How should risk be evaluated in social investment projects? Lisa Hilder, trustee of WINNER Preston Road Women's Centre, shares their social investment story and offers advice on embracing and understanding risk.
Taking on social investment for the first time was a big step for us, but we've never looked back. It's enabled us to grow consistently and deliver a whole lot more benefit to the women and children we look after.
WINNER, the Preston Road Women’s Centre, offers holistic support to women and children in Hull to enable them to have the best possible quality of life. We offer safe, accessible services and activities meeting their practical and emotional needs, and facilitating life choices allowing them to reach their full potential. Our core service is a specialist domestic violence and abuse service which is heavily used and experiences consistently high demand.
We took on social investment as a means to develop our portfolio of dispersed accommodation to house women and children fleeing violence and abuse. We recognised that having somewhere safe to live which is warm and dry, close to local amenities such as schools and shops and on good public transport routes was a basic need for women and children looking to rebuild their lives after the trauma of violence and abuse. We wanted to offer safe homes as part of our service provision and therefore we matched a variety of capital grant funds with borrowing from social investors to give us the maximum number of properties to house our clients.
We currently have 98 two and three bedroomed properties and we’re still adding to this portfolio.
When we first considered taking on social investment, it was a response to the knowledge that we needed to develop alternative streams of income to complement the traditional revenue grants and contracts. The shrinking number of revenue grants was a real concern for an organisation addressing such an unpopular cause as domestic violence and abuse.
How did our Board embrace risk?
Initially the Board was cautious about taking on loan finance as it was a new area of income for us.
However, there were several key elements which convinced us that it was the right way to go:
- Firstly, our budget projections showed that the loan repayments were affordable at a reasonable level of rent recovery
- Secondly, we had lots of discussions and help from our initial social investor (Futurebuilders England) to help us do long term financial planning
- Thirdly, we knew we would have assets to fall back on (the properties) if things went wrong
- Fourthly, we balanced the risk. With revenue funding, there is no guarantee of future funds being available or organisations being awarded those funds (particularly with contracts that are tendered out).
A lot of charitable organisations operate with one, two or three year grants and take the considerable risk that these funds will be renewed or replaced. Loan investment which helps generate an income into the organisation brings a different type of risk, but one which is more self-determining for the organisation. If things start to go off track, you can make management interventions to bring it back on track.
Ultimately we felt the risk of continuing to rely entirely on revenue grants and funding was far greater than shaping our own destiny with loan investment.
The key word here is balance – there is always risk involved in any venture. Which are the risks that are most acceptable/manageable for you in your organisation?
Once you’ve taken the plunge, it’s important to monitor your project closely – most organisations already have very robust processes in place with regards to monitoring charitable grants and other contracts. The process is no different, it just applies to a different set of outcomes and targets, many of them financial.
You will need to monitor your income and expenditure extremely carefully so you can understand if there are any problems emerging and then take the appropriate action to deal with them.
When all is said and done, social investment may initially feel daunting, but ultimately can provide part of the jigsaw puzzle of your funding profile which enables you to achieve your organisation’s objectives and support your client group.
Kate Sayer, partner at Sayer Vincent, writes about how charity and social enterprise boards should think about risk when considering social investment.
GET INFORMED: Social Investment for Boards offers free practical support and guidance – including mentoring – to help social enterprise and charity board members understand the opportunities and risks of social investment.