fact to which you can answer ‘yes’ or ‘no’, then it is generally simplest to do this by saying ‘not met’, ‘partly met’ or ‘met’. You may want to ‘weight’ some judgement points (to give a higher emphasis to that particular point), but you should only do this after deciding yes, no or partly. As mentioned above, you should decide in advance which judgement points can be mitigated. If they can’t be, then an answer of ‘not met’ will lead to immediate rejection and ‘partly met’ to additional questions being asked to decide which side of the fence you come down on. With less critical judgement points that are partly or not met, you need to decide when to seek to mitigate them (as to leave them unchanged will entail a risk). You can seek further information or recommend changes before you take a decision on an application, but if you do this it will involve the applicant in more work and they won’t thank you if the application ends up being rejected. Simply asking them may well give them the impression that they are more likely to be funded. However, doing nothing means there is a remaining risk and will mean that less risky applications will get priority. In these cases, careful judgement needs to be made, especially with regard to treating all applicants broadly equally and fairly (if you ask one applicant to make changes, should you give others the same opportunity?)10 Management criteria are more easily mitigated than programme criteria and, broadly speaking, if a potential change is relatively straightforward and not time consuming or would involve the applicant in additional cost, then they should be given an opportunity to make the

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change before you make a decision, after all you want to support the very best projects. The ‘score’ derived from assessing the criteria and judgement points can, as we have seen, then be placed on a matrix. Applications can be compared using the matrix and choices can be made according to how much risk you are prepared to accept. You can make choices between applications that are well qualified to achieve the programme goals being aware of the risk you are taking in terms of the management ability of the recipient organisation (Figure 10.2). Y being a project you should definitely support, Z and W ones you would reject and X and V ones you would debate in more detail. Some funding programmes, of course, don’t operate by this comparative method. Instead, they operate on a ‘rolling’ basis, assessing applications as and when they come in. For these programmes, you can still utilise the matrix but what you need to do is to draw a ‘line of tolerability’ (or quality) diagonally across the matrix (as in the example of the risk matrix depicted in Figure 9.5). If a project is placed well ‘above the line’ in Figure 10.3 it would be funded, if well below it would be rejected. You can also utilise the matrix to award a risk rating to each successful application, depending in which area of the matrix it falls. The rating is determined in the first instance as part of the assessment process, but can then be changed during post-decision management. The risk rating of an investment should affect the monitoring regime you apply to it. The risk rating set usually makes a statement about the level of contact that you wish to have with the recipient. The higher the risk rating, the greater the level of contact you should have. So you have more contact with investments rated as ‘high’ than you do with those rated as ‘low’. For example, you can decide to ensure that all ‘high-risk’ projects receive a personal visit whereas low-risk ones only report in writing.

Programme qualifiers

X

Y

V

Z

Management qualifiers Figure 10.2

The Grant/Horsley risk matrix (repeated)

W

Programme qualifiers

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Y

X

Line of tolerability

V

Z

W

Management qualifiers Figure 10.3 Grant/Horsley matrix with ‘line of tolerability’

Each investment has one risk rating assigned to it at any time. Options are usually: • High risk (either management or programme, though a project scoring poorly on the latter probably wouldn’t be funded); • Medium risk (no high risk in either area); • Low risk (on both sets of criteria). Once the risk rating has been set during assessment, it can be changed at other points if the reasons for the risks are mitigated for example: • As part of the solution chosen to resolve a problem on an investment. • As part of an annual review process carried out on all investments. • By meeting a specifically applied term. Which leads us on to a discussion of:

Terms and conditions Most funders appear to make no distinction between terms and conditions but I do make one, otherwise why use two different words for the same thing? Terms In my definition, a term is an action that the recipient is required to do to your satisfaction by a certain date as part of the funding contract; otherwise, the recipient is in default of the contract.11

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A term must be SMART: • • • • •

Specific – not open to misinterpretation. Measurable – you must know if they’ve done it. Agreed – accepted by both parties. Realistic – not simply the funders’ ‘wish list’.12 Timetabled – needing to be done by a certain date.

The reason why the term is needed, its purpose, must be clear both to the recipient and the person managing the investment. Terms come about in two ways: (1) Terms that manage perceived risks on an individual project – ‘investmentspecific terms’ – derived from assessment. (2) Terms that manage perceived risks across an entire programme – ‘programme-specific terms’ – derived from the programme plan. Terms are there to mitigate significant risks of a potential failure of the project to meet its intended outcomes and/or the potential for misuse of funds or a perceived weakness in the management of the project or recipient organisation. They should not be used as a fall back position for poor (or rushed) assessment. Unless the whole of the funding is to be paid ‘up front’, terms are normally linked to payments and so payment dates become the due date for the term to have been met. If this is done, payments won’t be released unless the terms due have been met. It acts as a significant incentive for the recipient to meet the term as they won’t get their next instalment until the term is met or you agree to an amendment to their funding contract. The recipient should receive a list of terms to be met as part of their funding offer letter together with when they must be met by. Conditions Conditions of funding describe a set of events or an event that is contingent on a set of circumstances. Conditions apply for the duration of the funding contract. Conditions are not measurable in the sense that they are isolated acts. However, they would be checked as part of a compliance visit. For example, the conditions should require the recipient to keep proper financial records. A compliance check might take a funding claim and ask the recipient to demonstrate how the claim was arrived at using their financial records. This would test the recipient’s financial management ability in the context of the conditions of funding.

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Conditions of funding also take care of ‘what if?’ circumstances that will only ‘kick in’ if certain other circumstances happen first. For example, if the recipient sells an asset, then they are required to tell you.

Where terms come from Terms should be derived in one of three ways: (1) From your standard policies relating to that type of project or organisation. For example on new buildings, you would identify a set of terms that the recipient must meet before a payment can be made, such as receiving the final ‘as built’ drawings. (2) Programme-related policies – these are created as risks inherent to the specific programme are identified. For example, seeing evidence of qualifications for all staff working on a programme dealing with children. (3) From the assessment criteria. You should have developed a set of terms related directly to judgement points such that they can be applied to an application, if successful. When the application is being recommended for support, the associated terms that it has collected as part of assessment can be attached. Each of these should aim to mitigate the judgement point the application had not met. They too should all be SMART and if it proves impossible to set SMART terms than this demonstrates that the specific risk cannot be mitigated during post-decision management and thus that the application should be rejected.

Monitoring events Terms and conditions shouldn’t just sit on a shelf waiting for things to happen; they should be actively checked during the post-decision management phase through monitoring events. A monitoring event is a planned activity allocated for a specific purpose during a specified period. Events manage perceived risk usually by increasing the contact level with recipients. Events are things that you initiate proactively with the recipient. Events are planned for a programme in three ways: (1) Because of perceived weaknesses in the recipient’s ability to deliver the project funded as identified at assessment. (2) As part of the programme plan. These are events customised to the needs of the specific programme. For example, with a major building project you may need to schedule in events that monitor each stage in its procurement. (3) At certain set dates for all investments, usually through an annual review.

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Decision making – Peer review and review meetings Prior to an application being put forward for a decision by whatever the group mandated to make it (usually your board or a committee with delegated authority from the board), it should be submitted to a review process. The review will involve either upwards review (the assessment is checked by a more senior person) or sideways review (the assessment is checked by another person of similar seniority). This process is called peer review, and it is another aspect of quality control to ensure maximum objectivity and spot any potential issues the first assessor may have missed.13 Beyond review by an individual is review by a group. Group review is not an essential part of the process; but if time allows, it adds even more certainty that all the issues (and risks) have been covered. It also ‘rehearses’ the process that goes on in the actual decision-making meeting as interaction by a group inevitably introduces different kinds of communication and another level of scrutiny. In a group situation, members can act as ‘devil’s advocates’ putting themselves in a position whereby they ask the most awkward questions they can think of, thus pre-empting the questions their board or committee might ask. For public funders, this is a particularly useful exercise as it encourages a detailed interrogation of the assessment report and can help ensure a higher level of accountability, asking questions such as: ‘what if the applicant read this conclusion’?14 Review meetings are also virtually essential if the decisions you are taking are not purely ‘yes’ and ‘no’ against a pre-set standard but depend upon other factors such as the budget for the programme. In other words, if you need to compare a number of applications against each other to agree which are the ‘best’, an internal meeting prior to final decision making is extremely helpful in ‘ranking’ applications. Finally, applications pass to the decision-making process. This stage should be made absolutely clear to applicants in the guidance you issue, and it is probably the one point that causes most aggravation amongst applicants and is the most criticised. You need to ensure that applicants know from the outset: • Who will be making the decisions (not necessarily the individuals concerned but the group that will do so). • What the decision can be. Is it a straightforward ‘yes’ or ‘no’, or are there other possibilities such as ‘yes, but only if you do X, Y and Z’ or ‘no, but we’d like you to submit a revised application’? • When the decision will be taken and when they will be notified. If there is a change to this timetable, you should let the applicants know.

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• What level of complaint or redress they have if they are not satisfied with the decision. It is sensible to put this process into your application guidance rather than remind them about it when you communicate the decision. You need to draw up a full protocol for the conduct of decision-making meetings which should be communicated to its members well in advance of the first meeting. This should include the following: • Terms of reference – what the meeting is there to do, the scope of its decision-making powers and matters such as quorum and other procedural points. • Who attends the meetings and in what capacity and who has voting powers. • A statement of purpose for the meeting including suggested agenda. • An explanation of what documentation the meeting will see, and what they won’t see. For example, if they will only see the assessment/decision report and not the actual application say so and explain why. • An outline of how applications have been assessed including use of eligibility guidelines and an explanation of the assessment criteria. • An explanation of how risk ratings have been derived especially in relation to thresholds set for the programme. • An example assessment/decision report. • An explanation of how terms and conditions will be applied to successful applications. • An explanation of what ‘recommendation/decisions’ can be made at the meeting. For example, is the meeting making the final decision or only recommending support or rejection which will have to be confirmed at a full board meeting? • Details of overview information that is available. For example, summaries of all applications to date for the programme. • Meetings timetable. You should make details of when the meetings will be held available to all relevant staff and committee members.

Documenting the process and audit trail Funding utilising public monies is potentially subject to far greater scrutiny than funding by non-public bodies. In the United Kingdom, the decisions they take may be reviewed by: • A Lottery distributor or other non-departmental body; • Their ‘sponsor department’ in Whitehall; • The National Audit Office (who have full rights to inspect any and all of your documents); • A parliamentary committee such as the Public Accounts Committee.

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It therefore follows that you need to keep records of: • All your procedures; • All documents relating to every application. However, these guidelines are also good practice for any funder. The former should include a procedure (or operations) manual covering both assessment and post-decision management. The manual should be written so that someone unfamiliar with the procedures (for example, an external auditor) could pick it up and be able to carry out an assessment or a post-decision management process referring only to the manual. It should also include a full explanation of the decision-making process. The latter should include the obvious things such as the application form, assessment report, decisions taken and any letters to and from the applicant but also all contact you have had with the applicant, including a note of meetings and phone calls (see Chapter 11). But possibly even more important than this is to keep an audit trail of your decision making, not just decision making in relation to applications but the decisions you took in the construction of the programme itself. For example, when and by whom was it decided to adopt the assessment criteria? Who decided that certain types of organisation or project would be ineligible? To make this, admittedly onerous, task more straightforward, you should produce a set of ‘sign off’ procedures and a sign off form to document these decisions. Possibly the biggest criticism that auditors make about grantmaking or other funding decisions is that there hasn’t been a clear audit trail indicating exactly who took what decision when. This documentation should include what the decision is, when the decision was taken, who took it and any comments (for example, the implications of the decision for other aspects of the process as they were seen at this stage and why this decision was reached).

Communicating with potential applicants Once you have completed the programme design stage, you are nearly ready to launch the programme. You should have written the materials that potential applicants will use. But first you need to do three things: (1) Consider who your applicants are likely to be and ensure that you have an achievable plan for reaching them. (2) Check that your application materials are clear and straightforward to follow by those who will use them. (3) Decide how potential applicants can make enquiries if they don’t understand something or want to ask a question.

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Reaching applicants Not all funding programmes are intended for a wide and disparate set of organisations; many are designed for a quite specific group. To give a few examples from the NOF programmes: • Palliative Care for cancer patients was specifically intended to meet the needs of beneficiaries from black and ethnic minority communities. • PE and Sport in Schools was restricted to local authority applicants only. • Heroes Return was to provide individual grants for Second World War veterans, the youngest of whom would be well over 70. • Offshore Wind Power was only open to major partnerships between the public and private sector capable of delivering multi-million pound projects. It becomes immediately obvious that the sort of language you would use (the message) in your application materials for the programmes and the way in which you publicise these (the media) would need to be very different. What it doesn’t mean is that your language always has to be ‘plain English’ – as using technical language in a very technical programme may actually be clearer. I remember vigorously defending the ‘complexity’ of a set of application materials for a capital building programme to government ministers. My reasoning, which they finally came to accept, was that if the applicant organisation couldn’t cope with the complexity of the application process, then they had no hope of coping with the far greater complexity of managing a major capital building project. Equally if your programme is aiming for a wide appeal or is dealing with applicants whose reading and written skills may not be as good as their ability to deliver a service to beneficiaries, then you need to ensure absolute clarity in your application materials and have a workable solution for ensuring that the ‘right’ organisations can actually apply, for example producing the materials in different languages or even allowing ‘non-written’ applications (for example, recorded) at least at the first stage.15 This may well entail targeting certain organisations, sending them the materials and encouraging them to apply. It may entail running pre-application workshops or seminars, or it may even require soliciting an application from a support organisation and funding them to provide a pre-application service. Whichever method you choose you should first test out your application materials with a number of people outside your organisation to check for clarity and ambiguity. This ought to be possible even within the tightest programme development schedule – even if you use just a friend or partner. Checking by outside bodies – such as the Plain English Campaign in the United Kingdom – is also possible, but I’d advise you to be careful about this unless your programme really is aimed at the ‘general public’.

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Finally, you will need some kind of enquiry service which, for smaller scale programmes, can usually be provided by those who will end up assessing the applications. However, these people need careful training as many of the questions asked will raise issues of policy and the answer you give may well be setting a precedent for the future. You therefore need to distinguish between straightforward questions on matters of fact and ‘what if?’ scenarios. So you should be able to answer a question like: ‘my company doesn’t have limited liability it’s just a partnership are we eligible to apply?’ with a straightforward ‘yes’ or ‘no’. But if the question is: ‘if the film you fund wins a cash prize at a film festival can we keep the money?’, and you haven’t got a policy on this you will have to say ‘I’ll make enquiries and get back to you’. You then, of course, need a mechanism for resolving such policy issues and these might have to involve your board or decision-making committee.

11 Assessment and Selection

The purposes of assessment There are three aims of the assessment or selection process each of which includes a number of associated tasks. Aim 1 – ‘Mission match’ These all relate to how closely the application will meet your aims, objectives and outcomes. • To maximise the number of investments to projects that are likely to be successful in delivering the programme outcomes; • To record every application submitted to the programme; • To check if the application matches your eligibility criteria; • To assess the risks of funding each application using a set of common assessment criteria; • To make decisions about whether to fund an application or not; • To notify the applicant of your decision and give feedback. Aim 2 – Risk optimisation These relate to judging the risk of each application against your programme outcomes and criteria. • To minimise the risks of funds being misused; • To reject an application as soon as you are certain it falls outside your programme specification; • To develop good practice and disseminate it internally and externally. Some commentaries on assessment processes suggest that assessors should not seek to change project plans during assessment as the project may then become 182

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something the applicant didn’t intend. Others say that if you contact one applicant for clarification, then you should contact them all. Such suggestions are based on the fallacy that what the assessment process is there to do is to provide a ‘level playing field’ and that fairness is produced by equality of treatment. There are two reasons why this is wrong: • Firstly, fair doesn’t mean equal as it ignores important issues such as diversity. For example, some applicants may need additional prompting to express themselves clearly. Most application processes involve written applications and certain people and some groups find it easier to express themselves more clearly in writing than others. • Secondly, the assessment process is not there to judge the best applications. It is there to judge what will be the best projects when they are put into practice – a very different thing. If you don’t seek to ‘improve’ projects during the assessment process, it’s a bit like buying some clothes that ‘nearly fit’. If you had them altered before, you try to wear them it would be much better! Aim 3 – Process improvement These relate to continuous improvement of your processes, systems and cost effectiveness. • • • • •

To improve the application processes; To record and review the process, the judgements and the decisions made; To provide information and guidance to applicants; To maintain a cost-effective service; To meet performance targets.

Underlying these aims, those organisations aiming to provide a high quality of service should also adhere to a number of values that they apply to the work they do: Assessment values • • • •

To treat every application fairly (but not ‘equally’); To be courteous in all their dealings with applicants; To maintain objectivity; To be accessible to all applicants including those with communication difficulties; • To account for their actions to stakeholders and the public, yes even ‘private’ foundations as they are given privileges (in the form of tax exemptions, for example) that mean that the public have contributed some of their resources.

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Key activities in the process The following key activities occur in the application and assessment process: • Each application is recorded. Often a Unique Reference (or Identification) Number (URN) is generated and information about the application entered on the Grants Management System (GMS). • An eligibility check is carried out – designed to sift out applications that don’t meet key requirements of the programme specification. • A risk assessment is completed that makes judgements about the extent of ‘fit’ between the application and the programme specification and the ability of the applicant to deliver the project. • A review and decision-making process takes place. • The applicant is notified about the decision to fund or not. This is represented diagrammatically in Figure 11.1. You will note that some of the stages involve ‘feedback loops’. For example, an application may be returned from the ‘enabling a decision stage’ to ‘assessment’ if a peer review suggests more work needs to be done or a successful applicant may turn down the offer of funding.

Application recording process The registration process enables you to record that you have received an application, indicates if the information received is complete and shows who is responsible for assessing or managing each application. Invite to next stage Defer

Register application

Check eligibility

Assess the risk

Enable a decision

Criterion reject

Notify decision

Successful – Offer of funding

Unsuccessful reject

Ineligible

Figure 11.1 Application management and assessment overview

To postdecision management

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On receipt of an application, the following things happen: • Firstly, minimal information about the application is logged onto the GMS and a URN is obtained. • Receipt of the application is confirmed to the sender. It is remarkable how many funders don’t do this. Surely, it is simple courtesy to acknowledge applications? It also obviates the possibility of the applicant phoning to ask if you’ve received their application. • The completeness of the information supplied is checked; has the applicant supplied everything you need to enable assessment to take place? Note that this is entirely different from checking even basic eligibility criteria. You may well perform both tasks simultaneously but they have different purposes. • The remainder of the information about the application is entered onto the GMS. • Each application is assigned to an officer, who is responsible for it until a funding decision has been made (in smaller organisations, this may well be the person entering the information).

Checking eligibility You should have a generic set of eligibility criteria that apply across all programmes plus others that are specific to the programme in question. Those that should be universal are as follows: • If there is one, did the application meet the submission deadline? • Did the application match the essential elements of the programme specification? • Has the applicant provided sufficient information to enable you to carry out assessment? • Is this a duplicate application? These eligibility criteria are of fundamental importance to each programme. This means that any applications that fail, beyond all reasonable doubt, to meet one or more of these criteria are rejected, normally without any further assessment taking place, and the applicant informed. Again many funders don’t tell people when their application has been rejected. Would they like this treatment if, for example, they had applied for a personal loan? Some plead that they don’t have the resources to do things like acknowledge applications or inform rejected applicants. My answer is that if that’s the case, they aren’t spending sufficient resources on basic administration (and it’s probably a symptom of serious faults elsewhere in their systems and processes).

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Assessing the risk Assessment is not a test, it is a process designed to help you make good investments. Risk assessment encourages you to make judgements that: • Promote consistency and fairness in the judgements you make; • Enable you to compare one application with another; • Come to a reasoned conclusion about the likelihood of the project meeting your programme outcomes; • Enable you to assign a risk level to the applications you decide to support to carry forward into post-decision management. As previously covered, you should use assessment criteria that can be customised to reflect the language and content of each programme. Each criterion should have a number of judgement points associated with it. The judgement point can be ‘scored’ in some way. Often it’s best to use a straightforward three-way scale: (1) Not met (the application doesn’t meet the judgement point at all); (2) Partly met (the application partly meets the judgement point, and it can be worked on to bring it closer); (3) Met (the application does meet the judgement point). During the development of the programme, the criteria and judgement points that are relevant to it will be determined. It is quite appropriate for different programmes to use different criteria and/or judgement points. In addition, criteria can also be used to support a single- or multi-stage assessment process. Thus, a programme may not use a criterion at stage one of the application process, but may chose to use it at stage two. It is not a good idea to use the same criteria in more than one stage of an application process. Though I have seen a criterion which is examined in brief at stage one and in more detail at another, it leads to confusion and problems in explaining rejections. For more information about criteria and judgement points, please refer to Chapter 10.

Risk rating The ‘scores’ identified when assessing and risk rating an application are turned into a: • Risk rating for the programme priorities (programme qualifiers); • Risk rating for the management/organisational ability of the applicant (management qualifiers).

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This information is used to set thresholds of risk that the programme is prepared to take. This helps in deciding deliberately to take risks if you agree to raise your risk appetite, for example to support a small number of ‘risky’, projects which have the potential to have a very significant impact on your programme outcomes.

Enabling a decision This involves reviewing the application, producing a decision report and then making a decision to fund or not. Once the application has a risk score, it should go through a series of reviews described in the Chapter 10.

Using Grants Management Systems IT-based GMS provide a fantastic tool for funders, but they also entail some potential problems. They fall broadly into three types: (1) A GMS based on an existing ‘packaged’ database such as Microsoft Excel or (far better) Microsoft Access. This will be the cheapest solution and one that even the smallest organisations can afford. It will cost a few hundred pounds or dollars a year. This solution will be intensive on set-up by your own staff (and depend on their IT skills) and will obviously not provide integrated systems to automate things like your payment process. Nevertheless, Sport England used Microsoft Access reasonably successfully for the first year of their Lottery distribution. (2) A specialised ‘off-the-shelf’ GMS software product. Examples include Gifts for Windows, Grant Tracker, Benefactor and Microsoft’s own product Microsoft Dynamics CRM Grants Management System. These products do offer integrated processes such as linking assessment with decision making and payments. Each user will require a licence and the likely cost is a few thousands a year. (3) Custom-built systems that include all of the functionality you need for your particular business. These are obviously the most expensive but, if you are a large organisation, could help you save significant amounts of money by automating what could be very labourintensive processes. What you need to ensure before going down this route is that you have a very clear and detailed specification of the functionality you require the system to perform. For this reason, you need to have mapped in detail all of your operational processes

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through a ‘Process’ or ‘Operations Manual’. If you don’t, you risk having to make very costly changes to your system as development proceeds (refer back to the Section ‘Operational process design’ in Chapter 7). A significant advantage of custom-built systems is that they allow you to build in web-based applications (and other operations like submitting monitoring reports) so your applicants and recipients can submit information on-line, making the whole process potentially more user-friendly (assuming your applicants and recipients are sufficiently IT literate). Custom-built systems can cost anything from a few tens of thousands to many millions. Whatever GMS software you select, they require both accuracy and completeness. Accuracy is especially important with financial details and other figures where it’s easy to misplace a decimal point or add an extra zero. Missing information is just as much of a problem especially when it comes to auditing. For this reason, it is sensible in larger organisations to have at least two review levels for data management: • Firstly, a manager who is responsible for periodic review of the data under their remit, probably responsible for the data inputted by a small number of officers. • Secondly, an overall data manager for your whole organisation, often also the only person with access to key information such as passwords. • There should also be protocols in place for amending data with different authority levels depending upon the importance of that data (so, for example, changing the grant amount would require a higher level of authorisation than amending a date).

Writing decision reports The key output document from the assessment process is the report that is produced for the purposes of decision making. As previously noted, it is far better for decision committees to see these rather than the actual material submitted by an applicant. This document will need to contain as a minimum: • Factual information about the application – a short summary about what the proposal is together with important data such as the amount requested, project cost, location and so on. • The findings of the assessment. This is usually the ‘bulk’ of the report, and it outlines the risks, giving any ‘score’ and usually briefly stating the ‘good’ and

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‘bad’ points about it. It usually says something under each of the assessment criteria. • A conclusion which includes a recommendation from the assessor as to whether the application is supportable or not.1 • Any proposed terms that should be applied if the application is successful and/or the main reasons that will be given to the applicant for its rejection. In addition, there may be a report summarising all the applications for that meeting and/or all the applications for that programme that could include the ‘risk matrix’ placing each application on the matrix in order that a group of applications can be judged against each other. Two of the most important sections of decision reports are the project summary (describing the outcomes the project intends to bring about) and, of course, the conclusions summing up the relative ‘strengths’ and ‘weaknesses’ of that particular application. Those organisations that are responsible for public funds are, in the United Kingdom, subject to the Freedom of Information Act and therefore their decision reports may have to be disclosed to the applicant themselves. This is no reason for reticence however. If you have in place rigorous procedures and carry out the assessment in a fair and objective manner, you shouldn’t be afraid of saying that an application demonstrates weaknesses. What you must do is say why it is weak in a particular respect and ensure that you are judging it against the criteria you have actually set and not other, subjective, standards. Guidelines for writing the project summary One option for the project summary is to use what the applicant wrote themselves on the application form and this is often espoused as good practice as it allows them to explain their project in their own words. However, this is a bit like saying that defendants in court are always better off defending themselves. The problem with simply repeating the applicant’s summary is that it is rare for them to do justice to their project. They leave things out, put irrelevant information in or both. I would recommend that in the decision report, the assessor should write the summary. They can then follow a set template and ensure that all applications get fairer treatment. The summary can also be used to form a press release, if one is issued, when announcements of successful applications are made. Summaries should follow a standard format and include the same areas of information. In many cases, this information will be available in the application form; but in some cases, the information will also come from other

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parts of the application (a project plan, accounts, etc.). It is also worth noting that often the information will have changed during the assessment process due to contact with the applicant and clarification of any points of ambiguity. The Project Summary should not include value judgements but should positively reflect the aims of the project. For example, the language used should be ‘ . . . [the applicant] will offer the service . . . ’ rather than ‘ . . . [the applicant] plans to offer it . . . ’. Judgements as to whether the service will be successful should appear in the assessment summary and in the conclusion. The Project Summary should be relatively short and should probably include the following information: • • • •

The overall aim of the project; The target groups; The type of activities to be delivered; The intended outcomes for the beneficiaries.

An example:

X Organisation will provide a range of new and innovatory educational projects for schools in Y [Aim]. These will include film screenings, script workshops, film-making in the streets and ‘how to be a stuntman’ courses [Activities]. Both children and adults will be able to take part and overall more than 2,000 secondary school pupils will gain a greater understanding of film [Target groups]. The courses will also be linked into a number of the outcomes of the national curriculum, making learning more fun and teaching important life-skills such as risk-taking [Outcomes].

Guidelines for writing the decision report conclusions Like the Project Summary conclusions should follow a standard format and should make a brief, clear statement that justifies the recommendation being made. Your conclusion should probably be one paragraph. The conclusion should be a clear summary of your reasons for recommendation or rejection. This should include a brief description of both the programme and management risk rating scores and how the project fits on the matrix. You should state your recommendation and your overall judgement of the proposal. An example of a conclusion recommending support:

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This is a clearly developed proposal that will significantly improve the provision of film education for young people and the local community. The applicant has scored strongly on the programme criteria as the project successfully meets all three key outcomes and the need has been clearly justified. They have scored less well on the management criteria, as the application does not include clear plans for the roles and responsibilities of each of the partner organisations. A term requiring the submission of a partnership plan to be approved before the payment of the second funding instalment is recommended. In general, this is a good proposal and it is recommended for support.

An example of a reject:

The proposal has a significant number of weaknesses that have not been addressed by the applicant. The low score for programme criteria reflects the project’s inability to meet the three key outcomes and the lack of consultation that has been undertaken to demonstrate the need. Only two partner organisations have been identified and, for those, no consideration has been given to their roles and responsibilities. As a result, there is a low score for management criteria. This proposal is not sufficiently developed and will not offer sufficient benefits to the primary beneficiaries. It is not recommended that this application be supported because: (1) There has been a lack of consultation with potential partners and stakeholders thus failing to demonstrate a shared need for the project. (2) Plans for the management of the proposed partnership are insufficiently developed.

The numbered paragraphs would be used in communicating the rejection reasons to the applicant.

Review As suggested in Chapter 10, each programme should create an appropriate review structure as part of the programme specification. Broadly there are three review options: (1) Peer/manager review. A person who checks the evidence against conclusions for each application (or a selection of applications).

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(2) An internal review meeting or case conference. An opportunity for all members of the programme team to collectively use their diverse experience and knowledge to analyse groups of applications. (3) Expert review. Specialist input considering the applications in relation to factors that could not be expected to be known by the main assessor. This is usually knowledge about a specialist field such as IT, medical research or the design of buildings. Sometimes, the expert review is limited to an aspect of the application rather than asking the ‘expert’ for a view about the project as a whole.2 Peer review can be carried out on a selection of applications, whereas all applications would usually be discussed at a review meeting. A programme can utilise any combination of these review procedures, but should include at least one.

Decision making When should you take a decision? If you think of the development of a project as a continuum: Project conception

Project completion

————————————————————————————————– It’s possible to make a decision to fund at any point on this continuum. Generally the further to the right, you take your decision the fewer risks remain and the more certain your decision can be. The further to the left the more uncertain (risky) the project is, and so you might want to take more than one decision (a multi-stage process) or have your decisions tied to milestones in the project’s development (specific conditions that must be fulfilled before agreeing to fund). However, the advantage of a decision towards the left is the ability to influence the project design. For complex capital projects, you might tie your funding decisions to specific events such as the Royal Institute of British Architects (RIBA) design points or the OGC Gateway milestones.3 There’s no doubt that for the funder the ideal ‘when’ would tie your commitment to a project in direct relationship to the risk – 0 per cent commitment at project conception through to 100 per cent commitment at project completion. Indeed some funders do attempt to do this, only paying out in arrears on receipt of satisfactory completion reports. But in most circumstances, this is impractical as most organisations would not be able to carry out the project unless most of the funds had been paid. Hence a majority fund projects in advance though may withhold a ‘retention’ payment of some kind until project completion.

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What funders really need to avoid is a mismatch between what information they expect at a certain point in a project’s development and what the applicant can reasonably provide. This can often be a problem if the funder has decided on a single decision-making point. Some funders have pre-determined that they want to make a single, 100% commitment, which is fine in principal. However, what they can’t then do is to take that decision somewhere to the left in the above continuum and expect all the risks to have been minimised. Far better to make a decision with caveats (terms and conditions) or to agree to a ‘development grant’ for example, which will lessen the risk exposure and allow you to ‘pull out’ if things are not going according to plan. Who takes the decision? The main reason that funders try to take a single, 100 per cent, decision is that it is at this point their board or trustees are most heavily involved. Board members and trustees are usually, by definition, busy people in responsible positions who don’t have a great deal of time. Therefore funders try to confine their decision making to a single point (or at most two) when these people can be involved. In larger organisations, decision making is sometimes made on a delegated basis by a specialist committee – a sub-committee of the board – though, in most cases whether in the public or charitable sectors, responsibility for the decision still rests with the full board.4 This decision-making process does have its problems as it doesn’t comfortably fit in with the project development continuum. Many funders don’t take this sufficiently into account when designing their processes. For example, a funder who considers projects of very different types (capital and revenue or new departures alongside ones that are applying for continuation funding) may well inadvertently be penalising one kind over another because of the point on the continuum they have (often quite arbitrarily) decided to take their funding decision. The funding commitment point is an extremely critical one and one that needs to be carefully built into the process. Is it going to be a single, 100 per cent, irrevocable decision? At what stage is it going to be taken? How will this affect things like terms and conditions? The funding decision is the main point when the ‘power’ balance changes. Before the decision, the funder is totally in control. After the decision (other than exercising ‘power’ through terms and conditions which usually only get applied in circumstances of breach of contract), the funder has dramatically less control. This was a problem that was particularly acute for many of the NOF programmes which operated on a system of ‘allocation’. For example, the PE and Sport in Schools programme allocated a certain sum to each Local Education Authority (LEA) based on school population and deprivation. It was then up to

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the LEA to decide what projects to fund. This dramatically reduced the ‘power’ NOF had to influence projects and so the funding process became much more one of ‘quality control’ than of outright decision making. The majority of major funding decisions take place in some sort of committee setting. The dynamics of that situation need to be carefully considered. Who attends? How is business conducted? How are decisions taken and recorded? What decisions can be taken – simply yes or no or a range between them with conditions? It is also tied up with good governance issues such as equality of membership: is everyone contributing to the decision or are just a few individuals, or just one person, controlling the meeting? Decision-making authority It is unlikely that you will want to delegate all decision making to another level, but some discretion in delegation is necessary if post-decision management isn’t to become slow and bureaucratic. For example, delegated authority to vary the size of grant by a certain amount may be given to an individual board member (often the Chair) or to the Chief Executive. Terms may need to be varied, for example if receipt of new information requires an additional term. Referring a project back to your full board would be a very cumbersome process for these kinds of variation. Whatever you decide, the delegated authorities should be carefully documented and included in the procedure documentation for the programme. Another area for possible delegated authority is to enable ineligible or extremely weak applications to be rejected at an early stage. Nothing is more likely to provoke a complaint from an applicant than being kept ‘hanging on’ for months only to be told after your board finally meets that the application was ineligible in the first place. Type of decisions that can be made There are usually three decisions that a decision meeting can make: (1) Award (of funding) – this triggers an offer being made to the successful applicant. But legally no ‘contract’ exists and no firm commitment is made until you receive back a signed acceptance from the applicant.5 (2) Reject – you advise the applicant that their application has been rejected and provide a brief explanation. If there is another application opportunity, you may suggest that the applicant re-apply (if they can strengthen the project in the areas indicated). However, you should be very careful in using this option as you need to be very clear and, more especially, comprehensive, in giving the reasons for rejection. Again many complaints are triggered by applicants who re-apply having strengthened their project in

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the areas they have been told to only to be rejected again for another reason that existed in the first application but about which they were not previously informed. (3) Invite to next stage (in multi-stage processes) – you send the next stage application materials with the invitation. There are also two possible further actions they might agree: (1) Defer – the committee/board decide that more information has to be collected and the risk assessment updated. If the additional information doesn’t change the risk assessment, you might consider whether the decision meeting Chairperson can sign off the decision. If it does change, the application goes back to a future decision meeting. (2) Refer – this is an application that is especially contentious, and where your committee or board wants a ‘second opinion’ from a ‘higher’ or specialist authority where one exists. Both of these courses of action should be used with discretion and should in no way be used because the committee/board are being timid about taking a firm decision, for example with an important partner organisation or one with a high political or media profile.

Modifying applications What happens if you assess an opportunity to produce a better project than the one applied for? For example, four universities all apply to develop a new course in a specialist field of study and your view is that if they all worked together an even better course (more exactly meeting your programme outcomes) could be developed? Some funders consider that they should never seek to significantly amend an applicant’s project but this may mean you miss a real opportunity. My view is that it would be negligent not to pursue this opportunity provided that: (1) It is within your published guidelines for the programme (which is a good reason for not ruling it out in your programme policy). (2) You are careful you are not forcing an applicant (or applicants) to do something against their will or outside their own aims and objectives.

Rejected applications Rejected applications are normally those where there is no reasonable doubt that the application has failed the check. The only exception being where there is insufficient money to fund every project that reaches a sufficient standard.

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You can reject an application on several grounds: • It doesn’t match the eligibility criteria. This should be a matter of fact and so should not be contentious. • It has been rejected as it failed one or more criterion or judgement point. If so, this should be clearly communicated to the applicant. • A risk assessment has been completed but the application has not obtained a sufficient ‘score’ to warrant funding, or it is borderline and a judgement is made not to support it. This is a far more subjective issue and its method of communication can be fraught. Usually applicants don’t particularly resent being told that there was something ‘risky’ about their project planning or that it wasn’t of sufficient priority in relation to all the applications received. What they, quite naturally, are less happy about is if you reject them on the grounds that their organisation has been judged as too risky. You therefore need to be very careful about the way in which you communicate this reason for rejection, but it shouldn’t prevent you from pointing out weaknesses in the organisation’s governance or financial planning if you’re clear they exist. • There is not enough money left to fund it – there were a number of applications that you wanted to fund, but you had to make a choice. For applications that are to be rejected, each has one or more reject reasons selected for it, together with a summary of the evidence for rejecting the application against the criterion in question. Where an application is to be rejected as it has obtained an insufficient or borderline score, feedback for the recipient ought to be agreed at the decision meeting.

Notifying applicants of the decision Once you have a decision, the applicant has to be told. This should happen promptly, normally within about ten days of the decision meeting, hopefully quicker. • Unsuccessful applicants should get the reasons for their rejection and can be offered some feedback about their application and reasons why it didn’t succeed. • Successful applicants receive a funding offer plus terms and conditions. Generally, you inform applicants of the decision by letter (possibly by e-mail). If you decide to phone applicants, you need to be extremely careful about understanding, especially if you are offering funding ‘with conditions’.6

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Post-decision management begins once the offer has been made and accepted. The funding contract should be accepted by the successful applicant before they receive their first payment claim or the first payment is made. Acceptance of funding is vital if any terms and conditions are included. Unless you have the recipient’s acceptance, you can’t be certain they have ‘signed up’ to the terms and conditions and this could lead to a significant dispute down the line. From the point you make the offer until you receive a signed acceptance is called a ‘soft’ commitment. Once you receive back a signed acceptance this is a ‘hard’ commitment. This is an important point in the drawing up of your accounts.

Documenting the assessment process Again it is important that a clear audit trail is available for every application so that an external reviewer, or new staff, can plot the path that the application took from receipt to decision. You should also file information about applications in an orderly and clear way. This is important both from the perspective of staff trying to locate the information they require and from an audit perspective. In order to help with this process, you should have a template for the content and order of documents so that every file is organised in the same way. The file for each applicant should also contain a contact sheet. This is used to record contact with the applicant during the assessment and post-decision management process. It completes the audit trail and is an invaluable tool if there is any complaint or query at a later stage.7 In completing the contact sheet, keep your notes brief and to the point stating: • Why the contact was needed (including who phoned who); • The information asked for or the question the applicant was asking; • What information you got over the phone or whether additional information is to be confirmed in writing and by when; • Date and time of conversation; • Your signature.

Receiving and sending information You will need to know what information you have received from each applicant and what has been sent to them. As information comes into and leaves the office that relates to applications, you need to ensure that it is:

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• Clearly labelled with the URN, if applicable, organisation name and date stamped/dated. • Information received is united with its file. Information sent – either place a copy on the file or ensure a note has been retained that it has been sent (whichever is most appropriate). • Information is recorded as received/sent on the file contact sheet. If you do these things immediately after opening an envelope or e-mail from an applicant or as you are sending information out, it ensures that: • Information won’t go astray; • You won’t spend time chasing the applicant for information they have already sent.

Contacting applicants Visits – Pros and cons There is little doubt that the best way of obtaining information from someone is to meet them face-to-face. This is certainly true of social investment. The critical points in the funding cycle where a visit could be crucial are during assessment (especially if the application you are considering is likely to be ‘borderline’) and at any significant points during post-decision management and evaluation. It is almost certain that proper evaluation of a project is impossible without a face-to-face visit. Visits add two main things to your information and understanding: (1) The first is personal contact with the ‘key players’ and the ability to judge their reactions to your enquiries. If you are asking a critical question on which the future of the investment depends, you will get far more information if you can see exactly how they respond. If you are trying to work out a tricky problem, it will be much easier to do this, and far less likely to lead to misunderstanding if you do it in a meeting. This may well be of particular benefit to smaller organisations or those with less experience where the officer visiting can act partially as an advisor (though being careful to maintain their role). People thrive on human contact, and it is also far more likely that a rapport between funder and recipient will be established if the two have met at least once. (2) The second is that it gives you a far better idea of context. Unless you personally know the organisation and the area in which it is based and/or operates, you will certainly gain more knowledge from a visit. You may start to appreciate the difficulties the organisation faces or, conversely, note that what the organisation has said doesn’t match up with the reality.8

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So visits are very valuable and should be encouraged wherever possible, however there are a couple of problems: (1) Firstly, they are very costly in terms of staff resources. The organisation could be based hundreds (or even thousands) of miles away from the funder and if you are dealing with hundreds (or even thousands) of applications visits may simply not be economical.9 (2) There is also the ‘flip side’ of (1) above and that is that the funder and the applicant/recipient can get too close and the funder loses their objectivity. If you have well-trained, experienced staff I don’t think it happens very often, but it is certainly a danger you need to watch for. If you can’t afford to visit an applicant, then you will have to fall back on a telephone call if you are going to make personal contact. Telephoning applicants – Guidelines to follow Good communication is all-important if you are to build a productive relationship with applicants. Every time you ring an applicant, you must make sure they know • Your name; • Your job within the organisation; • Why you are calling them. You must make brief file notes of the conversation. When you talk on the phone you cannot see the person. If you take into account that over 70 per cent of communication is non-verbal, you can start to appreciate why misunderstandings or incomplete information may result from a call. There are a whole host of barriers that can influence the success of a telephone call including: • The timing of the call may be inconvenient. • Only one of you has prepared for the call (this may be a reason for you saying, ‘can I phone you back after I’ve confirmed the information?’). • Background distractions (these are likely to be worse for the applicant than for you, especially if you’ve phoned them). • You assume that what you’ve read and understood is reality and set out to get the answers you expect, rather than starting with a blank sheet. • The call has to be curtailed because one party has no more time. • The tone of voice and the language used. • The style of questioning. • Willingness to listen and check understanding.

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You might consider including your contact protocols in the application guidance and ask a question on the form about when the applicant contact will usually be available to discuss the application. Making the call Prepare for your call carefully, including being clear about why you are making the call, what you want to get out of the conversation and what you want the applicant to do after the call has ended. Consider if the call is likely to be more effective if the applicant has notification that it will take place (so they have time to prepare). If the answer to this is ‘yes’, make clear what will be covered/required (so they prepare the right information). You may also need to take into account any special communication needs the applicant may have, for example if English is not their first language or they have hearing or speech difficulties.10 Finally, phone calls can be a powerful safeguard against potential fraud. One significant fraud against the Lottery involved a small number of people pretending to be a large number of applicant organisations. They even set up a fake office with staff to allay any suspicions if the distributor visited them. One simple safeguard against this is not to identify yourself until they have identified themselves. Even if you call them, you can ask ‘to whom am I speaking?’ rather than asking for a named person.

Chasing Chasing missing or overdue information from applicants and recipients can happen throughout the assessment and post-decision management process. The guidelines to follow whenever chasing missing/overdue information from an applicant should be the following: • To tell the applicant what you require and when. • To set a deadline for return (usually not more than two weeks). • If nothing happens, make contact again and renegotiate the deadline (again, usually not more than two weeks). • If still nothing happens, you usually start to talk to the applicant about withdrawing their application. However, you can extend their deadline if there is good reason why they haven’t been able to meet it, as long as it will still fit within your deadlines. • When the additional information is received, it should be cross-referenced to ensure that it is both complete and in the format required. To do this, you should check off the received information with your initials/signature and the date the information was checked.

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Record all deadlines, letters sent and information received in the contact log (your GMS may also allow you to do this) and keep a check on all the requests you have made for applications under your management. A number of standard letters should be drafted for chasing overdue/missing information and these can then be customised to suit the particular needs of your situation. Elusive applicants Getting in touch with applicants can sometimes prove difficult and frustrating. However, you have to accept that it is the applicant’s responsibility to respond to messages you have left, within a reasonable time period. You cannot be responsible for messages left in good faith that are not recorded or passed on to the contact you have been given in the application. All you can do is use your best endeavours to make contact. Where you have problems contacting an applicant: • Check the address and phone details against what’s written on the application form. • Make three attempts to telephone the applicant over a reasonable length of time. • If there is no response, write to or e-mail the applicant and ask them to get in touch within the next five working days. • If there is still no reply, seek advice about rejecting the application. Though it’s not by any means always the case, elusive applicants are often overworked applicants, which can suggest an organisation with less than ideal management, and occasionally this can be an indicator of potential fraud.

Complaints – How to handle them From time to time, an applicant may complain about the quality of service they have received or say that they have not been treated fairly. Applicants or members of the public may choose to complain in writing or by telephone. Some may even turn up at the office or write to their MP or Congressman, especially if you are a public funder. However, even if you are a private foundation it is still good policy to investigate complaints because: • It is simple courtesy and good ‘customer service’; • If the complaint is, even to a small extent, justified this will help you improve your processes.

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Everyone who complains has the right to be treated with courtesy and respect, irrespective of the nature of their complaint. You should listen, hear and understand what is being said, before responding to the complaint. Occasionally, you may get a ‘vexatious complainer’, someone who is simply out to ‘put a spanner in your works’ but this: • Is very rare; • Doesn’t mean you can be rude; • Should be verified by at least two people before you decide they are being vexatious. These aside, complaints can be classified under three types: (1) Quality of service complaints You should try to see this type of complaint as a means of improving the service you offer. These complaints help you to learn more about the needs of the people you are dealing with and help you to become more responsive. (2) Unfair treatment These complaints question the consistency and reliability of your procedures – this is why it is important to record an application’s progress through assessment. If the complaint is one of unfairness, you must have procedures to fall back on and hopefully this will help confirm that this application has been treated in the same way as any other application. Some applicants will complain that they think the decision made on their application was incorrect. Though the ‘right of appeal’ against a decision is not normally allowed this really amounts to telling you that they have been treated unfairly and so you should follow a similar process in dealing with ‘appeals’. (3) ‘Objections’ These are concerns raised by external sources about decisions made by your organisation (by external sources, I mean someone who is not the recipient). Sometimes, they may go as far as suggesting that the recipient is misusing your funds. They therefore should be dealt with in a different way to other complaints, by a single named person in your organisation (see the section ‘Fraud’ in Chapter 12). If it becomes apparent that you are dealing with an objection rather than a customer complaint, pass the caller or written information to the named person immediately. The matter will then follow your procedures for handling objections or possible fraud rather than what is set out below.

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Dealing with complaints Ensure you have a full and accurate record of the complaint including (where relevant) details of conversations, notes and copies of all relevant correspondence. Applicants sometimes have great difficulty framing their complaints and, especially, what they would like you to do about it. So the first task is to clarify exactly what the complaint is and what redress they are seeking. Log receipt of the complaint and notify your line manager (or whoever is named in your Procedure/Operations Manual). Either you or they will acknowledge receipt of the complaint, usually within five working days. Within, usually, 15 working days send a full written reply to the complainant or, if this is impossible, tell the complainant what you are doing and when a full response will be possible. If the complaint is complex, as a rough guideline, you should anticipate being able to respond within two months. If the complainant is not satisfied with your reply, they should have a right of appeal. Usually, this second stage involves a further internal consideration often by your Chief Executive. This is as far as a non-public funder would go. If you are a public body and the complainant is still not satisfied, they should be able to contact an external source, an independent complaints reviewer. For example, there is one who acts for all the UK Lottery distributors. This helps avoid the final part of the process of complaints to the Ombudsman. Once the complaint has been resolved, ensure that a record is kept of how this was done (assuming it was possible to resolve it satisfactorily). Should the complainant still not be satisfied they have the right in the United Kingdom to refer complaints about public bodies to the Parliamentary Commissioner for Administration (also known as the Parliamentary Ombudsman).

Conflicts of interest Your policies should require that all trustees, board and committee members, staff, consultants and external assessors declare conflicts of interest. The responsibility lies with them to identify when a conflict of interest might compromise them or the applicant. Conflicts of interest are usually recorded in a register held centrally by your organisation that documents all those organisations with which you, and members of your immediate family, have (or have recently had) some sort of relationship.

12 Post-Decision Management

Introduction: Monitoring and evaluation revisited Post-decision management starts when the funding offer has been made and accepted and ends when the funding contract has been completed. It is a systematic process, and it is built on a set of procedures that are applied to the individual investment during its lifetime. Against much received wisdom post-decision management is significantly more important than assessment. This is because until you make a decision to fund a project you are risking very little, certainly not any of your money. However once you make an offer, once the theoretical project starts becoming a reality, the recipient is using your resources and it is your responsibility to ensure this is done properly. This requires good information about what is going on in the projects and organisations you fund. Post-decision management may also produce information to feed into the evaluation process both for individual projects, groups of investments, entire programmes and all the programmes run by your organisation. As noted in Part I, it is important to get the distinction and different purposes of monitoring and evaluation clear. In relation to post-decision management: • Monitoring is about ‘watching’, collecting information, facts, figures and evidence that tell you something about the current status of a project or investment compared to where you expected it to be. Monitoring is therefore a somewhat passive activity. • Evaluation during the funding contract period is the process of ‘making a judgement’ about how well things are going so that you can change things that aren’t working before it’s too late. Evaluation aims to answer agreed questions and to make a judgement against specific criteria. Like 204

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other research, for a good evaluation, data must be collected and analysed systematically, and its interpretation considered carefully. Assessing ‘value’ – or the worth of something – and then taking action makes evaluation distinctive. Evaluation is therefore a far more dynamic activity. Evaluating programmes Inevitably some evaluation of what the outcomes (and especially the impact) of entire programmes will be done after it’s impossible to actively intervene, but it should be possible to set some intermediary measures that might be indicative of the eventual changes that the programme may bring about that can be acted on during its lifetime. For example, a major programme aimed at reducing the incidence of heart disease amongst a certain group of people may take many years until it is possible to accurately measure if fewer people are actually contracting heart disease. However, you can devise some interim measures: such as the incidence of smoking or the diet of the group or their levels of cholesterol that should have an effect upon this final outcome and can be measured relatively quickly. What is essential is that during the programme planning stage you have already decided: • • • •

The measurable outcomes of the programme; How and when you are going to measure them; If they are very long-term, what interim measures you can use; What you are going to do if you start finding they are not being achieved.

Evaluations of entire programmes obviously cannot be undertaken by individual recipients. If they are to be done then either: • You will need to do them. • A specialist organisation (such as a University department) will be contracted to do them. • If you are a public funder, a government department may take on the responsibility. Especially if you are not carrying out the programme evaluation yourself, your recipients need to be clear about the requirements this will place on them. Will they be expected to set time aside for the visits of programme evaluators? Who will need to attend these meetings and what information will the evaluators require? Will the evaluators want to talk to beneficiaries? What relationship do these visits have to the post-decision management process?

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Evaluating projects and investments It is generally accepted that the longer term benefits of projects are likely to accrue after the lifetime of the funding. Some projects will be more successful than others. ‘Success’ is often a result of methodology, circumstance and a good understanding of the need being addressed.1 Evaluations however do involve measuring some of the quality aspects of projects whilst the funding contract is live, as well as going back at the end to quantify and qualify the benefits of the project in the longer term. This information is used to evaluate the results of programmes, inform future policy and to disseminate good practice to appropriate audiences.2 Your post-decision management processes may therefore have to ‘dovetail’ with whatever evaluation procedures you have put in place. Project evaluations should also provide a judgement as to whether individual projects are ‘on course’ and make recommendations about changes to be made. For this reason, it is far more productive if the recipients themselves are involved in carrying them out as they are the people who will have to implement the changes suggested by the evaluation. But such ‘self evaluation’ brings us onto the subject of cost. Cost of evaluation What should an effective evaluation (whether of a project or a programme) cost? As we saw in Part I, one highly experienced American grantmaker, Joel Orosz who used to be the Programme Director of the Kellogg Foundation, suggests the following broad guide: • If little data need be collected or manipulated in order to answer the important questions for a project, then just 1 or 2 per cent of project costs may be sufficient. • If data needs are significant but not enormous, and if the complexity level is not too high, 4 to 6 per cent seems a reasonable range. • If it will be necessary to conduct a very large amount of research, data gathering, analysis and publication of results and if the complexity of these tasks is high, then 10 to 20 per cent of total project costs would not be unreasonable. So evaluations are not cheap. If you expect recipients to carry out internal evaluation, then someone has to pay for it – probably you if you are providing the majority of the funding for the project. If you are going to carry out a programme evaluation, then you will need additional and sufficient funding to do so. If these sort of resources are not available, then you will only be able to carry out a limited evaluation – perhaps just of the funding process. There are lots

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of examples of so-called evaluations out there that are nothing of the sort but are merely a set of anecdotes from projects about what was good about the programme (rarely what was bad!) My overall view is that though many have espoused the benefits of ‘outcomebased grantmaking’, they have not all grasped the nettle of how to fund the required evaluation of it.

Aims and stages of post-decision management The aims are threefold: Aim 1 – To maximise the number of successful investments This includes the following: • Establishing a funding contract. • Making payments as and when the terms and conditions of the contract have been met. • Monitoring the progress of the investment. • Ending the contract once terms and conditions have been fulfilled. • Monitoring assets purchased with your funds until the end of their economic life or you agree to ‘sign them off’. • Tracking the investment through its lifecycle. • Providing verification and validation checks within all procedures. • Fully informing and regularly reminding recipients of their responsibilities under the contract and the need to demonstrate that the terms and conditions are being fulfilled. • Responding to issues and queries within time scales set by your procedures. Aim 2 – To minimise the risk of funds being misused This includes the following: • Regularly reviewing factors, internal and external, that might prevent a recipient from successfully completing the contract and interpreting the future risk. • Implementing a series of random checks across all procedures and investments (especially as a fraud protection). • Quickly identifying and resolving problems and potential problems affecting the contract. • Agreeing amendments to the contract when it is in the interests of the success of the investment to do so. • Terminating the contract if there has been an irredeemable breach of the contract. • Developing good practice and disseminating it internally and externally.

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Aim 3 – To evaluate your programmes This includes the following: • • • • • •

Consistently collecting data within and across programmes. Providing information that allows you to manage your investments. Providing information to stakeholders. Providing information for evaluation. Providing information for communications and media purposes. Collecting qualitative information about your investments.

The post-decision management process can be depicted graphically as in Figure 12.1:

Track post-decision management changes

From assessment process

Starting the funding contract

Making payments

Ending the funding contract

Monitoring progress

Post-contract asset management

Problem solving Figure 12.1 Stages of the post-decision management process

The funding contract The post-decision management framework The post-decision management framework is based on two things: (1) The funding contract;3 (2) A risk rating. The risk rating should be amended (using a set procedure) during the lifetime of the contract to ‘match’ the current risk (in both ‘programme’ and ‘management’ terms).

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Definition of the funding contract The contract is an agreement between you and the recipient. It usually has three elements: (1) An offer letter; (2) Terms of funding; (3) Conditions of funding. The contract is held with the recipient organisation, not with an individual. The charity trustees, directors (if it’s a registered company), management committee or chief executive (of a statutory organisation) have joint and several liability for the contract. As the contract is such a crucial document, it is very important that it is signed by people in the recipient organisation who are legally empowered to do so. When you award funding, you expect the recipient to carry out the work described in their application. The funding contract signifies their agreement to do this. The terms and conditions set out in the contract describe both the rules that you apply to paying out funds and the circumstances in which you can (and cannot) continue with the investment. As described in Chapter 10, I prefer to make a distinction between terms (things the recipient must do by a certain date) and conditions (things they only might have to do). Table 12.1 highlights the key features of the funding contract: Table 12.1

Elements of the funding contract

Feature

Description

Terms

A list of measurable requirements with due dates usually linked to payment claims.

Conditions

A description of circumstances in which funding can • Continue to be paid • Be withheld • Be ‘clawed back’.

Start of funding contract

The contract starts on the date that the offer was signed by the recipient organisation

End of funding contract

The end date is when all the terms and conditions of the contract have been fulfilled. This can be many years after the last payment if your funding was used to • Purchase property or land • Pay for construction or refurbishment • Purchase a vehicle or other major items of equipment. If this happens, someone in your organisation should ‘sign it off’ and the recipient should be informed in writing that their liability is at an end.

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Table 12.1 (Continued) Feature

Description

How amendments to the funding contract can be made

You should amend the contract only after it has been signed. Amendments cover budget movements, changes in scope and changes in timetable.

What constitutes ‘Defaults’ in the funding contract

In this chapter, I identify ten types of defaults that can result in termination of the contract (see the Section ‘Defaults and terminations’).

Maintaining your role Good social investments are built on good relationships with recipients. Like most things, the more contact you have, the less likely something will go wrong. Good relationships are about mutual respect and keeping promises. Some of the ways in which you can maintain your role are by • Providing feedback on progress following key monitoring events such as the annual review. • Being clear about contract requirements, communicating them and checking they are understood. • Giving reminders when key deadlines are approaching such as a deadline for the first payment claim, if there is one. • Issuing formal warnings that give clear direction on expectations if a contract is continuously in default. • Always considering whether or not the investment continues to be in the ‘spirit of the application’ and applying your procedures fairly. • Encouraging good practice, but not allowing it to influence your judgement. • Remaining in control of the investment rather than the project (which is the responsibility of the recipient). This is absolutely critical. The post-decision management process should be all about working in partnership with the recipient to ensure success, not a heavy-handed, onerous and bureaucratic burden. • At the first sign of a problem, facilitating a process of finding a solution within the contract. • Taking all problems seriously until the cause is understood and an appropriate solution found. • Seeking specialist support when needed.

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Legal note In law, a grant is understood to be a gift. It is not the same as a ‘contract’ even though the documents you agree may be called a contract and the term I use here is ‘funding contract’. Unless a court decides otherwise what you are usually providing is a grant. Grants are discretionary whereas contracts are legally binding on both parties. In law, there are three factors necessary to create a contract: (1) An offer; (2) An acceptance; (3) A consideration. One party makes an offer, the other party must accept the offer and there must be consideration exchanged. Consideration has to be something of financial value. It is therefore arguable that though a grant or funding contract certainly has elements (1) and (2) and what you provide the recipient with is of value what they provide back to you is not a ‘consideration’ as it has no financial value to you. If you are a public funder in the United Kingdom and an organisation challenges your decision to reject a particular application by asking for a Judicial Review, the judge can only go as far as telling you that your decision making may be incorrect. They can require you to reconsider the application. You can still decide not to award a grant, if you can show your decision-making processes were fair and robust. A court cannot make someone give a grant. Some voluntary organisations receive and distribute public funds as well as their own money. This can lead to problems as they must ensure they meet the same legal requirements as public funders when dealing with public money. Sometimes they fail to do this and sometimes, even if they do, it leads to them having two sets of ‘rules’, one for the public money and one for their own. This can cause great confusion especially if they fund a single project from both sources and is another reason why non-public funders should consider adopting the same standards as public grantmakers for all of their funding.

Amendments to the funding contract The funding contract should make clear what changes require the funders formal approval and which do not. If, because of altered circumstances, the recipient wants to change some of the details of the project, they should only be able to do so once the contract has been signed and returned. Until that

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point, you only have the authority to carry out what the decision meeting approved. Once signed, you can discuss an amendment to the contract. The recipient can request a variation, or you can propose a variation to resolve a problem that could lead to the recipient being in breach of their contract. Variations fall into four types: (1) (2) (3) (4)

Changes to the project focus or beneficiaries; Changes to the amount of funding; Changes to the timetable; Other risk factors.

You should agree contract amendments in writing as this becomes part of the formal contract.

Terminating the funding contract If a recipient does not meet your terms and conditions at any time during the life of the investment, you can terminate the contract and even seek to claw back part or all of the funds (and if you are a public funder, you may be legally obliged to do so in certain circumstances). If you have constructed your programme carefully and carried out assessment rigorously, you should only need to resort to termination in very few cases. However, you also have to find a balance between: • Helping recipients who lack experience to meet the terms and conditions; • Doing everything reasonable to ensure the investment delivers its intended results. But also: • Carrying out your obligations to your stakeholders, including safeguarding any public monies; • Being tough when it is clear the investment cannot achieve its intentions. This is not easy. What you need are good working relationships with your recipients, built on trust and an understanding of each other’s needs.

Accepting and declining the funding contract Once an offer letter has been sent out, the successful applicant should have a set period, usually up to two months, to return the signed contract. Acceptance of the contract is signified by the applicant signing and returning an original of the offer letter. The same person who signed the application form should

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sign the offer (as both documents comprise the funding contract). If this is not possible (for example, the person has left the organisation or died), then a written explanation of a change should be registered by the applicant. Occasionally the successful applicant may write to you or telephone to advise you that they won’t be taking up the offer. You should always confirm their withdrawal in writing. Declined offers should go to the next available decision meeting so that they can be formally recorded for audit purposes.

A note on dates From what date does an investment start? Potentially it might be: • The date the offer letter was sent; • The date the recipient signed the offer; • The date the project actually commenced. This may seem a purely semantic point, but it isn’t because it affects both the timing of payments and, even more crucially, monitoring and evaluation. It may seem more logical to go for the actual date of project commencement, but this could be some time after the offer date and means that, with a group of investments made at the same time, they all ‘start’ on different dates. This, in turn, results in things like annual evaluations being applied to projects that have been running for very different periods. It also has implications for when an investment ends. Then there is the problem of what ‘start’ means. In some cases, it could be obvious but not others. Despite the implications for monitoring and evaluation, offer or acceptance date may be best. Also you should define exactly what you mean by ‘project start’ in your offer letter and give a ‘cut off’ date by which the project must commence. If you don’t, you will find yourself in the position a major UK grantmaker, the Foundation for Sports and Arts, found itself, having made many commitments to capital projects which didn’t start for years because the recipients couldn’t raise the balance of the funding.

Monitoring events and reporting Monitoring events are terms of funding that the recipient cannot complete without you taking some action first. They are also related to the risk level.

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You can have mandatory events and non-mandatory events (Table 12.2). For example: Table 12.2 Monitoring events Mandatory monitoring events

Non-mandatory monitoring events

Monitoring call – problem prevention

Regular monitoring events – such as a quarterly review meeting

Quarterly, Annual and Final Reviews – progress monitoring

Specialist advisor contact – meetings arranged by specialist advisors according to the requirement for a particular project or programme. Resolving problems – meetings arranged to resolve an outstanding problem

You should record all these events as well as the results of them.

Changing the risk level During the life of the investment, you may increase or decrease the risk level. Investments should come through from assessment with a risk rating. This may be ‘moderated’ up or down. If the risk level changes, the mandatory monitoring requirements may change. For example if an investment becomes high risk, this may mean that the Annual Review requirement is a visit instead of a telephone interview. You need to update your records to show when and why risk levels were changed.

Annual monitoring report and Final monitoring report Most investments are monitored on an annual basis and again at the very end of the contract period. Annual and final monitoring reports should mark major milestones in your tracking of an investment through its lifecycle. At the agreed end date, the recipient should provide a final monitoring report. The content of the annual monitoring report for each programme is created as part of the initial programme set up and should be added to the programme procedures documentation. The reports collect information derived from the classifications selected for a programme. They collect both quantitative and qualitative information. The content of a ‘typical’ annual monitoring report is shown in Table 12.3 (although the report for a programme will have been specifically tailored to suit the needs of the programme and therefore may vary from this):

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Table 12.3

215

Model annual monitoring report

Section 1 Data collection/Collect monitoring information • • • • •

Details about the project beneficiaries; Types of activities, facilities and services provided by the project; Staff posts created with your funding; Volunteer posts created; Budget analysis for last 12 months.

Section 2 Progress report Success: Using the data on beneficiaries and activities and the programme of activities that you agreed with them at the beginning of the grant year, you ask the recipient to interpret that data and then give you real-life examples of the difference that their project is making Targeting beneficiaries: You can ask them about how they know that their target beneficiaries are hearing about and making use of the project. You will want to know what’s worked and what hasn’t worked so well. Outputs: What have these been? Outcomes: You can ask for evidence against each of the project and programme outcomes. Priorities: • You may ask about their priorities for the coming year taking into account what they have learned so far; • You may ask them to timetable activities for the year and declare their target beneficiaries and the numbers they intend to reach during the year. Section 3 Compliance statement This is a reminder of some of the main conditions of the funding contract that the recipient has signed up to. It ensures that the recipient continues to understand their responsibilities; especially if there have been personnel changes. Section 4 Declaration With an authorised signature and date

The final monitoring report collects the same information as the annual monitoring report, but asks the recipient to compare the overall benefits (across all years) and relate them to the stated aims of the programme. Sending out reports You should give the recipient an example of the annual monitoring report at as early a point as possible – ideally as part of their pack at the start of the contract

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or even with the initial application guidance. This means they will know what data you require them to collect annually and will have the best opportunity to prepare systems/processes to collect the information you require. This is critical with regard to evidence of outcomes and may need to be discussed in detail with every recipient. Even if they should already have one, you should send them an annual or final monitoring report template two months before the end of the reporting period. If the process of reporting is carried out online, an e-mail reminder can substitute. Reviewing annual monitoring and final monitoring reports Reviewing annual and final reports is a very important part of post-decision management. You should give yourself time to re-assure yourself that the project is progressing satisfactorily. If it isn’t, it’s an opportunity to get it back on track. The review process requires you to delve more deeply into issues around the risks associated with the project, in particular the accountability of the recipient organisation. You look at management of people and resources and financial controls. Crucially, you look at progress towards the project, and programme outcomes. If you visit a project, you can even get first-hand feedback from beneficiaries. The review process should have two parts: (1) A desk review of the hard-copy report and other information such as annual accounts; (2) A telephone interview or visit. Desk review This is an initial review of the data provided in the report and the other written evidence that the recipient has provided. As part of this, you also work through a risk review as you will want to set the risk rating for the next reporting period as part of the exercise. The review is carried out having refreshed your memory about the project using the application, the decision report and other documentation. During the desk review, you should identify any gaps in information or inconsistencies. You will try to fill in the gaps and clarify matters when you meet or carry out a telephone interview with the recipient. Annual and final review telephone interviews Especially in larger funders and for medium- and low-risk investments, the person monitoring the investment does a desk review of the report, and then arranges a telephone interview with the recipient. Among the issues that the interview can explore are to

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• Clarify any errors or inconsistencies in the data on beneficiaries, project work and so on. • Confirm that the investment is still within the spirit of the original application. • Talk through evidence of success that the recipient has provided and ask for others if there is concern that all is not progressing as it should. • Question the extent of success of the project so far and plot this against original expectations in the application. • Check to see that the project is addressing any barriers to participation. • Clarify budget matters, for the year gone and the coming year. • Confirm whether or not a contract amendment is needed. • Re-assess the risk rating by exploring management issues and the project methodologies that contribute to the quality of the project. • Remind the recipient of the need to work out a sustainability plan, if this is important or, at least, to explore the likelihood of project sustainability when your funding ends. The desk review and the telephone interview together should provide you with sufficient information to complete an Annual Review Report which can then go on file. Recording your findings You should follow a set format for Annual Reports, and may want to use the categories in Table 12.4 to record your review findings: Table 12.4

Categories for annual review findings

Category

Summarises

Summary

Brief background and rationale

Success (including outputs and outcomes)

Tells you about the extent of success to date and progress on outputs and project outcomes

Budget

Looks at resourcing the project, underspends and overspends and movements within budgets

Compliant/non compliant

Your opinion about whether the recipient is working within the spirit of their application and managing their project with those aims, objectives and targets clearly in mind

Problem resolution

Identifies contract fulfilment issues, that need resolution NOW

Risk

Determines the monitoring regime from this point, based on performance to date

Programme outcomes (final review only)

Tells you how well the investment met the aims of your programme

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Closing an investment You can only close the investment when: • All problems have been resolved; • All monitoring events due have been completed; • All records are complete to date.

Solving problems Whereas monitoring is a regular process that happens with all investments, problem solving only happens when something goes wrong or you suspect that they have or might go wrong. However, problem solving is not as separate from the rest of the process as perhaps Figure 9.7 might have suggested. This is because problems have two main sources, the recipient organisation but also the funding organisation. So the source of a problem could well be some aspect of your programme planning or execution. On both sides they can be the result of: • Organisational management; • Project/programme management; • ‘Acts of God’ – in other words something that neither party could have realistically planned for; • Communications issues – is a silence from the recipient because something wasn’t communicated well in the first place or have they run off with the money? The problem solution process below may appear somewhat bureaucratic, but it need not be and can be completed very quickly. You should also find that only a small number of investments should have problems significant enough to enter the problem-solving process, certainly not more than 5 per cent. The figure at NOF varied between 1 and 4 per cent depending on the programme. If the figure gets significantly above 5 per cent, this may be an indication of a structural problem with the programme. So solving problems starts when the recipient shows signs that there may be something wrong or that they are unable to meet your terms and conditions. The range of signs includes (but is not limited to) the following: • Missing deadlines such as claim submission dates. • Not fulfilling a term of contract by a due date. • Requesting or needing a large number of variations over a short period of time.

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• Not responding to reminders about deadlines. • A visit where the experience doesn’t appear to fall within the spirit of the application. • Details provided by the recipient don’t match experience, for example, a help-line billed as open from 9am to 5pm, Monday to Sunday, appears to be on answer phone for most of the time. • Accounts showing that the organisation is experiencing financial problems or is insolvent. • Key staff leaving without notice. • The project is well behind schedule. • The budget has changed significantly, especially if it is underspent.4 • Significant delays in start or completion. But please remember here that probably no project has ever run exactly to its intended timetable. • Partnership (sometimes called ‘matching’) funding doesn’t materialise. • The numbers of beneficiaries is significantly reduced. Please note that allegations or uncovering of fraud are a special type of problem with its own process which is dealt with in a separate section. Problems come in all shapes and sizes. The cause of the problem may be something very simple and a one off. But what you may be seeing is the symptom of a much larger and more complex problem that puts the success of your investment at risk. Whatever the symptom, you should treat all problems equally. You should apply a solving problems process and work out a solution within the terms and conditions of the funding contract. The purpose of solving problems There are three things you want to achieve through this process: • A successful investment. • A recipient who can fulfil all the terms and conditions of the contract. • A reduction in the number of investments that may misuse your funds. If the investment is to continue, you need to be convinced that by solving the problem: • • • •

The project is still within the spirit of the original offer and application. The project will have a greater opportunity for success. The project will still deliver the benefits and outcomes intended. The investment can continue to operate within your conditions.

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Routes into the solving problems process There are two routes into the problem-solving process: (1) When procedures cannot be completed in post-decision management (such as making a payment). (2) When information is received that causes concern (whether from the recipient or another source). What you should not be able to do is: • Amend the contract; • Issue a formal warning; • Terminate the contract. Without registering a problem and then working through the resolution process first. Routes out of the solving problems process You have three routes out: 1. No case – which means there wasn’t a problem. 2. Resolvable – you conclude that the recipient is in default, however the problem can be resolved within the contract. 3. Not resolvable – You conclude that there is an irredeemable breach of contract and you need to terminate the contract. Stopping payments When you register a problem, you should also stop payments if possible. If a payment has been authorised, then it should be held until the problem is resolved. If a payment claim arrives whilst the solving problems process is underway, you can still release the payment if you have good reason to do so, but you should support the claim with an explanation of why this is necessary. This is why your problem-solving process should operate as promptly as possible. Defining the problem The two key things you need to be able to write down at the start of the problem-solving process are ‘the way things appear to be, to you, now’ and ‘the way things ought to be’. The difference between these two positions is the problem you are trying to define. Both ideas are confined by the funding contract, and you should refer to the contract as you define the problem.

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The significance of a problem This is often difficult to determine without proper consideration of the facts. However there are generally three types of problems: (1) Practical: The recipient doesn’t meet a deadline or submit appropriate information. This may be due to a lack of understanding or competing priorities; however, if they make the same errors repeatedly, this may suggest weaknesses in the management of the project. (2) Applied: The recipient starts to demonstrate that they are not in control of the finances or management of the project. This may relate to delays in the timetable, including the start date, annual reports showing that the project has made little progress or there have been numerous contract amendments. (3) Fraud (or allegations of fraud): A specific kind of problem with a separate process. This is when someone intentionally (wilfully) seeks to misuse your funds. If there is an allegation of fraud, it is important to move very quickly. It may be that an outside person first alerts you to a potential problem.

Your approach to problem solving Diagnosing the cause of a problem is very much like the process a doctor goes through when trying to diagnose a medical problem. The doctor reviews the symptoms you present. The doctor asks a series of questions designed to add information or confirm the nature of the symptoms you are presenting. They review your notes and take into account your medical history. This may include reviewing reports from specialists. If you have taken a friend or partner with you, the doctor may ask them to contribute. At any point in this process, the doctor may decide that they have a diagnosis. They may decide further tests are necessary. Tests are about gathering evidence about all the interacting functions of the body to help determine the cause of the problem. Diagnosis is eventually based on identifying those bodily functions that are not doing what they ought to be and the factors that might be influencing this. The solution sometimes leads to further symptoms being presented at a later date. However, the aim is always to treat the cause rather than the symptoms as this saves time and money and promises a much more successful outcome for the patient. In a similar way, you should seek to diagnose the cause of the problem and then treat it effectively using the minimum amount of intervention.

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Appropriate response When you have a concern, you must keep an open mind. Your response and solution should be based on an evaluation of the problem. Your solution should also be kept to a minimum. Starting point: • Will one or more variations solve the problem? • Will a change in risk level solve the problem? • A combination of these? More serious: • Should we add a formal warning? Very serious: • Should we terminate the contract?

Irredeemable breach of contract An irredeemable breach occurs if the recipient defaults on the contract to such an extent that you can no longer work with them to remedy the problem. There are usually five defaults (listed below) that result in termination immediately. For all the others, an irredeemable breach of contract will not occur until you have exhausted the formal warning procedure or the recipient commits a further significant breach.

Amending the funding contract and variations Amending the contract means agreeing to a change in the terms and conditions of the original contract. The change enables the recipient to continue with their project within the terms and conditions of the contract. A contract amendment is made up of one or more variations. You advise the recipient of contract amendments in writing. Types of variation I have identified nine variations that fall into four types: • Changes to the project focus or beneficiaries – be very careful about these and ensure the project is still ‘on purpose’. • Changes to the amount of funding (capital and/or revenue amounts): • Between revenue and capital; • Within budget heads;

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• Reduce funding; • Increase funding. • Changes to the timetable: • Change of payment deadline; • Change of length of funding. • Other risk factors: • Add, delete, change item; • Exceptions outside these. Sometimes you will need to use more than one of these at the same time. Why variations are needed It would be unrealistic to assume that every project you fund will go ahead as planned. In fact it is probable that no project has ever proceeded exactly to plan. Projects have to respond to changing circumstances if they are to succeed. You want to give every recipient the best opportunity of success. You must also ensure that they comply with your terms and conditions during the lifetime of the funding and beyond in certain cases. Negotiating changes to the contract by agreeing to apply one or more of these variations is a very positive way of doing this. It acknowledges that you need to be responsive to changing circumstances whilst still being accountable for your actions. But it also provides a formal way of recording changes to the contract that the recipient must fulfil. Not an automatic process You should not agree to a variation automatically. If a variation is being proposed, by implication something has changed. You need to understand the reason for the change. There may be a better solution. Before you can help the recipient resolve a problem, you have to understand the cause. Once you understand the cause, you can review all the possible solutions, one of which is to amend the contract. Rules for applying variations There are a number of general rules that should apply to all contract amendments: • To vary a contract, you should first register a concern as part of the solving problems procedure. • If you propose to vary a contract, this can be all or part of your problem solution. Other options include changing the risk level and issuing a formal warning.

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• Variations must be agreed in writing with the recipient so that they become part of the formal contract. • Variations can be agreed retrospectively, but this should be in exceptional circumstances as, technically, the recipient is in default and the formal warning process may need to be pursued. • Variations are agreed by the recipient completing a written request, or over the phone plus correspondence if necessary, and then confirmed in writing. Who asks for a variation? Variations come about in two ways: (1) To pre-empt a problem that the recipient is aware of – they make a request. (2) To resolve a problem that you have spotted – you make a proposal. It is important to review each recommendation to agree a variation in the context of previous contract amendments.

Defaults and terminations Events of default The funding contract should specify what events constitute a default. Some of these would lead to immediate termination of the contract, whilst others, with careful handling, might be resolvable if dealt with early enough. Insolvency and fraud always result in an immediate termination of the contract. However, other defaults on the list have the potential to be managed through the problem-solving process to successful completion of the contract or to termination of the contract depending on the co-operation of the recipient. Table 12.5 lists the most likely defaults, those in bold are the ones that should lead to immediate termination of contract: Table 12.5 Contract defaults Default

Meaning

Insolvency

1. The recipient organisation passes a resolution, or a Court makes an order that it will be wound up. Does not include the situation where the insolvency precedes reconstruction or amalgamation of two or more organisations (see change to the recipient organisation below).

Fraud (if confirmed)

2. Intention to misuse funds

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Negligence

3. No intention to misuse funds, but extremely careless in approach

Material misrepresentation and changing information

4(a). Any statement or information given about the project that is inaccurate or untrue

Misuse of funds

5. Funding used for costs that are not part of the project or not used in accordance with the project details you have

Successful completion unlikely to occur

6(a). You judge that successful completion is unlikely to occur

Breach of obligation

7. The recipient fails to perform or observe an obligation within the contract. This includes completion of monitoring forms, terms of funding and conditions of funding.

Significant change to the project

8(a). The recipient changes the project in such a way that the agreed outcomes are threatened

4(b). The requirement on the recipient to inform you of a change that could have an adverse effect on the project.

6(b). Successful completion has not happened by the agreed completion date

8(b). The recipient changes the project in such a way that the agreed outcomes can no longer happen Not acting in the interests of the project

9(a). Actions by the recipient, members of its governing body, employees, servants or agents that has a detrimental effect on the project 9(b). Actions by the recipient, members of its governing body, employees, servants or agents that brings the funder into disrepute

Changes made to recipient organisation and ownership of assets without permission

10(a). Transfer of assets to a third party without your written approval 10(b). Changes to ownership of recipient including: merging or amalgamating; composition or structure or constitution without your written approval – however the new organisation would be eligible under the programme 10(c). Changes to ownership of recipient including: merging or amalgamating; composition or structure or constitution without your written approval – new organisation ineligible under the programme

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The warning process The warning process can be compared to the disciplinary procedure used in relation to a member of staff. It has a number of stages. At each stage, there is the opportunity for you and the recipient to clarify the issues and your expectation of how they should be resolved. Often a formal warning is combined with a variation so that there is a very clear record of your requirements if the contract is to continue. You should not use this process unless there is no other option open to you. Formal warnings – stages involved There should be three stages to your formal warning process (Table 12.6): Table 12.6 The warning process Level of warning

Reason for use

First warning

• • •

Second warning

• • •

Final warning

• • • • •

Repeated minor misdemeanours One of the defaults on the list where a remedy has good potential for success Conduct which disrupts post-decision management processes Repeated misconduct, having already had a first warning The default is serious enough to warrant starting the procedure here Those identified in Defaults, Table 12.5 Repeated misconduct, having already had a second warning Serious default which has a chance of being remedied Accidental act that has had serious consequences The default is serious enough to warrant starting the procedure here Not acting in the interests of the project

All warnings should be issued in writing. Consequences of termination of the funding contract When you terminate a contract, the following things happen: • You stop all payments (this should have happened when the problem was registered). Any further payment will be made on an assessment of the reason for termination and performance of the investment to date.

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• You check if the nature of the breach may affect another application or live investment. • You make a decision whether to attempt to recover all, part or none of any funds paid to date. You may need to follow set procedures here, and the law or other legislation may give you no choice in the matter if public money is involved. • You register the details to be taken into account against future applications. • You may need to notify other funders and regulatory bodies as appropriate.

Fraud Fortunately the incidence of actual fraud in philanthropy is low and social investment is based on trust. However, there have always been a small number of people who take advantage of this fact and of any weaknesses in funders’ fraud detection systems. In the early 2000s, a group of determined fraudsters perpetrated a major fraud on a large number of UK grantmakers. They defrauded private foundations, government funders and Lottery distributors (mainly the Community Fund) with hundreds of bogus applications and extracted several million pounds, so be warned. More recently, the prospect of fraud in relation to potential terrorist activities has come to prominence. For some funders, this is a real issue especially when you realise that, for example, a significant proportion of al-Qaeda’s funding comes through nonprofit organisations.5 What is fraud? Until November 2006 there was no specific crime of fraud in the United Kingdom. Instead there were a number of offences (certain types of theft, deception, conspiracy, etc.) which together were loosely termed ‘fraud’. This changed with the passing of the 2006 Fraud Act. The Act provides for a general offence of fraud with three ways of committing it, which are by: (1) False representation (section 2) – behaving dishonestly such as using a forged credit card or pretending to be someone you are not. (2) Failing to disclose information (section 3) – where there is a legal duty to do so, for example failing to reveal a criminal conviction to an employer. (3) Abuse of position (section 4) – when you are in a position of privilege, for example cloning your company’s software with the intention of selling it. It created new offences of obtaining services dishonestly and of possessing, making and supplying articles for use in frauds. It also contains a new offence of fraudulent trading applicable to non-corporate traders.

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It is likely that most external frauds you might come across as a funder will fall under section 2 frauds, whereas internal frauds are most likely under section 4. Why do frauds happen? For a fraud to take place four elements have to be present: (1) (2) (3) (4)

People to carry it out; Assets for them to defraud; Intent on the part of the person(s) perpetrating it; The opportunity for them to carry it out.

Of these probably, the key element is the last. Without opportunity, even the most dedicated fraudster can’t succeed. Opportunities occur where control systems break down and, in most cases, opportunity precedes intent. In other words, an otherwise honest person spots a defect in a control system and, sometimes with an additional stimulus like a short-term need for cash, exploits it. In investigating grant fraud the UK Treasury identified seven main causes, which also demonstrate where the problems in control systems lie. Again the human element is the most common: (1) Time pressures on staff leading to ‘short cuts’ being taken in anti-fraud or compliance procedures. (2) No segregation of duties between staff (mainly a cause of internal fraud). (3) Ignoring controls because they are ‘too much trouble’. (4) Poorly trained staff who ignore or don’t know the procedures. (5) Wrong skills in staff. In funders, this often happens when ‘experts’ in the field they are funding consider anti-fraud and compliance checks ‘bureaucratic’ and irrelevant. (6) Poor audit trails that make it impossible to check things. (7) Too few or too infrequent checks being undertaken. How are frauds detected? Broadly there are two ways in which fraud is detected: (1) By people. (2) By systems. Or, potentially, by a combination of the two. Of these, the most powerful tool is people – who still have infinitely more ‘computing power’ in their heads than any automated system. After a fraud has been discovered, it is surprising the

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number of times someone in the organisation says, ‘I had a feeling something was wrong but couldn’t put my finger on it.’ Your fraud procedures should allow you to investigate these ‘feelings’. Work done by the UK Treasury has found out that frauds are detected in the following proportions in the public sector: • 50 per cent through control procedures; • 30 per cent through third-party informants; • 20 per cent through personal suspicion, accident, audit or confession. And of course many of the control procedures are human ones. Fraud alerts – spotting potential fraud Staff involved in philanthropy need to be aware of the warning signs that may indicate fraudulent activity. The following is not an exhaustive list but is based on actual examples. • The applicant/recipient is unwilling to supply original documentation when requested – it is relatively easy to doctor a document and then photocopy it. Sight of an original document makes it easier to detect manual adjustments and makes it easier to confirm that the recipient is the valid owner of the invoice or other document. Monitoring visits should confirm the existence of assets purchased by grant monies. Recipients have been known to submit fictitious invoices. A sample of suppliers could be contacted to verify purchases. But remember that with easily available software packages, forging realistic looking ‘official’ documents is quite easy. • Invoices not being in the name of the recipient. Invoices supplied to support project costs that are not in the name of the recipient should be treated carefully. • Failure to supply proper certification. Certification should be specific, referring to the invoice and the project. • Changes to the purpose of the funding – why are these necessary? Should the change have been foreseen earlier? Did the recipient obtain funding knowing that they could not meet the approved purposes? • Manual alterations to documents, use of correction fluid – any document that you receive where figures, authorisation or important text has been changed should be regarded as suspect. • Cash flow problems – recipients with cash flow problems may treat your funding as a source to alleviate difficulties elsewhere in the organisation. Treat all assurances that the problem is only short-term with mild scepticism. The latest financial statements of the recipient should provide evidence of any financial problems being experienced.

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• Partnership funding problems – these are similar to cash flow problems. Recipients who find that their other sources of funds have dried up may try to extract further sums from you whilst covering up the shortfall from other funders. Alternatively, they can try to cut corners and fail to meet the approved purposes of the investment. • Payments requested to accounts in the names of individuals (for grants to organisations). These should not be accepted. Payments should always be made to the organisation with whom you have signed a contract. • The recipient claims not to have received a payment. This could mean that the money due to be paid has been diverted to another account. • A supplier claims not to have received a payment. This could mean that the money due to be paid has been diverted elsewhere. • Changes to bank account details. Individuals may seek to divert money to accounts they have set up. Details about changing bank accounts should be authorised by a very senior member of the recipient organisation. This person should be different to the normal daily contact. • Overseas bank accounts. Payments to overseas bank accounts are difficult to retrieve once made. You should always be suspicious of anyone who wants you to pay funds into one. Payments should never be made to overseas bank accounts for domestic projects. • Third-party tip-offs. Any allegation of this type must be reported through an agreed internal process, to your specifically designated fraud investigation manager. It does not matter if the allegation is anonymous, or whether it appears to be purely malicious or completely without merit. If a tip-off is received, you should try to get as much information as possible about the circumstances, including, when possible, the name and address of the person making the allegation. • Excessive hospitality and gifts being offered. These are potentially attempts at corruption. Suppliers or applicants will be generous to staff for a reason. That reason may be to try to influence the decision-making process. • Conflicts of interest. Recipients should be able to show that they have competitively tendered all significant elements of the project. Work should not be carried out by organisations connected to the senior project staff or trustees of the recipient, unless this was made clear at the time of the application. You should look out for names on the letterheads of correspondence and invoices that look familiar. • Failure to competitively tender. This could be evidence of close links between the contractor and a senior member of the recipient organisation and/or collusion to ‘fix’ the tendering process in some way. • Especially in relation to internal fraud – knowledge of other people’s passwords. This could allow someone to have different access levels enabling them to carry out fraudulent entries in the name of the person whose

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•

•

• • • • •

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password they have obtained. You should not give your password to anyone. You should change your password immediately you believe someone may have identified it. You should utilise your fraud reporting process if you believe that someone may have used deception to access your password. The applicant or recipient is never in when telephoned. This may suggest that the ‘office phone number’ is, in fact, an accommodation address or a home telephone. Evasive answers. Applicants or suppliers that give evasive answers may just be poorly briefed, but they may be trying to cover something up and not have a satisfactory explanation for the circumstances under discussion. Aggressive answers. Can potentially be an attempt to silence debate and end investigative questioning. Autocratic line management. People who rule by fear can create circumstances where procedures and controls are ignored or over-ridden. A high incidence of errors. This may imply a poor level of controls. A poor level of controls is a breeding-ground for fraud opportunity. Signatories that do not check what they are signing. If staff know that you do not check what you are signing, there is a major control weakness. Failure to follow procedures. Procedures have been designed to be effective in deterring fraud. If people do not abide by the procedures, they will inevitably be weakening your defences against fraud.

Allegations of fraud Your organisation should have a fraud allegation and investigation procedure that is known by all staff. Staff should not deal with allegations of fraud themselves but should immediately refer them to a person named in the fraud allegation procedure who will take appropriate investigative action. A tip-off may be the way in which staff are alerted to a fraud. This may come via a phone call or letter and will often be anonymous. Investigation of alleged fraud Investigation should be done by your designated officer. A preliminary investigation will be undertaken to assess whether there is sufficient evidence to either call in the police or undertake a formal investigation. The preliminary investigation will be handled by the named fraud investigation manager in your organisation, and its objective will be to identify facts that will assess whether there is any substance to the allegations. Enquiries will be undertaken with discretion in order to avoid prejudicing any future formal investigation or criminal proceedings. A formal investigation may follow provided there is enough evidence to suggest that a fraud or irregularity has taken place. A formal investigation will

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involve the gathering of evidence (direct, circumstantial and hearsay) by forensic examination of original documentation, often by appointing a forensic auditor to visit the recipient, holding formal interviews and/or informing the police. It must be your policy to actively investigate all allegations of fraud. Recovery of losses should be sought in all cases of actual fraud by both public and private funders.6 This will involve the police and the use of criminal and/or civil action against the perpetrators. Confidentiality Staff should not discuss any aspect of the fraud with a third party. The personnel responsible for media liaison should be briefed with the precise information they are allowed to release. A record will be maintained of the distribution of this information. Suspicions that arise during monitoring activities If you are carrying out an annual review visit or another monitoring interview and you begin to suspect that there could be a fraud, you should not attempt to investigate the fraud. Continue with the interview as per your original purpose and try not to alert the interviewee to your concerns. Following completion of the interview, you should report your suspicion through the agreed process. The use of notes as evidence in fraud cases Good notes are invaluable in all circumstances. As a general principle, evidence is essentially fact and not impressions or opinions formed or conclusions drawn. Throughout any investigation situations will happen and conversations take place that are material to the matter under investigation. Always make a formal note of the telephone conversation or meeting. The note must • Be an honest and factual statement of evidence if subsequently required by the police. • Bring all aspects clearly to mind should you be called on to give evidence in a court hearing.

Appendix – Numbers of Stages and Applications This appendix covers the points you need to consider regarding the number of application stages that you need for a programme – that is, the number of applications that an organisation will have to complete before a decision can be made to fully support a project.

Development grants Development grants are used even before a ‘project’ as such exists. Development grants can be used to • • •

Solicit and work up applications from organisations you have identified as being likely to achieve the programme outcomes; Carry out feasibility studies, especially for larger building projects; or Provide money to help the applicant develop their project plans in a two- or multistage application process.

Some of the grants for development work may never materialise as an actual project or application, but this does not mean they are ‘wasted’. Both you and the applicant may well find that spending a small sum of money ‘up front’ saves a lot more ‘down the line’. You need to take great care in fashioning the terms applied to a development grant both to maximise its potential and deflect any possible criticism of ‘unfairness’. You may also award a development grant as a result of a Stage One application. The development funds being related to the submission of the Stage Two application and the work required to produce it.

Reasons for having NO application You can consider there being no formal application if the following are true: •

•

The only possible applicants have been identified as part of the programme development work or they are clearly named or implied in directions given to you by your board, trustees or a government department for a public funder. The more ‘focused’ your programme becomes, the fewer your likely applicants. A very wide field of activity (for example: ‘young people and sport’ or ‘improving health’) is likely to have a huge number of potential applicants whereas something very specialised (for example: ‘young people and ice hockey’ or ‘improving the mental health of women in Bristol’) may potentially have only a few applicants. The projects are highly focused and leave little room for negotiation of how the project will be handled at the point of delivery – so you provide the plan for the project and ask the organisation to carry it out, a bit like saying ‘here is the service we want and the money, you do it’. Venture philanthropy often acts in this way. 233

234 Appendix – Numbers of Stages and Applications

• You have arranged a procurement process with an external agency that the recipients are tied in to. For example, the NOF programme for cancer machinery in hospitals worked in this way. • You are in a position to complete at least 75 per cent of the data on an application form without input from the potential applicants. Note that even if you have no competitive application stage to your programme, you still need exactly the same details as you would require for an application-led process so you should have an application form and guidance materials. Inevitably a ‘closed’ programme such as this has the potential to be unfair or be criticised, and so if you decide that the nature of your programme suggests having no ‘open’ application stage, the reasons for this should be fully documented.

Reasons for ONE application (single-stage application process) If there is only one application, the following things ought to be true: • There are projects in development that are ready to fund; • The programme is very focused, but there is more than one possible type of applicant that could submit a bid; • The way in which projects will be managed and organised may vary substantially; and • You want to allow flexibility of approach. They are generally revenue-led schemes. Building work over about £30,000 (or equivalent) should ideally be subject to at least a two-stage process as a single stage involves applicants in significant ‘up front’ costs that could be wasted.

Reasons for TWO applications (two-stage application process) A two-stage process can be quite onerous on the applicant and obviously will take longer than a one-stage process. You must be clear why this approach is required as it is resourceintensive for both you and the applicant. On the other hand, those applicants who get through stage one have the incentive that there is a far greater likelihood of support at the end of stage two – although this clearly cannot be guaranteed. It can, though, save significant resources (both for applicants and you) if stage one is relatively quick and simple to complete. Broadly, stage one should concentrate on outcomes, stage two on details of planning and management. The first application enables you to select those schemes you want to ‘run’ with that appear consistent with your intended outcomes and confirm the approach for the submission of the second application. A two-stage process helps where • It can provide an element of competition at stage one if you don’t really know what the take up might be. • There is work to be done between applications (as mentioned, a development grant can help with a capital project or in working up a project plan). • It enables you to give some direction about the shaping of the project that will be submitted in the second application. • There is a clear stage in the project development process that will be the ‘break point’ between the two stages.

Appendix – Numbers of Stages and Applications

235

Reasons for MORE than two stages Occasionally the complexity or scale of your programme may be such that it requires more than two stages. The same caveats apply as in two-stage processes, but even more so, and therefore this should only be necessary in exceptional cases. The most likely are highly complex and costly capital building projects where the various application stages can be ‘dovetailed’ into procedures such as the Office for Government Commerce’s ‘Gateway’ process which allows projects to be aborted before they run ‘out of control’ on time or cost.

Notes Introduction 1. Pablo Eisenberg, ‘What’s Wrong with Charitable Giving – and How to Fix It’, The Wall Street Journal, 9 November, 2009. Eisenberg is Senior Fellow in the Public Policy Institute at Georgetown University. 2. For example, the Madoff scandal put a number of US foundations out of business because of their reckless investment policies and, in 2008, foundation assets in the US declined by 22 per cent, but there is good evidence that they will soon recover. See Joel L Fleishman, The Foundation: A Great American Secret, introduction to the paperback edition (Public Affairs, 2009) and Steven Lawrence ‘Foundations YearEnd Outlook for Giving and the Sector’, Foundation Center Research Advisory, November 2009. 3. Michael Edwards, Just Another Emperor? The Myths and Realities of Philanthrocapitalism (The Young Foundation, 2008), p. 9. Available here: http://www.justanotheremperor. org/. 4. See Brick et al., Granting Success: Lessons from Funders and Charities, New Philanthropy Capital, p. 15. Available here: http://www.philanthropycapital. org/publications/improving_the_sector/grantmaking/granting_success.aspx and the Centre for Interfirm Comparison website http://www.cifc.co.uk/Fundratios07.html. 5. The terms are quite contested, and clearly should mean slightly different things. For example, George McCully in Philanthropy Reconsidered (AuthorHouse, 2008) takes great exception to the term ‘non-profit’ which he sees as carrying far too many negative connotations. I think his antipathy is somewhat over the top.

1

Philanthropy, Grantmaking and Social Investment

1. Rosenwald (1862–1932) was one of the most interesting American philanthropists. He made his wealth from the Sears, Roebuck stores and management guru Peter Drucker described him as ‘the father of . . . the distribution revolution which has changed the world economy in the twentieth century’. He was strongly opposed to perpetual foundations, giving instructions that his own was to spend itself out no more than 25 years after his death, a task they achieved ten years ahead of time. His article ‘Principles of Public Giving’ is probably the second most important on philanthropy after Carnegie’s ‘Wealth’ to be published prior to the Second World War. 2. This book says very little about ‘corporate philanthropy’, by which I mean direct giving by companies not by their separate foundations. In the United States, this amounts to around a further $12 billion a year. 3. In his ‘Philanthropy: Are we a profession? Should we be?’ (Foundation Review, Vol. 2:1, 2010) Karl Strauber rightly says that, at present, philanthropy is not a profession, mainly because there is no mandatory professional training. He also says that it shouldn’t become one and that a ‘wisdom-based’ approach is preferable to a ‘science-based’ one. Needless to say, I don’t agree with his analysis. 236

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4. See http://www.csi.uni-heidelberg.de. 5. See http://www.erim.eur.nl/ERIM/Research/Centres/Erasmus_Centre_for_Strategic_ Philanthropy. 6. See http://www.swinburne.edu.au/business/philanthropy/. 7. Available at: http://www.resultsaccountability.com/PDF%20files/Results%20Based %20Grantmaking.pdf. If it is doubted that this dishonesty goes on then, see Michael Hooker’s ‘Moral Values and Private Philanthropy’, Social Philosophy and Policy, Vol. 4 Issue 2, which though written nearly 25 years ago still has many pertinent points to make. 8. Oxford English Dictionary. 9. Though he was born and educated in England. 10. Kenneth Boulding, A Preface to Grants Economics: The Economy of Love and Fear (Praeger, 1981). 11. For more on the distinction between ‘grants’ and ‘contracts’, see the Section ‘The Funding Contract’ in Chapter 12. 12. It also raises the immensely important issue of the political nature of philanthropy. There are many on the left who portray philanthropy as an institution of social control whilst others maintain it has a vital role in the social contract between citizen and state. Whilst not being an adherent of the ‘social control’ model, this critique does emphasise that there are huge power implications in the philanthropic relationship. 13. For example, the New Opportunities Fund ran a programme to upgrade cancer machinery in UK hospitals. We didn’t give the hospitals money; we gave them the actual equipment as it was far more cost-effective for us to negotiate its purchase in bulk from the manufacturers. 14. Good examples in the United Kingdom include the Nuffield Foundation and Joseph Rowntree Charitable Trust. The Russell Sage Foundation is a prominent example of a US ‘operating’ foundation. 15. The idea of ‘adding value’ is well known from the science of operations management which I examine in Chapter 8. 16. It is named after its discoverer George N. Papanicolaou. 17. What he more accurately said was ‘The man who dies rich dies disgraced.’ 18. Unfortunately, there are also some notorious examples of ‘bad’ grants too. The Rockefeller Foundation and the Carnegie Institution ran eugenics programmes in Germany into the Nazi era in the 1930s, and Rockefeller also supported unethical syphilis experimentation in Alabama, which took place without the informed consent of participants from 1932 to 1972. One might also cite the support of several right-wing US foundations for the teaching of the pseudo-science of ‘intelligent design’. 19. There is also a significant issue about just when change starts to happen. For example, there are a number of instances when an early evaluation of a project or programme has suggested it is not working but there is evidence to confirm that, in the longer term, it really did bring about change. Equally, there are many examples of evaluations that suggested, early on, that changes were happening only for these to peter out or fail in the longer term. For more on this see, Joel Fleishman, The Foundation: A Great American Secret, How Private Wealth Is Changing the World (Public Affairs paperback edition, 2009), pp. 263–266. 20. ‘Grant length’ is a very important topic, and for more on this see Brick et al., Granting Success, pp. 9–16 and Peter Frumkin, Strategic Giving (University of Chicago Press, 2006), pp. 293–330.

238 Notes

21. For example, it is closely linked to the discussion on strategy in Chapter 5. 22. For a good discussion on the scale of social problems, see Brest and Harvey, Money Well Spent (Bloomberg Press, 2008) pp. 21–35. 23. Nor is it possible to isolate just part of the process – you need to understand the whole system. There are many books, publications, websites and training courses that look at, say, ‘assessment’ or ‘project selection’. To me, this is like a soccer coaching programme that only teaches you how to head the ball. 24. Available at: http://cpnl.georgetown.edu/doc_pool/Nielsen0203Orosz.pdf. 25. Martin Morse Wooster, Great Philanthropic Mistakes (Hudson institute, 2006). Wooster’s target in his writings are the ‘left-wing’ foundations such as Ford and Carnegie who, he believes, have strayed too far from their donors original intent. Wooster’s view incorporates a very old-fashioned view of the poor in that he considers that ‘indiscriminate’ charity simply encourages dependency, an attitude that wouldn’t have been out of place among the members of the Charity Organisation Society in the late nineteenth century. 26. I faced this problem when trying to draw up a single complaints process for all 16 UK Lottery distributing bodies. 27. Deep and Frumkin, The Foundation Payout Puzzle, Hauser Center for Nonprofit Organizations Working Paper No. 9, 2005.

2 A Short History of Philanthropy 1. Unlike the history of philanthropy in general, this period has some excellent publications devoted to it not least the wonderful five-volume set from Pickering and Chatto, Narratives of the Poor in Eighteenth-Century England (2006), which contains the full text of Stephen Nye’s The Life of Mr Thomas Firmin, Late Citizen of London published in 1698. The full set does cost £450 though. 2. A recent edition is from Applewood Books (2006). His ideas were also summarised in the article ‘Wealth’, North American Review, CCCXCI, June, 1889. Available at: http:// www.swarthmore.edu/SocSci/rbannis1/AIH19th/Carnegie.html. 3. Though Carnegie’s principles are strongly espoused by some of today’s leading philanthropists including Warren Buffet (who gave a copy of Carnegie’s The Gospel of Wealth to Bill Gates), Sir Tom Hunter and Chuck Feeney (the Irish-American behind Atlantic Philanthropies), they are definitely not shared by the majority of very wealthy people today, at least not in the United Kingdom. In December 2009, The Times asked 35 of Britain’s richest people if they thought that wealth brings with it social responsibility. Of these, no fewer than 30 declined to comment and only two, Richard Branson and Stelios Haji-Ioannou, agreed with Carnegie (Arts, Style, Life Supplement, 9 December 2009). 4. Today, the foundations Carnegie established include the Carnegie Foundation for the Advancement of Teaching, see http://www.carnegiefoundation.org/; the Carnegie Endowment for International Peace, see http://www.carnegieendowment.org/; the Carnegie Corporation of New York, see http://www.carnegie.org/; and the Carnegie UK Trust, see http://www.carnegieuktrust.org.uk/. Only the Carnegie Corporation could be described as a ‘traditional’ grantmaker; the others are much closer to the model of an ‘operating foundation’. 5. See http://www.rockfound.org/. Like many US Foundations, Rockefeller has an excellent website, including a superb historical archive with, for example, every Annual Report from the first one covering 1913–1914.

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6. Mrs Sage’s foundation was named after her late husband, Russell, see http:// www.russellsage.org/. Russell Sage is an operating foundation directly involved in the conduct and dissemination of social science research. It should not be confused with the much more recent Sage Foundation (2007) that promotes multiculturalism and education. 7. A Scheme is a legal document made by the Charity Commission. It can add to, replace or amend any or all of the provisions in a charity’s governing document. 8. Now known as the Trust for London. See http://www.trustforlondon.org.uk/. 9. Taken from Norine MacDonald and Luc Tayart de Borms (eds), Philanthropy in Europe: A Rich Past, a Promising Future (Alliance Publishing Trust, 2008), pp. 8–9. Available at: http://www.alliancemagazine.org/books/Philanthropy%20in %20Europe%20-%20A%20rich%20past,%20a%20promising%20future.pdf. 10. The Italian government in 2001 introduced reform measures to a bill that would ensure the majority of seats on the boards of foundations would go to representatives of local authorities. The European Foundation Centre argued that the changes in the law undermined the independence of foundations of banking origin, affecting their capacity to act for the social and economic development, well-being and progress of their communities at local, regional and European levels. In 2003, the Italian Constitutional Court declared that some of the changes to the law were unconstitutional.

3

Theories of Change and Logic Modelling

1. Available at: http://www.wkkf.org/knowledge-center/resources/2010/W-K-KelloggFoundation-Evaluation-Handbook.aspx. 2. For more information about logframes, the World Bank’s Logframe Handbook is very comprehensive: http://www.wau.boku.ac.at/fileadmin/_/H81/H811/Skripten/ 811332/811332_G3_log-framehandbook.pdf. A shorter version of its application is an Annotated Example of a Logframe Matrix produced by the International Fund for Agricultural Development: http://www.ifad.org/evaluation/guide/annexb/Annex_B2DEF.pdf; The UNICEF Training Manual describes how to translate a logic model into a logframe and then into tools for monitoring and evaluation: http://www.ceecis. org/remf/Service3/unicef_eng/module2/part2.html. 3. Diana Leat, Replicating Successful Voluntary Sector Projects (Association of Charitable Foundations, 2003). 4. Recent reviews of this study have raised some questions about its conclusions because of the age range of the study group. 5. Some evaluation literature refers to ‘pre-post’ and ‘longitudinal’ studies as forms of quasi-experimental evaluation, because a reflexive comparison is made between the group receiving the programme intervention and a control group composed of the same group before the intervention. Other sources do not consider such studies to be quasi-experimental, and you wouldn’t find too many scientists or doctors who would agree that such studies constitute quasi-experimental evaluations. 6. For a rigorous approach to evaluating the outcomes and impact of social programmes, see the US Office of Management and Budget’s ‘Program Assessment Rating Tool’ (PART) which was adopted in July 2002 for formally evaluating the effectiveness of federal programmes in the United States, http://www.john-mercer.com/omb_ part.htm.

240 Notes

7. Orosz, Insider’s Guide, pp. 199–200. These are all based on the evaluation being by non-experimental direct analysis. CGTs or RCTs would be even more costly. 8. For example, I was involved in the evaluation of an experimental capacity building programme for small, user-led, community groups in the deprived inner London borough of Tower Hamlets. The participants were being trained in the ‘usual’ voluntary sector management, communication and financial skills, but participants had a range of issues that obviated traditional approaches. These included limited knowledge of English, profound learning difficulties and Tourette’s syndrome. A dual evaluation approach was taken with one evaluator ‘embedded’ in the programme (often called ‘action evaluation’) and one standing back from the programme to ensure a more objective view. The cost of the evaluation was closer to 25–30 per cent of overall programme cost. More details about this project and the evaluation report are available at http://www.skst.org/en/1/trustproject. html. 9. See also the further definition of these terms in Chapter 8 under ‘selecting performance measures’. 10. Available here: http://www.biglotteryfund.org.uk/er_eval_peoples_network_ evaluation_summary_uk.pdf. 11. For the evaluation report on this programme, see http://www.biglotteryfund.org.uk/ er_eval_nopes_yr5_summ.pdf. 12. For a slightly different, though equally valid, approach to the cost/benefit analysis of programmes, see Brest and Harvey, Money Well Spent, pp. 149–162. 13. For example, those cited in Diana Leat and Helmut Anheier’s book Creative Philanthropy (Routledge, 2006). 14. In the United Kingdom, charities have to report annually to the Charity Commission on their impact and quite a few foundations just list what their grantees have achieved. So this means that each impact is being reported once by the charity carrying out the work and again by the funder or funders, which could mean it’s being reported many times over. 15. See the Nonprofit Overhead Cost Project, Getting What We Pay For: Low Overhead Limits Nonprofit Effectiveness Nonprofit Overhead Cost Project, Brief No 3, August 2004. 16. Again refer to Chapter 8.

4 Types and Styles of Social Investment 1. Brest and Harvey approach these choices in a valuable way in Part 2 of Money Well Spent. 2. There is an interesting psychological question as to whether it is possible ever to be truly altruistic (even if you are, say, Mother Theresa or St Francis). For a discussion on this point, see Bishop and Green, Philanthrocapitalism, pp. 42–43. A significant example of a major funder who always demanded anonymity is Atlantic Philanthropies created by Charles Feeney. 3. It’s also worth looking at Theresa Lloyd’s book Why Rich People Give (Philanthropy UK, Association of Charitable Foundations, 2004) which puts a UK perspective on this. Lloyd doesn’t attempt to categorise the giving, her book is based on in-depth research, but you can see where the ‘Seven Faces’ might fit into it. 4. See Beth Breeze, ‘The Problem of Riches: Is Philanthropy a Solution or Part of the Problem?’ Social Policy Review 20 (The Policy Press, 2008). 5. See, for example, Frumkin, Strategic Giving, Chapter 8.

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6. The most ‘popular’ causes funded by foundations in the United Kingdom are social care 18 per cent of grant funding; health 17 per cent; education 10 per cent; arts and culture 8 per cent; environment 6 per cent; international 5 per cent; faith-based 5 per cent (Source: Charity Trends, 2006). In the United States, the figures are health 23 per cent; education 23 per cent; ‘human services’ 15 per cent; arts and culture 11 per cent; public affairs/society benefit 11 per cent; environment 7 per cent; international 4 per cent; science and technology (including social science) 4 per cent; religion 2 per cent (Source: The Foundation Center, 2009). The two sets of figures are not comparable as the United Kingdom one lists 31 per cent of grants made as ‘other/general’. 7. See, for example, Frumkin, Strategic Philanthropy, pp. 348–356 on the response to 9/11 for a critique of ‘disaster grantmaking’. 8. It’s interesting to note the similarities between Leat’s CE and the ‘new’ philanthropy discussed below. Leat was noting several grantmakers who fell into this category in the early 1990s well before the rise of the so-called new philanthropists. 9. Trusts in Transition: The Policy and Practice of Grant-Giving Trusts (Joseph Rowntree Foundation, 1992). 10. See Chapters 9 and 10 for more on this important distinction. 11. This is the median grant made by US grantmakers. 12. Available here: http://www.baringfoundation.org.uk/GrantmakingTango.pdf. 13. Available here: http://www.ncvo-vol.org.uk/products-services/publications/fruitfulfunding-guide-levels-engagement. 14. Compare these to the four impacts identified by Brest and Harvey in Money Well Spent (Part 2): • Promoting knowledge (not specifically covered by Unwin perhaps because this is less of a major concern of UK foundations); • Providing goods and services (the equivalent of Unwin’s first category); • Influencing individuals, policy makers and businesses (Unwin’s third category); • Building fields and movements (roughly equivalent to Unwin’s second category). 15. Available here: http://www.eckerdfamilyfoundation.org/docs/what_works. pdf. 16. Altamira Press, 2007. 17. It’s even the title of several papers and books that propound a strategic approach, for example Frumkin’s Strategic Giving though, to be fair, he doesn’t fall into these traps. Also see the section on ‘Strategic Philanthropy’. 18. All of the ‘Philosopher King’ approaches could be summarised as what postmodernist cultural theorists would term ‘metanarratives’. The term was coined by Jean-François Lyotard in his work, The Postmodern Condition: A Report on Knowledge (1979). A metanarrative is an abstract idea that is thought to be a comprehensive explanation of historical experience or knowledge. According to the advocates of postmodernism, metanarratives have lost their power to convince – they are, literally, stories that are told in order to legitimise various versions of ‘the truth’. In the wider sociological field, examples would include Marxism and many religions. 19. Edwards, Just Another Emperor?, pp. 31–32. 20. See http://www.siliconvalleycf.org/initiatives_cfvp.html. 21. For more on MRI, PRI and SRI, see Brest and Harvey, Money Well Spent, pp. 117–130.

242 Notes

22. A pdf of the article is available here: http://www.halftime.org/resources/Virtuous_ Capital_HB.pdf. 23. Wiley, 1998. 24. A chapter of Ellsworth and Lumada’s, From Grantmaker to Leader: Emerging Strategies for 21st Century Foundations (Wiley, 2002). 25. ‘The Venture Philanthropists’, The Factary Ltd 2011. The European Venture Philanthropy Association, established in 2004, had 16 members in nine countries three years later. 26. ARK’s annual Gala Dinner in 2007 featured a speech by Bill Clinton, music by Madonna and Prince and an auction that included dinner with Mikhail Gorbachev. In 2008, it was held at The Old Royal Naval College in Greenwich with a keynote speech by Tony Blair and £26 million was raised through the dinner and associated Gift Aid reclaims, significantly more than the BBC Children in Need appeal in 2009, which raised just over £20 million. 27. Available here: http://cpnl.georgetown.edu/doc_pool/Nielsen0103Sie vers.pdf. 28. Quoted in Bishop and Green, Philanthrocapitalism, p. 123. 29. Bishop and Green, Philanthrocapitalism, p. 123. 30. See the section on the most successful businesses in Chapter 5. A good example of ‘larger is worse’ was the collectivisation of farming in the Soviet Union. 31. For example, how confusing the approach could be for potential applicants if the funder suddenly ‘switches horses’. 32. Available here along with the Center’s many other excellent publications: http:// www.effectivephilanthropy.org/index.php?page= publications. For more about the Center, see Fleishman, The Foundation, pp. 27–29 and Chapters 9 and 15. 33. I refer to it more specifically in the discussion on strategy in Chapter 5. 34. November/December, 1999. Available here: http://www.fsg.org/tabid/191/ArticleId/ 178/Default.aspx?srpush=true. The pair’s later article in the Harvard Business Review, ‘The Competitive Advantage of Philanthropy’, December 2002, says more. 35. ‘Philanthropy’s New Agenda’, p. 127. 36. ‘Strategic Confusion’, Foundation News and Commentary, May/June, 2001. 37. ‘Strategic Philanthropy: Pew’s Approach to Matching Needs with Resources’, Health Affairs, May/June 1999. 38. Stanley N. Katz, ‘What does it mean to say that philanthropy is ‘effective’? The philanthropists ‘new clothes’, American Philosophical Annual Meeting Symposium: Effective Philanthropy, Philadelphia, 23 April 2004. He also critiques so-called effective philanthropy and, inevitably, venture philanthropy. Katz is from the Woodrow Wilson School, Princeton University and his article is available here: http://www. policydevelopment.org/proj_katz042304.htm. 39. For a more detailed explanation of SIBs, see the Young Foundation website: http:// www.youngfoundation.org/our-work/advising-public-service-innovation/socialimpact-bonds/social-impact-bonds. 40. For more detail on impact investing, there are a number of recent publications including: Impact Investing: A Framework for Policy Design and Analysis (Rockefeller Foundation, 2011), http://www.rockefellerfoundation.org/news/ publications/impact-investing-framework-policy; Impact Investments: An Emerging Asset Class (J.P. Morgan, 2010), http://www.jpmorgan.com/pages/jpmorgan/ investbk/research/impactinvestments; Investing for Social and Environmental Impact (Monitor Institute, 2009), http://www.monitor institute.com/expertise_publications. html. 41. Brest and Harvey agree in Money Well Spent, see pp. 52–54.

Notes

5

243

Can Philanthropy Learn from Business Methods?

1. For more on this topic, see Stephen Lloyd, Paul Palmer and Peter Grant, ‘Capitalism in Crisis: Lessons from the Voluntary Sector’, unpublished as yet, available from the authors. 2. Edwards, Just Another Emperor?, p. 44. 3. See, for example, the ISO 9000 Quality Management Principles or Malcolm Baldrige’s Core Values and Concepts that you can see more detail on here: http://www.baldrige21. com/Baldrige%20CORE%20VALUES.html. 4. For example: Managing People by Jane Weightman (Chartered Institute of Personnel and Development, 2004); The Truth about Managing People . . . and Nothing but the Truth by Stephen Robbins (Ft Pr, 2003) and Managing People for the First Time by Julie Lewthwaite (Thorogood, 2006). For a more ‘scholarly’ approach probably the current leading text is Human Resource Management by Derek Torrington, Stephen Taylor and Laura Hall (Financial Times/Prentice Hall, 7th edition 2007). I would also strongly recommend The Art of Captaincy by Mike Brearley (Channel 4 Books; new edition, 2001) which has a great deal to say about managing people with very different personalities in high-pressure circumstances. 5. See Progress on 15 Major Capital Projects Funded by Arts Council England, the report from the National Audit Office on these projects, available at: http://www.nao.org. uk/publications/0203/15_major_capital_projects_fund.aspx. 6. For advice on good governance, an excellent first step is NCVO’s Good Governance: A Code for the Voluntary and Community Sector, available at: http://www.ncvo-vol.org. uk/codeofgovernance. 7. The annual grant expenditure of the Lottery ‘good causes’ is often over £1 billion of which NOF accounted for half. 8. An interesting confirmation of these points comes in research carried out by the Center for Effective Philanthropy. They asked Chief Executives of US Foundations in what areas of their work they wanted their boards to be more involved. Top of the list (42 per cent) was ‘assessing the Foundation’s impact’ with nearly as many (41 per cent) saying ‘assessing the foundation’s strategy’. Rather fewer (21 per cent) wanted them more involved in ‘developing the Foundation’s strategy’ and very few wanted more involvement in ‘developing/approving operating policy’ (5 per cent), ‘approving grants’ (3 per cent) or ‘making daily operational decisions (1 per cent). Rather unfortunately, they didn’t ask in what areas they thought the boards should be less involved, but it was also interesting that the board members themselves virtually mirrored their CEO’s comments. Yet this isn’t happening in practice, one reason being that shared understanding of goals is not always present (see the comments under the Section ‘Beyond the Rhetoric’ in Chapter 4). Center for Effective Philanthropy, Essentials of Foundation Strategy, p. 15. 9. They include: John Antonakis, Anna T. Cianciolo and Robert J. Sternberg, The Nature of Leadership (Sage, 2004); John C. Maxwell, The 21 Irrefutable Laws of Leadership: Follow Them and People Will Follow You (Nelson Thornes, 1998) and James M. Kouzes and Barry Z. Posner, The Leadership Challenge (The Leadership Practices Inventory) (Jossey Bass, 2003). 10. For example, I would agree with the following well-used dictum for leaders that: The six most important words are ‘I admit I made a mistake.’ The five most important words are ‘You did a good job.’

244 Notes

The four most important words are ‘What is your opinion?’ The three most important words are ‘If you please.’ The two most important words are ‘Thank you.’ The one most important word is ‘We’. The least important word is ‘I’. http://www.nwlink.com/∼ donclark/leader/leadcon.html. 11. For example, Nick Arrizza’s Seven Principles of Great Leadership are the following: Learning to listen; learning to trust yourself; learning to empower others; learning to be resilient; learning to make the difficult emotional decisions; learning to take responsibility and learning to communicate effectively. (http://ezinearticles. com/?The-7-Principles-of-Great-Leadership&id=1971129). Whilst I would agree that leaders should do these more than managers, I believe my point still holds. 12. Essentials of Foundation Strategy, p. 9. 13. I don’t specifically look at the basics of good project planning in this section as it so closely ‘mirrors’ good strategic planning. 14. This is what frequently occurred in the early days of the Lottery distributors with planners from the policy functions developing programmes in isolation from their operations colleagues who then told them their plans wouldn’t work! 15. Porter suggests that strategic thinking is an analytical process utilising frameworks he has put forward such as five forces analysis, the value chain, the diamond model of national competitive advantage and strategy as activity system. 16. ‘The fall and rise of strategic planning’, Harvard Business Review, 1 January 1994. 17. ‘Crafting Strategy’ Harvard Business Review, July/August 1987 http://www. politikkampagnen.de/politikkampagnen/documents/pdf/mintzberg_craftingstrategy_lisowski.pdf. 18. ‘Crafting Strategy’. 19. ‘Crafting Strategy’. 20. See: ‘Strategic thinking: can it be taught?’, Long Range Planning, Vol. 31, No. 1, 1998, pp. 120–129 and ‘Linking strategic thinking with strategic planning’, Strategy and Leadership, Vol. 26, No. 4, 1998, pp. 30–35. 21. It can be found here: http://www.ecforbe.com/documents/papers/implementingbusiness-excellence-jb.pdf. 22. An example I used in initial staff training was a scenario that asked whether or not a payment should be released. Many people read the manuals in great detail and made a decision justified by the ‘rules’. The real solution was that you could take any one of a number of options as long as you had a justification for your action and followed it with appropriate actions based on risk (see Chapter 12). 23. Richard L. Daft in Organization Theory and Design has suggested that the key differences between large and small organisations are: large organisations: economies of scale; global research; vertical hierarchy; mechanistic; complex; stable market; produces ‘organization men’ whilst smaller ones are characterised by being responsive; flexible; having regional reach; flat structure; organic; simple; niche finding; produces entrepreneurs (South Western Publishing, 2003), p. 163. 24. A version of his thinking can be found in his book with John M. Ketteringham, Breakthroughs! (Pfeiffer & Co, 1993). 25. The source of this soubriquet may be John Collingwood’s The Life and Work of John Ruskin, but it has become so ubiquitous in describing him I’m not totally sure. 26. There is also the following Ruskin quote which I love though I’m not sure it’s entirely relevant to social investment: ‘I find penguins at present the only comfort in life.

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One feels everything in the world so sympathetically ridiculous; one can’t be angry when one looks at a penguin.’

6

Three Key Business Processes – 1: Risk Management

1. Fulton Kasper and Kibbe, What’s Next for Philanthropy? (Monitor Institute, 2010), p. 30. 2. Hooker, ‘Moral Values and Private Philanthropy’. 3. One way in which foundations are certainly risk averse is in preserving (or increasing) the value of their assets. Deep and Frumkin in The Foundation Payout Puzzle (Hauser Center, 2005) are probably right when they suggest this is ‘because assets are closely correlated to power, trustees admit a tendency to wanting to grow their foundations,’ and thus become more powerful. 4. For example, you may think that a funder could have no financial liability to a supplier that a recipient uses but you could be wrong. A UK local authority placed a major order with a supplier on the basis of a letter from a Director of a public grantmaker. In the event, the board of the grantmaker overturned the Director’s recommendation to fund the project and the local authority was stuck with a hefty debt to the supplier. After the grantmaker was threatened with legal action and the local authority had been granted a judicial review of the case, the grantmaker paid the suppliers bill.

7

Three Key Business Processes – 2: Operations Management

1. Albert Porter, Operations Management (BookBooN.com, 2009). 2. ‘Process Mapping’ is essential if you are writing the specification for a custom-built Grant Management System. It can also be of benefit even for quite small organisations and simple programmes as it emphasises the ‘feedback loops’ in the process and how the overall structure fits together. There are many introductions to process mapping available online. 3. This was a really significant issue in a ‘government controlled’ grantmaker like NOF. Ministers always want results ‘yesterday’ and so time was sometimes the deciding factor for a programme, whatever the cost.

8

Three Key Business Processes – 3: Performance Management

1. By the Center for Effective Philanthropy. See Essentials of Foundation Strategy, p. 13. 2. What’s Wrong with Charitable Giving – and How to Fix It. Incidentally many public grantmakers, such as the Lottery distributors in the United Kingdom, do have to submit themselves to independent evaluation via the National Audit Office and, most rigorously of all, before the House of Commons Public Accounts Committee. 3. Letts, Ryan and Grossman, High Performance Nonprofit Organizations, p. 31. 4. Letts, Ryan and Grossman, High Performance Nonprofit Organizations, p. 26. 5. Full cost recovery means recovering or funding the full costs of a project or service. In addition to the costs directly associated with the project, such as staff and equipment, ‘full costs’ would include proportional contributions to what are usually described as ‘overheads’. For example, adequate finance, human resources, management and IT systems are also integral components of any project or service. The full cost of any project therefore includes an element of each type of overhead cost, which should be allocated on a comprehensive, robust and defensible basis.

246 Notes

6. 7. 8.

9.

10.

11. 12.

13.

14.

15. 16. 17.

In theory, the UK government is committed to supporting full cost recovery funding for the voluntary sector. As Herzberg’s pioneering studies demonstrated as far back as the 1960s. For a simple exposition of these, see: http://www.businessballs.com/herzberg.htm. ‘Getting What We Pay For: Low Overhead Limits Nonprofit Effectiveness’, p. 1. See Paton, Managing and Measuring Social Enterprises (Sage, 2003), p. 168 Note 1; Martin Knapp, ‘The relative cost-effectiveness of public, voluntary and private providers of residential child care’, in Anthony Culyer and Bengt Jönsson (eds), Public and Private Health Services (Basil Blackwell, 1986), pp. 171–199. Martin Knapp, Daniel Chisholm, Jack Astin, Paul Lelliott and Bernard Audini, ‘Public, private and voluntary residential mental health care: Is there a cost difference?’, Journal of Health Services Research and Policy, 1998, Vol. 3, No. 3, pp. 141–148. Martin Knapp, A. Hallam, J. Beecham and B. Baines, ‘Private, voluntary or public? Comparative costeffectiveness in community mental health care’, Policy and Politics, 1999, Vol. 27, No. 1, pp. 25–41. Andreas Ortmann and Mark Schlesinger, ‘Trust, repute and the role of nonprofit enterprise’, Voluntas, 1997, Vol. 8, No. pp. 97–119. Burton A. Weisbrod, ‘Institutional form and organization behaviour’, in Walter W. Powell and Elizabeth S. Clemens (eds), Private Action and the Public Good (Yale University Press, 1998), pp. 69–84. Michael Krashinsky, Does Auspice Matter? The Case of Day Care for Children in Canada (Yale University Press, 1998). Rob Austin and Patrick Larkey, ‘Performance-based incentives in knowledge work: Are agency models relevant?’, International Journal of Business Performance Management, Spring 2000, pp. 56–71. See Marshall W. Meyer, Rethinking Performance Measurement: Beyond the Balanced Scorecard (Cambridge University Press, 2003) and M. Frigo, B. Needles and M. Powers, ‘Strategy and integrated financial ratio performance measures: Further evidence of the financial performance scorecard and high performance companies’, Studies in Managerial and Financial Accounting, 2006, Vol. 16, pp. 303–322. Rensselaerville Institute, the 3rd edition is the latest published in 1996. See, for example, E. Morley, E. Vinson, and H.P. Hatry, Outcome Measurement in Nonprofit Organizations: Current Practices and Recommendations (Independent Sector, Urban Institute, 2001). See, for example, M.C. Plantz, M.T. Greenaway, et al. ‘Outcome measurement: showing results in the nonprofit sector’, New Directions for Evaluation, Fall 1997, pp. 15–30. For example, I am currently leading a four-year evaluation for a major British foundation. The programme is providing funding of £100,000 a year for three years to ten significant nonprofit bodies. Not one of them has a valid outcome measurement system in place and several are struggling to even understand what the term means. Paton, Managing and Measuring Social Enterprises, p. 78. Paton, Managing and Measuring Social Enterprises, p. 79. The UK Office of the Third Sector together with New Philanthropy Capital, the New Economics Foundation, Charities Evaluation Services and the National Council of Voluntary Organisations has developed the Guide to Social Return on Investment and includes a toolkit and work book. This is supplemented by three further guides: ‘Social Return on Investment – an introduction’ gives an overview of SROI, what it can do for organisations, commissioners and investors and signposts where more information and support can be found.

Notes

247

‘Social Return on Investment – and commissioning’ explains how SROI can be used by those commissioning projects to achieve more social value when commissioning services. ‘Social Return on Investment – for social investing’ explains how SROI can be used by investors if they want to integrate SROI approaches into investment decisions to help them decide which investment will achieve the most social impact.

30. 31. 32.

All available here: http://www.neweconomics.org/publications/guide-social-returninvestment. Nef, Measuring Value: A Guide to Social Return on Investment, 2nd edition 2008, pp. 25–26. For a simple explanation of JIT, see Porter, Operations Management, pp. 31–33. John Krafcik, ‘Triumph of the lean production system’, Sloan Management Review, Fall 1988, Vol. 30, No. 1, pp. 41–52. The paper was based on his MIT master’s thesis. James P. Womack and Daniel T. Jones, Lean Thinking: Banish Waste and Create Wealth in Your Corporation (Simon and Schuster, 1996). Robert S. Kaplan and David P. Norton, ‘The balanced scorecard – Measures that drive performance’, Harvard Business Review, February 1992 and Balanced Scorecard: Translating Strategy into Action (Harvard Business School Press, 1996). For more on the selection of specific measures, see the Section ‘Selecting performance measures – key performance indicators’. One grantmaking organisation that has adapted the balanced scorecard approach is the Robert Wood Johnson Foundation. They are a major US healthcare foundation making grants of over $300 million a year. See Phil Giudice and Kevin Bolduc, Assessing Performance at the Robert Wood Johnson Foundation (Center for Effective Philanthropy, 2004). Paul R. Niven, The Balanced Scorecard Step-by-Step for Government and Nonprofit Agencies (Wiley, 2003). Reflections on Philanthropic Effectiveness (Bertelsmann Foundation Working Group Paper, 2004). Available here: http://www.effectivephilanthropy.org/index.php?page=performanceassessment-worksheet. Bishop and Green, Philanthrocapitalism, p. 151. In the United States, see Mark Kramer, Marcie Parkhurst and Lalithia Vaidyanathan, Breakthroughs in Shared Measurement and Social Impact (FSG Social Impact Advisors, 2009), available at: http://www.fsg.org/KnowledgeEx change.aspx. In the United Kingdom, the work of the Corston Independent Funders Coalition (CIFC) at http://www.corstoncoalition.org.uk/funder-coalitionsa-new-way-of-working is relevant Though it is very early to say how well these collaborations are working. For more on the ‘Learning Organisation’, see Peter Senge et al. The Fifth Discipline Fieldbook: Strategies and Tools for Building a Learning Organization (Doubleday, 1994). Urban Institute Press, 1999. http://www.ogc.gov.uk/resource_toolkit.asp. Just Another Emperor?, p. 69.

9

From Logic Model to Investment Programme

18. 19. 20. 21. 22.

23. 24.

25. 26. 27. 28. 29.

1. There are some good tips on this stage of grant programme planning in Brick et al., Granting Success: Lessons from Funders and Charities (New Philanthropy Capital, 2009).

248 Notes

2. 3. 4. 5.

10

See ‘Further reading’ and the Bibliography. See Brick et al., Granting Success, p. 20. For example, obviously ‘good’ applications scoring low and/or ‘bad’ ones scoring high. When funding for capacity, you should still carry out a ‘double-axis’ scoring such as this where you judge the applicant’s actual or potential ‘end results’ (on beneficiaries or on social change). Here, paradoxically, you would not fund organisations that are strong on management qualifiers (as they already have strong ‘capacity’ so what’s the point). You would fund those who are very strong on programme qualifiers but less strong managerially, as long as your funding can improve this. The danger of not doing both is that you can end up funding capacity building in organisations that achieve very little actual change or impact.

Designing the Programme

1. With some programmes, there may not be an ‘application’ as such. For example, organisations may be invited or funds may be pre-allocated to certain bodies. Even so the process is still the same and an ‘application form’ performing the functions outlined below is still required. For more detail on the number of stages in programmes, see the Appendix. 2. Remember that even if, in the United Kingdom, your organisation is also a charity this doesn’t mean you can only fund other charities. All you are constrained by is that you must fund within your charitable purposes (as defined in your trust deed or governing document). 3. It is always a good idea to put what is ineligible near the start of any guidance notes, web pages and so on for the programme. There is nothing more frustrating for potential applicants than to read through pages of information only to find they are not even eligible to apply. 4. Or, if there is to be no application (for example, organisations will be invited to apply or even pre-selected), does this pass scrutiny and meet your programme aims better than some form of ‘open’ application? 5. This is very common if you’re not careful. For example, you ask an architect their opinion of the design of a capital project and they tell you (without having seen all of the application materials) that the application should be funded (or rejected). 6. The three fields that NOF funding covered. 7. I use the term ‘Grant Management System’ as this is still the most common term in use for such software. For more on post-decision management systems, see Chapter 11. 8. New Philanthropy Capital use six areas for analysing charities: activities, results, leadership, people and resources, finances, and ambition. Theirs is an approach that works well in assessing organisations, especially their focus on leadership and staffing. See The Little Blue Book: NPC’s Guide to Analysing Charities and Funders, New Philanthropy Capital, 2010. 9. Incidentally, one very good tip here if you are in doubt is to look at the job descriptions of any posts that will be associated with delivering the project you are being asked to fund. Ask yourself the question ‘does the job purpose make it clear that it is there to deliver the outcomes we are seeking?’ Very often applicants don’t think about this over much and can ‘give themselves away’ unintentionally. If you see this, then ask whether the project and job descriptions could be amended or are they too far apart from your intended outcome?

Notes

249

10. This is why funders who have a ‘blanket’ policy of treating every applicant exactly the same are mistaken. They don’t understand the true nature of risk nor the purposes of assessment. 11. For more about funding contracts and what they should contain, see Chapter 11. 12. A good example of wishful thinking comes from the terms Sport England adopted in the early days of the National Lottery. They wanted to try to boost the number of women and girls playing certain sports and so applied a ‘blanket’ term that all sports clubs receiving funding should provide activities for women and girls. This was an admirable aim, but it simply didn’t match the reality. Most small sports clubs, especially those in rural areas, were not at a stage of development where starting female sections was remotely feasible. This led to lots of ‘failures’ to meet the terms of grant. What should have happened, and after a time did, was that part of the assessment was whether the club had the potential to develop female activities (usually far more possible in larger clubs). If they did, then a suitable term was added; if they didn’t, it wasn’t. 13. Even in very small organisations this can easily be done by another person checking the assessment. 14. The United Kingdom’s Freedom of Information Act enables applicants to organisations dealing with public money to see everything (with a few exceptions) that has been written about their application. This still applies even if the organisation actually doing the funding is not itself a public body. 15. Though at some point an application form would need to be generated (though it could be completed by the funder) and this must be signed by the applicant body.

11

Assessment and Selection

1. Some funders still don’t ‘allow’ staff to make ‘recommendations’ which is a bit like employing an accountant and not allowing them to suggest ways of avoiding excess tax. 2. In programmes to support scientific research, this may be the only, or certainly the most crucial, aspect of the assessment. 3. Incidentally, when ‘funding for organisational capacity’, there is a parallel dimension to the ‘project lifecycle’ and that is ‘organisational lifecycle’. You need to ask yourself the question ‘at what stage in its development is this organisation?’ (for example: emergent; mature; declining). This should help to answer the question ‘what kind of support do they require?’ Organisational lifecycle is important in any funding programme as you can’t expect a ‘one-size-fits-all’ approach to work with applicants/recipients who are all at different stages in their development. 4. In a public grantmaker, legal responsibility rests with the board and in a nondepartmental body also with the ‘accountable officer’, usually the Chief Executive. 5. Though to speed up (usually smaller) awards, you can ‘build in’ prior acceptance of any grant with the application form. ‘Awards for All’, the Lottery small grants programme, did this. 6. See the section on ‘contacting applicants’ later in the chapter. 7. With more sophisticated GMSs, the ‘file’ may not be hard copy but electronic, though hard copy files should still be kept in case of IT breakdown. 8. Checking like this can reveal crucial discrepancies in the information they supply. For example, a sports club that claimed they were open to all but had a locked door with a notice that casual users were not given admission and that membership was full.

250 Notes

9. This was the case with NOF. We very rarely visited projects during the assessment stage unless there was a really crucial issue or it was a very significant project (costing many millions). 10. In Wales, applicants have the right to communicate only in Welsh, the only language group in the United Kingdom with this legal right.

12

Post-Decision Management

1. There are a number of instances when an early evaluation of a project or programme has suggested it is not working but later evidence confirmed that, in the longer term, it really did bring about change. Equally, there are many examples of evaluations that suggested, early on, that changes were happening only for these to peter out or fail in the longer term. For more on this, see Fleishman, The Foundation, pp. 263–266. 2. Remember too that project ‘failure’ can provide just as much ‘learning’ as success. See, for example: Brest and Harvey, Money Well Spent, pp. 3–4 on the Robert Wood Johnson Foundation’s ‘Fighting Back’ initiative or Frumkin, Strategic Giving, pp. 67–68 on the Rockefeller Foundation ‘Minority Female Single Parent’ demonstration. 3. It may not be referred to by this name and, legally it is not a ‘contract’. It is usually called a ‘grant agreement’ in the United States. 4. Underspends are always more worrying than overspends. The latter is usually indicative of poor budgeting the former is often an early indication the project simply won’t deliver. 5. Though it is possible to overreact to this danger as, perhaps, happened in the United States after 9/11. 6. Because some of the funds of private funders have come from tax concessions and, thus, the public. They should never be covered up to protect the reputation of the funder as this will only make another fraud, in another funder, even more likely.

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Friedman, L.J. & McGarvie, M.D. (eds), 2002, Charity, philanthropy and civility in American history, Cambridge University Press. Frumkin, P., 2006, Strategic giving: The art and science of philanthropy, University of Chicago Press. Frumkin, P. & Deep, A., 2005, The foundation payout puzzle, Working Paper No. 9, Hauser Center for Nonprofit Organizations. Fulton, K. & Blau, A., 2005, Looking out for the future: An orientation for twenty-first century philanthropists, Global Business Network and Monitor Institute. Gilchrist, K. & Horsley, M., 2000, Fundraising from grant-making trusts and foundations, Directory of Social Change. Golden, S.L., 1997, Successful grantsmanship: A guerrilla guide to raising money, Jossey-Bass. Grants Managers Network, 2003, Best practices in grants management, Council on Foundations. Great Britain. Charity Commission, 2004, Transparency and accountability. Great Britain. Charity Commission, 2003, Trustee recruitment, selection and induction. Great Britain. Charity Commission, 2001, Internal financial management for charities. Great Britain. Charity Commission, 2001, The public character of charity. Handy, C. & Handy, E. 2006, The new philanthropists: The new generosity, Heinemann. Hardie-Boys, N. & New Opportunities Fund, 2004, Green spaces and sustainable communities: Achievements and challenges, New Opportunities Fund. Harker, A. & Burkeman, S., 2005, Stepping up the stairs: Increasing the impact of progressive philanthropy in the UK, Carnegie UK Trust. Harris, B. & Bridgen, P. (eds), 2006, Charity and mutual aid in Europe and North America since 1800, Routledge. Harris, J. (ed.), 2003, Civil society in British history: Ideas, identities, institutions, Oxford University Press. Harris, M. & Rochester, C. (eds), 2000, Voluntary organisations and social policy in Britain – Perspectives on change and choice, Palgrave Macmillan. Hatry, H.P. 1999, Performance measurement: Getting results, Urban Institute Press. Hedley, R. & Rochester, C., 1993, Good grant making: A practical guide, Association of Charitable Foundations. Humphreys, R., 2001, Poor relief and charity, 1869–1945: The London Charity Organization Society, Palgrave Macmillan. Kaplan, R.S. & Norton, D.P., 1996, Balanced scorecard: Translating strategy into action, Harvard Business School Press. Karoff, H.P., 2007, The world we want: New dimensions in philanthropy and social change, AltaMira Press. Karoff, H.P. (ed.), 2004, Just money: A critique of contemporary American philanthropy, TPI Editions. Kibbe, B.D., Setterberg, F. & Wilbur, C.S., 2005, Grantmaking basics – A field guide for funders, Council on Foundations. Kramer, M., Parkhurst, M. & Vaidyanathan, L., 2009, Breakthroughs in shared measurement and social impact, FSG Social Impact Advisors. Leat, D., 2007, Just change: Strategies for increasing philanthropic impact, ACF (Woburn Place Collaborative). Leat, D., 2003, Replicating successful voluntary sector projects, Association of Charitable Foundations. Leat, D., 1998, Faith, hope and information: Assessing a grant application, Joseph Rowntree Foundation.

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Poister, T.H., 2003, Measuring performance in public and nonprofit organizations, Jossey-Bass. Porter, A., 2009, Operations management, BookBooN. Powell, W.W. (ed.), 2006, The nonprofit sector, Yale University Press. Prince, R.A. & File, K.M., 1994, The seven faces of philanthropy – A new approach to cultivating major donors, Jossey-Bass. Prochaska, F.K., 1992, Philanthropy and the hospitals of London: the King’s Fund, 1897–1990, Clarendon Press. Prochaska, F.K., 1990, ‘Philanthropy’ in Cambridge social history of Britain, ed. F.M.L. Thompson, Cambridge University Press. Prochaska, F.K., 1988, The voluntary impulse: Philanthropy in modern Britain, Faber. Proscio, T., 2001, Bad words for good – How foundations garble their message and lose their audience, Edna McConnell Clark Foundation. Raymond, S.U., 2004, The future of philanthropy: Economics, ethics and management, Wiley. Sacks, E.W., 2002, The growth of community foundations around the world: An examination of the vitality of the Community Foundation movement, Council on Foundations. Schluter, A., 2001, Foundations in Europe: Society, management and law, Directory of Social Change. Senge, P., Roberts, C., Ross, R., Smith, B.J. & Kleiner, A., 1994, The fifth discipline fieldbook: Strategies and tools for building a learning organization, Doubleday. Setterberg, F., Kidder, R.M. & Wilbur, C.S., 2001, Grantmaking basics II – A field guide for funders, Council on Foundations. Shah, A. & New Opportunities Fund, 2003, Out of school hours learning: The views and opinions of the New Opportunities Fund taff, New Opportunities Fund. Shah, A. & New Opportunities Fund, 2003, Self-evaluation: A handy guide to sources, New Opportunities Fund. Sievers, B., 2001, If pigs had wings: The appeals and limits of venture philanthropy, Address to the Waldemar A Nielsen issues in Philanthropy Seminar. Silk, R.D. & Lintott, J.W., 2003, Creating a private foundation: The essential guide for donors and their advisors, Bloomberg Press. Skidmore, P. Demos & New Opportunities Fund, 2003, The art of association: Community organisations and the public realm, New Opportunities Fund. Skloot, E., 2001, Slot machines, boat-building and the future of philanthropy, Waldemar A. Nielsen Issues in Philanthropy Seminar. Slack, N., Chambers, S. & Johnson, R., 2009, Operations management, 6th edn, Financial Times/Prentice Hall. Snoddy, R. & Ashworth, J., 2000, It could be you: The untold story of the National lottery, Faber and Faber. Taylor, E.K., 1953, Public accountability of foundations charitable trusts, Russell Sage Foundation. The Philanthropic Initiative, 2000, What’s a donor to do? The state of donor resources in America today, The Philanthropic Initiative. Thornley, B. et al., 2011, Impact Investing: A framework for policy design and analysis, Rockefeller Foundation. Tonnies, F., 2001, Community and civil society, Cambridge University Press. Traynor, T., 2007, A guide to the major trusts 2007–2008, Directory of Social Change. Treasury Board of Canada, 1998, Program evaluation methods: Measurement and attribution of program results, Treasury Board of Canada Secretariat. Unwin, J., 2005, Fruitful funding, NCVO/ACF. Unwin, J., 2004, The grantmaking Tango: Issues for funders, Baring Foundation.

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Index NOTE: References to entries in bold indicate the entry is to be found in a Figure or Table Adaptive Learning, 136 Agency theory, 147 Anheier, Helmut, 9 Creative Philanthropy, 3, 79, 240 (note 13) Private Funds Public Purpose, 20 application forms, 4, 19, 154, 155, 156, 164, 165, 167–70, 179, 212, 234, 249 (note 5) application stages, 166, 172, 180, 184, 186, 192–3, 197, 226 Aristotle, 7, 9 Arnove, Robert F Philanthropy and Cultural Imperialism, 20 Arts Council of England, 86 assessment (of applications), 44, 85, 145, 148, 155, 156–203 Association of Charitable Foundations, 8, 61 Balanced scorecard, 100, 129–33, 135 Bauer, Joachim, 95 Benchmarking (Best Practice), 125–6, 135, 139 Bishop, Matthew Philanthrocapitalism, 51, 63, 79, 83, 240 (note 2), 242 (notes 28 & 29), 247 (note 28) Blau, Andrew Looking out for the Future, 31, 56 Boulding, Kenneth, 10, 72 A Preface to Grants Economics, 11 Bradley, Bill, 72 Breeze, Beth, 55–6, 240 (note 4) Bremner, Robert H American Philanthropy, 31 Brest, Paul Money Well Spent, 3, 54, 238 (note 22), 240 (note 12), 240 (notes 1), 241 (note 21), 242 (note 41)

Brick, Padraic et al Granting Success, 162, 236 (note 4), 237 (note 20), 247–8 (notes 1 & 3) Bridgen, Paul Charity and Mutual Aid in Europe and North America Since 1800, 30 Carnegie, Andrew, 12, 24, 76, 238 (note 25), 238 (note 4) Gospel of Wealth, The, 24, 238 (note 3) Cass, Business School 2, 9, 55, 98 Center for Effective Philanthropy, 74–5, 88, 115, 134, 243 (note 8), 245 (note 1) Centre for Social Investment, Asia Pacific, 9 Centre for Social Investment, Heidelberg University, 9 Centre for Strategic Philanthropy, Rotterdam, 9 Charity Evaluation Services, 162 Charity Organisation Society, 23, 72, 238 (note 25) City Parochial Foundation (Trust for London), 26 civil society, 4, 68, 83 models of, 28–30 classification data, 166–7, 214 communication (with applicants and recipients), 63, 155, 177, 196, 199–200, 218 Community Fund, 157, 227 complaints handling, 194, 201–3 conditions (of grant), 11, 60, 107–8, 154, 160, 172, 174–6, 180, 193–4, 207, 209, 229–30, 233 contract (see Funding Contract) Cook, Tim Reflections on Good Grant-making, 20 Copeman, Caroline, 98 257

258 Index

criteria assessment criteria, 44, 145, 154, 155, 156, 157, 168–72, 176, 178, 179, 189 eligibility criteria, 145, 168, 182, 185, 196 connection to risk, 154–9, 173–5, 184, 186–7 connection to terms and conditions, 161, 174 programme and management, 60, 66, 172 judgement points, 165, 170, 172–3, 176, 186 decision making, 2, 16–18, 44, 53, 74, 85, 86–7, 99, 100, 140, 149–51, 177–9, 182–4, 185, 187–91, 230 decision reports, 178, 187–91, 216 peer review 177–8 Dowie, Mark American Foundations: An investigative history, 31 Doyle, Arthur Conan, 145 Duggan, William What Works Grantmaking, 66, 78, 83 Edwards, Michael Just Another Emperor?, 68, 79 effectiveness, 31, 45–6, 50–2, 58, 71, 111, 114–15, 121, 133, 183 Effectiveness Frameworks, 133–5 measures of, 134, 137–42 Einstein, Albert, 14, 15, 45, 71, 97 Eisenberg, Pablo, 1, 116 Eilinghoff, Dirk Rethinking Philanthropic Effectiveness, 51 Ellis, Fiona, 61 Ellsworth, Lynn What Works Grantmaking, 66, 78 endowments, 13, 21–2, 26, 27, 28, 30, 57, 69, 88 definition of, 21 evaluation, 32, 34, 39, 40–1, 43, 47–8, 60, 61, 85, 98, 117, 120, 135, 152, 155, 166, 198, 204, 222 cost, 45, 206 data for, 166, 168, 205 theory of, 40–2

of programmes, 38, 39, 40–5, 116–17, 122, 135, 146, 204–7 of projects, 42, 206, 213 of risk, 101, 106 Excellence Model (EFQM), 127–8 File, Karen The Seven Faces of Philanthropy, 54 Firmin, Thomas, 22, 238 (note 1) Fleishman, Joel The Foundation, 3, 52, 236 (note 2), 237 (note 19), 242 (note 32), 250 (note 1) Flynn, Patrice Measuring the Impact of the Nonprofit Sector, 51 Ford Foundation, 27, 66, 79 foundations, 1, 3, 8, 10, 12, 13, 18–20, 21–3, 51, 60–3, 74–5 definition of, 21 history, 21–31 largest, UK, 27 largest, US, 27 fraud (identifying and dealing with), 154, 201–2, 207, 219, 221, 224, 227–32 Friedman, Lawrence J Charity, Philanthropy and Civility in American History, 31 Friedman, Mark ‘Results Based Grantmaking’, 9 Frumkin, Peter Foundation Payout Puzzle, The, 238 (note 27), 245 (note 3) Strategic Giving, 3, 52, 237 (note 20), 240 (notes 5), 241 (note 17), 250 (note 2) Fulton, Katherine Looking out for the Future, 31, 56 funding contract, 107, 161, 174–5, 197, 204, 206–11 variations, 222–4 terminating, 207, 212 Gates, Bill, 27, 68, 238 (note 3) governance (in philanthropy), 31, 84, 85–8, 95, 243 (note 6) grants, 4 achievements of, 13 definition of, 21–2 contract (see funding contract)

Index

grantmaking scale of, 8 grant management systems (IT), 99, 167–70, 184–5, 187–8, 201, 245 (note 2), 248 (note 7) Grant’s formula (for effective investment), 15, 45–7, 114 Gray, Carol Welsh, 69 Green, Michael Philanthrocapitalism, 51, 63, 68, 83, 236 (note 3), 240 (note 2 ), 242 (note 28 & 29) Grossman, Allen Virtuous capital, 70 High Performance Nonprofit Organizations, 70, 79, 142, 245 (note 3 & 4) guidance notes (for applicants), 111, 155, 156, 164, 165, 168, 170–1, 248 (note 3) Handy, Charles and Elizabeth The New Philanthropists, 79 Harris, Bernard, 30 Charity and Mutual Aid in Europe and North America Since 1800, 30 Harvey, Hal Money Well Spent, 3, 51, 238 (note 22), 240 (note 12), 240 (note 1), 241 (note 21), 242 (note 41), 250 (note 41) Hodgkinson, Virginia A Measuring the Impact of the Nonprofit Sector, 51 human resources, 21, 34 impact (of investments), 13, 14, 15, 16–17, 33–4, 36–41, 44, 45–7, 49–51, 53, 65, 77, 101, 122–5, 134, 146–9 Impact Investing, 77 judgement points (see criteria) ‘Just in Time’ (JIT), 128–9 Kaplan, Bob, 130–1, 247 (note 22) Katz, Stanley N, 76 Kellogg, W K Foundation, 21, 28, 33–5, 37, 206 Kramer, Mark E, 76, 247 (note 29)

259

leadership, 84, 87–9, 96 Lean Systems, 128–9 Learning Organisation, 136–7 Leat, Diana, 3, 7, 40, 51, 54, 58–60, 62, 73, 79 Creative Philanthropy, 3, 79, 240 (note 13) Letts, Christine Virtuous capital, 70 High Performance Nonprofit Organizations, 70, 79, 142, 245 (note 3 & 4) Liedtka, Jeanne, 93–4 logic models, 33–5, 39, 43, 48, 52, 84, 112 logframes, 35–6 problems with, 36–8 Lottery, UK National, 2, 8, 14, 31, 57, 86–7, 157, 178, 203, 227 McCully, George Philanthropy Reconsidered, 31, 236 (note 5) McGarvie, Mark D Charity, Philanthropy and Civility in American History, 31 Mintzberg, Henry, 91–4 mission related investment, 69 monitoring, 39, 40, 44, 60, 63, 85, 105, 108, 133, 155, 166–8, 173, 204–5, 207, 213, 229, 232 events, 156, 176, 210, 213, 214, 218 reports, 188, 213–17 Nayak, P Ranganath, 96 New Opportunities Fund (NOF), 47, 57, 91, 99, 112, 166, 167, 168, 170–1, 180, 193–4, 218, 234, 237 (note 13) Niven, Paul R The Balanced Scorecard Step-by-Step, 142, 247 (note 25) Norton, David, 130–1 Office of Government Commerce (OGC), 109, 139–40, 192 operating foundations, 63, 237 (note 14), 238 (note 4), 239 (note 6) definition of, 21 operations management, 50, 110–11, 113–14, 127, 139, 237 (note 15) operational process design, 99, 111–13

260 Index

Orosz, Joel, 9, 45, 58, 75, 98, 206 Insider’s Guide to Grantmaking, 3, 20, 51, 62, 162 Seven Major Challenges of Managing Foundations, 18 What Works Grantmaking, 66–8, 73–4, 78, 111 outcomes, 17, 34–43, 47, 85, 107–8, 120–1, 138–9, 147–8, 149, 153–4 selecting, 138–9, 151 measuring, 30, 147–8, 150, 153, 155, 205 Owen, David English Philanthropy 1660–1960, 30 Paton, Rob, 121, 126, 142, 246 (note 8), 246 (notes 15 & 16) performance management, 43, 50, 84, 99, 102, 115–41 performance measurement, 51, 100, 138–41 key performance indicators (KPIs), 130, 138–41 Pew Charitable Trusts, 76 Philanthropy definition of, 8, 17 Scientific Philanthropy, 25 motivations for, 10–11, 54–5 philanthrocapitalism, 63, 68–73, 79, 79 Porter, Michael E, 76, 91 Prince, Russ The Seven Faces of Philanthropy, 54–5 problem solving, 25, 136, 161, 208, 218–22 Prochaska, Frank The Voluntary Impulse, 30 programme design, 2, 48, 49, 85, 112, 149, 165–81 programme related investment, 69 rejecting applications, 156, 157, 164, 165, 172–3, 176, 178, 182, 184, 189–90, 191, 194–5, 201, 211 requests for proposals (RFPs) see application forms resources (planning), 35, 50, 53, 67, 85, 91, 100, 140, 152–4, 155 Rimel, Rebecca, 76

risk assessment, 164–5, 171–4, 186 controls, 106–8, 154 Grant / Horsley matrix, 158, 173–4 importance of, 17, 48–9, 61, 95 link to criteria, 154–9, 173, 184 link to post-decision management, 159–2, 197–8, 200, 204–5, 216, 220 link to terms and conditions, 154, 174–6 management of, 102–9, 145, 154, 158, 159, 190–1 matrix, 156 rating, 174, 186 Ritson, Neil, 98 Robert Wood Johnson Foundation, 12, 247 (note 24) Rockefeller, John D Sr, 25, 76 Rosenwald, Julius, 7 Ruskin, John, 96 Ryan, William Virtuous capital, 70 High Performance Nonprofit Organizations, 70, 245 (note 3 & 4) Sage, Margaret Olivia, 25, 246 (note 8) Schneiderman, Art, 129–30 selection (of recipients) see sssessment Sievers, Bruce, 71 Skloot, Edward, 7 Slack, Nigel et al Operations Management, 110 Social Bonds, 77 social investment definition of, 3–4, 10–12, 17 as integrated system, 17, 121, 131 processes involved, 48, 96, 110, 127 theory, 49 socially responsible investment, 69 social return on investment (SROI), 122–5 Sport England, 19, 158, 187, 249 (note 12) Strategic Grantmaking, 75 strategy strategic planning, 67, 75, 84, 89–90, 92, 93–4, 98, 137, 139

Index

strategic thinking, 75, 84, 91–4 strategy mapping, 130, 131 terms (of grant), 11, 111, 154, 156, 157, 160–1, 164, 165, 172, 174, 176, 178, 186, 189, 191, 213–16, 219, 222–3, 225 theory of change, 2, 32–52, 56, 58, 63, 67, 122, 124, 146–7, 150–1, 163 Toepler, Stefan Private Funds, Public Purpose, 20 Total Quality Management (TQM), 127 Trusts definition of, 22

261

Unwin, Julia Fruitful Funding, 3, 79 Grantmaking Tango, The, 3, 14, 64–6, 79 Venture Philanthropy, 30, 52, 63, 68–73, 76, 83, 86, 122, 154, 233 Webb, Arthur Outcome Funding, 120 Williams, Hal Outcome Funding, 120 Wooster, Martin Morse Great Philanthropic Mistakes, 238 (note 25)