Funders’ focus on value for money and measurable results is understandable – but there’s a danger longer-term problems will be overlooked, reports Rick Pearson

In these chastened times, everyone is looking for value for money. Funders are no different; they want to see as much benefit out of their grants or donations as possible.

This might sound fair enough – and it is – but measuring ‘value for money’ isn’t an exact science. For instance, what is the value attached to one life saved now with a ‘handout’ of aid compared with millions of lives saved over the years through finding a vaccine?

In 2014, most funders are taking it to mean projects where they’ll be able to see clear and measurable results, preferably within a relatively short timeframe (one to three years).

“People want to get the best value for money and the only way of measuring that is through having comparable things,” says Dorte Pommerening, founder of dpevaluation, a specialist evaluation consultancy.

“This can often lead to delivering something that isn’t necessarily very meaningful – a short-term solution to a long-term problem.

“Such results are then, almost by definition, not sustainable. In the process, a certain problem might even get perpetuated and dependencies created.”

Mary Carruthers, programme manager at Sussex Community Foundation, believes the increase in demand for charitable services has led to funding that’s reactive rather than proactive.

“More and more people are doing crisis funding rather than preventative funding,” she says. “For example, donating money to homeless charities to keep their shelters open, rather than looking at how you keep people off the streets in the long term. It’s completely understandable, of course, but the root causes are being overlooked.”

Hidden dangers

In an environment in which more and more charities are scrabbling for vital funds, there’s a danger of becoming funder-led. For example, if a philanthropist has a big pot of money and must decide how to spend it, small charities may be tempted to tailor their mission to make it fit with the funder’s desires. By doing so, they’re changing from being mission-led to funder-led.

“I think there’s a trend in charities becoming more and more directed by the people giving them the funds,” says Mary. “So instead of primarily addressing need, they’re addressing the motivations of the funder. That’s not necessarily a bad thing but, in our opinion, charities are better placed than donors when it comes to understanding the needs of a community.”

Core strength

While the majority of funders are focusing on projects, Julia Grant, portfolio director at Impetus-PEF, believes what charities really need is core funding

“At the moment, a lot of funders are interested only in projects,” she says. “That’s fine, but it’s also in opposition to what the majority of charities and social enterprise need: long-term funding of their core purpose.”

Julia notes that Impetus was one of the leaders in recognising that core funding was important to the long-term sustainability of charities, and developing an impact-driven model that funds the charity’s core. However, she believes that not enough funders are following suit.

“It’s great to see organisations like Big Venture Challenge providing more holistic support to small- and medium-sized social enterprises, but we need to see more of this. We want to see more willingness to fund core needs, but with a backbone of a pretty prescriptive business plan and milestone that will hold the charity accountable.”

Without a shift to more core funding, Julia believes the future looks challenging for charities. “Unless we succeed in what we try to do, and unless more funders follow suit, lots of charities may struggle. I do think we’re on a burning platform; people must change the way they fund, and start to take a longer-term view.

Charities’ role

It’s not all the fault of funders, of course. Charities can do a number of things to make their cases for funding more compelling.

“They must become better at articulating what they do at their core, and demonstrating how it has an impact,” says Julia. “Charities also need to take impact, outcomes and performance management more seriously. Firstly, to attract funding from people like us; secondly, to embrace opportunities around social investment and payment-by-result models.”

Dorte believes that charities have two options when it comes to securing funding: they can either go after funding that produces immediate and countable results or make a compelling case for a different approach.

Those favouring the latter option can help their cause by presenting a ‘theory of change’. A theory of change starts with measurable change outcomes and looks at what conditions have to be in place for those changes to be realised.

“It’s a significant piece of work,” says Dorte, “but it can help a charity or social enterprise to look in a pretty rigorous way at how effective it is in producing those outcomes.

“Exciting new approaches, which are risk but have higher potential if they work have less chance of attracting funding unless they can present a good case, including a theory of change and a credible strategy.”

Rick Pearson is a writer for The Fundraiser