I have been thinking that sustainability of think tanks tends to be equated to funding. When discussing their grantees’ sustainability, funders emphasise they capacity to seek out and raise alternative sources of funding. in other words, success looks like this: in 2005, the funder A represented 40% of the think tank’s budget; by 2010, it represented only 10%.
But is sustainability all about money? More money? I do not think so. I think sustainability needs to be understood as a broader issue: one that has more to do about governance and management than about fundraising.
I had this conversation with a think tank funder in Central America and Vanesa Weyrauch, who is developing a fundraising course for think tanks, and decided that what was necessary was a kind of ‘stress-test’ that could be implemented by think tanks themselves (and their supporters).
The objective of a Stress Test is to assess the sustainability of a think tank in light of possible external and internal shocks, considering all the different governance arrangements, business models, capacities, skills, etc. that are possible. I sought advice from friends in the private sector who have to address these issues on a regular basis. How would the CFO of a large corporation address its sustainability?
What they suggested wasn’t just a set of questions (as I have outlined in this blog post) but a forecasting tool that puts these questions into practice (in future blog).
The logic behind using a forecasting tool is sound. We can look at think tanks balance sheets and assess if they are financially sound or not. But looking at last year accounts can only tell us what happened. If the think tank is deep in the red it will be too late. Finding out that the think tank has a cash-flow problem today is not as useful as it would be to find out that the think tank will have a cash-flow problem in a few months.
A good forecasting tool allows a team or organisation to predict if, when, and how, changes in the internal and external environment (and more sudden shocks in particular) will affect them. They allow teams or think tanks to make provisions for those effects or altogether avoid them.
This blog post considers, first:
- The various possible shocks that may affect think tanks,
- How different factors condition the effect these shocks have on the think tanks, and
- What king of questions about the sustainability of think tanks can be answered by the model.
The forecasting tool is presented in a second post. The following sections have been improved by Vanesa Weyrauch’s comments. Vanesa is working on a fundraising and funding models course for think tanks that promises to address a number of these issues.
What kind of shocks could affect think tanks? Shocks include (but are not limited to):
- The sudden loss of a key funder or a proportion of the think tank’s funding
- An unexpected loss –e.g. due to poor financial planning, an unfulfilled contract, a penalty due to undelivered products, etc.
- A sudden loss in reserves –e.g. due to a financial downturn
- A sudden rise in funding –e.g. by means of a large project or a large grant awarded to the organisation
- The sudden loss of senior staff –e.g. Executive Director, Senior Researcher, Heads of Programme or Department, Senior Operational Staff, Head of Communications, etc.
- The sudden loss of several other members of staff
- The sudden recruitment of new members of staff –e.g. in case of new programmes or replacement of staff
- A sudden rise in fixed costs –e.g. rent
- A sudden change in taxation or employment legislation
- A sudden change in NGO legislation -e.g. limits to foreign funding for NGOs.
Effects of the shocks
These shocks could affect think tanks in a number of different ways, for example:
- A sudden loss of a key funder or a proportion of the think tank’s funding, (for instance, due to an unexpected loss) could lead to forced redundancies, it could even bankrupt the think tank, or force it to take on contracts with clients that severely affect its mission.
- A sudden rise in funding could affect the think tank’s internal relationships, for instance empowering certain programmes or researchers over others (or at the expense of others), or overwhelming the organisation’s capacity to manage its finances, etc.
- A sudden loss of staff may translate into a sudden loss of income due to large reliance on them to generate it and thus force the think tank to close entire programmes (even programmes of great strategic importance for the think tank).
- The sudden loss of senior staff may lead to a leadership crisis and undermine its capacity to effectively generate and allocate funds, especially if the think tank is unable to quickly recruit a replacement, for instance, of its executive director.
- A rise in fixed costs could also lead to forced redundancies or the need to move to cheaper offices, or even cancel contracts or fire staff.
- A sudden change in taxation or employment legislation could force the think tank to pay higher taxes or incur in unexpected penalties; it may even make the think tank liable to heavy fines or lawsuits; it may also deter or prevent the think tank from receiving certain types of funds.
- A sudden change in how NGOs are funded could affect think tanks, too. They may fall within the category and find that several of their funders will be banned from supporting them im the future.
Explaining factors and implications
Each think tank is likely to be affected in different ways. These differences can be accounted by differences in the nature of the organisations and their environments. The effect will depend on a number of factors, including:
|Key factors:||What are the possible (only possible; others may be true as well) implications of this?|
|Their income models:
|Their cost structure:
| Their organisational capacity:
Questions to answer
In essence, the forecasting model allows the users (a team, a programme, a think tank) to test the soundness of the organisation’s business model a few months or years in the future. It makes it possible to address ‘what would happen if’ kind of questions with a view to making decisions now that could guarantee the sustainability of the organisation.
The forecasting tool could therefore be used to stress-test the organisation by attempting to answer some of the following questions:
- What effect would the loss of income have on the think tank’s capacity to deliver its research commitments?
- What effect would the loss of income have on the think tank’s capacity to deliver its commitments to its employees?
- What effect would the loss of income have on the think tank’s capacity to deliver its commitments to its creditors and contractors?
- What effect would the loss of staff have on the think tank’s capacity to deliver its research commitments?
- What effect would the loss of staff have on the think tank’s capacity to raise the income it needs to deliver its commitments to its staff and contractors?
- What effect would sudden jumps in the budget have on the think tank’s capacity to deliver its mission and/or to maintain the overall organisational health? -i.e. quality, relevance, good working environment, etc.
- What effect would a sudden jump in staff would have on the think tank’s capacity to deliver its mission and/or maintain its overall organisational health? –i.e. quality, relevance, good working environment, etc.
The next post will explore the forecasting tool.