Increasingly, philanthropy is accompanied by talk of measuring and collecting evidence to capture how effective the investment is. Philanthropists may be wary of this—but they needn’t be. Rather than encouraging them to bring less innovation to charity funding, robust impact measurement can help them understand the world they’re investing in and make bolder strategic choices as a result.
You might have heard us mention, just once or twice, the many benefits of impact measurement. At NPC we’re proud to be involved in raising the profile of evidence-based approaches. Hopefully we are helping, in our own small way, to make philanthropy more strategic.
But could there be an unintended consequence of this approach? As the impact measurement mantra gradually enters the mainstream, some are questioning whether this has had an adverse effect on the levels of risk-taking in the sector, and has as a consequence affected how willing philanthropists are to back programmes which are innovative but inherently riskier.
Too often in philanthropy, risk is characterised as something to be mitigated and minimised. This is despite the unique position of foundations and philanthropic funders to take risks, considering that they have few of the constraints imposed on government and business by elections and shareholders respectively.
Many foundations and trusts say that they support risky ventures which have significant potential for high impact; but often this is not borne out in practice. A survey of members of the European Foundation Centre in 2012, for instance, found while 94% agreed that foundations had a ‘responsibility to take risks’, only 19% agreed that they should ‘take risks that could result in the loss of capital’. A focus on preserving endowed capital may be one of the factors that has often led these organisations to emphasise downside risks, while failing to recognise potential upside gains.
Could this traditional risk aversion be further compounded by an evidence-based ‘what works’ approach? Funding only those organisations that have already evidenced their impact may incentivise funders to make only safe bets, and neglect the chance to take a punt on innovative or experimental ideas—the very ideas which could have greater impact in the long-run. Clearly innovation is needed in areas where current interventions (however well evidenced) have failed to tackle systemic problems.
Taken to the extreme, some could argue that innovation is stifled if we fund only well-evidenced, established programmes. But used flexibly and effectively, some of the key tools of impact measurement can be deployed to encourage funders to take a calculated risk—with calculated being the operative word.
Developing a robust theory of change (ToC) can, for instance, help grant-makers and investors assess the impact potential of a riskier, but potentially more impactful programme. Social investment intermediary Bridges Ventures take this approach when conducting risk/return analyses on investments, with ToCs used to pressure test causal assumptions when assessing impact risk.
Calculated risk-taking can also be aided by sensitively-designed measurement frameworks. The key here is ensuring that any framework adapts to changing results and circumstances, and serves to support continued development and scale. Developmental approaches to evaluation, such as those proposed by Michael Quinn Patton, are one possible method of achieving the flexibility needed. Similarly, the emerging field of lean philanthropy, which involves investment in early-stage initiatives supported by testing and experimental measurement, is enabling more philanthropists to support innovative start-ups.
The challenge for advocates of evidence-based approaches is to ensure that measurement frameworks are flexible and adaptive. They should help funders support innovation, rather than back away from it.