How to minimise risk in the grantmaking cycle

Grantmakers and their grants have the power to change the world through grantees and their nonprofits. But like with any important job or responsibility, grantmaking can come with risk, too—risk that can impact both the success of the grantmaking and its beneficiaries.

That’s where risk minimisation comes in. A crucial part of grantmaking, risk minimisation helps funders—and their grantees—maximise funding dollars and opportunities, and reduce possible obstacles or threats at the same time.

In this blog, we’ll cover all the ins and outs of risk minimisation so your grantmaking organisation can foresee any issues before they happen—and rectify them as needed.

What is risk minimisation?

Risk minimisation in grantmaking is a pretty broad term. However, it typically refers to the process of identifying, assessing and mitigating potential risks throughout a grant cycle. In doing so, funders can better ensure that their grants are as effective and sustainable as possible.

Every organisation and funding cycle is different, meaning risks may vary. But, traditional risk minimisation typically involves implementing a few standard practices to safeguard against potential adverse outcomes that could impact the success of grant-funded projects or the reputation of the grantmaking organisation. 

However, in an era of trust-based philanthropy, risk minimisation isn’t just about protecting the funding organisation. Today’s risk minimisation should be a collaborative process in which funders and grantees both partake and benefit as equal collaborators.

Why is risk minimisation important?

Risk minimisation in the grantmaking cycle is important for a few reasons. In general, risk minimisation can help:

• Reduce financial risk: By identifying and mitigating potential oversights or obstacles, grantmakers can maximise the impact of their investments and minimise the likelihood of financial losses or wasted resources.
• Enhance impact: Effective risk management allows funders and grantees to collaborate on projects that are as effective as possible. By considering potential challenges and obstacles ahead of time and planning for them, both parties can achieve their goals more successfully—both of which lead to greater impact for beneficiaries and the communities at large.
• Build better relationships: Risk minimisation and commitment to ethical and responsible philanthropy build trust among stakeholders, as well as promote shared transparency and accountability—all of which can bolster relationships between grantees and funders.
• Foster capacity building: Risk minimisation is also an opportunity for funders to aid grantees’ capacity. Funders can take the opportunity to guide grantees toward developing their own risk mitigation strategies and procedures, which only serve to help nonprofits become more sustainable and effective over time.

Four risk minimisation strategies to consider for your next grant cycle

Every funder should have a few best practices in place to minimise risk as best as possible in their grant cycle. 

However, it’s important to note that each of these practices should keep trust-based philanthropy and equitable funding top of mind—while risk mitigation is important, it’s equally important to ensure that grantees don’t feel disempowered, micromanaged or distrusted.

1. Reframe risk

Traditional understanding of risk often inadvertently thwarts DEI efforts. Strategies implemented typically only focus on the risks posed to the funding organisation—not the grantees.

For example, funders might not invest in lesser-known nonprofits, for fear of potential risk. But, these nonprofits oftentimes are the exact organisations in need of support. These charities, which might have struggled to meet conventional markers or “trustworthiness,” are often the ones most in need of a grant.

To reframe risk, be sure to do a deep dive into the organisation’s history and mission, and account for such nuances to ensure that underrepresented nonprofits aren’t left behind, or inadvertently passed over altogether.

2. Conduct due diligence

One basic method of risk minimisation is assessing potential grantees’ capacity, track record, and financial stability through due diligence. This might include reviewing financial statements, organisational documents or governance structures.

In addition to assessing these documents in order to protect the funding organisation’s reputation, funders should encourage grantees to consider their own internal due diligence. Assisting them in setting up their own internal processes and strategies is a great way to support capacity building, and mitigate risk at the same time. 

3. Create mutually beneficial grant guidelines

Engage grantees in participatory grantmaking, or in the process of creating grantmaking procedures and principles. In doing so, your organisation can create safeguards against risks, and empower grantees to participate in the process as well.

These guidelines might include specific expectations, deliverables, reporting requirements, financial accountability measures and ongoing monitoring mechanisms for tracking project progress.

4. Diversify investments

Diversifying investments is imperative for grantmakers. By expanding funding across several organisations and projects, grantmakers can avoid overreliance on a single grantee or project. In essence, instead of putting most funding into a single organisation, funders can spread their grantmaking dollars to several beneficiaries and mitigate risk.

Diversifying grantmaking portfolios is also advantageous for grantees. A diverse funding portfolio can help target underserved and underfunded organisations, too.

Minimising risk with Good Grants

Minimising risk in a grantmaking cycle is all about implementing the right strategies and practices, and incorporating elements of trust-based philanthropy throughout. 

With transparent and easy-to-use tools like Good Grants, funders and their grantees can participate in risk mitigation and minimisation together. With clear reporting guidelines, top-notch security and regulatory features and more, funders can proactively identify obstacles and empower grantees at the same time.