Nothing Ventured? A Hard Look at Risk Taking

Back in 2011, a group of staff members at the New York State Health Foundation (NYSHealth) examined the Foundation’s approach to risk taking. The group was motivated in part by our Staff Perception Report from CEP, which indicated that Foundation staff believed we were doing only an okay job at taking risk. The staff asked and answered some key questions—What do we mean by risk? When and why should we take risks?—to shape the organization’s thinking about informed risk taking, and developed a checklist of elements to consider when assessing risk (included at the end of this post).

We felt good about the work we had done to explore the topic, and felt like we were in a good place as an organization when it came to our approach to managed risk taking. And our 2012 staff survey scores showed vast improvement in this area.

But a few weeks ago, the senior staff at the Foundation started looking at specific examples of projects where we felt we’d taken risks, and initially felt really pleased with the results.

Immediately after the Affordable Care Act was passed, for example, NYSHealth began shaping a strategy focused on helping New York State implement the law effectively to ensure that as many New Yorkers as possible would gain health care coverage. While no individual grant was especially risky—most projects involved data analysis and policy research by established organizations that were known to the Foundation—it was possible that the law would be overturned and the resources we devoted to the overall strategy would be wasted. As it happened, the Supreme Court upheld the law last summer, President Obama was reelected with a Democratic majority in the Senate, and implementation of health reform continues as planned.

Great, right? But as we looked through our case examples of risky grants we had made three or four years ago, we realized that nearly all of the projects had gone as planned. Somehow, everything we’d called “risky” was working out in the end.

We took a chance on a small, young organization to play a key role in our diabetes prevention strategy, and they ended up rising to the challenge. We supported a project to expand refugees’ access to high-quality primary care services in upstate New York, despite a high risk of failure: the proposed model was unproven, multiple earlier efforts to expand refugee health care had been unsuccessful, and a local funder had turned down the project. But the gamble paid off, and we are now supporting the model’s replication in other areas in New York State with large refugee populations.

This should all have been good news, yet, batting a thousand felt like a colossal failure! If all of our “risky” projects were successful, could we possibly be taking enough risk?

We came up with plenty of projects that hadn’t gone as planned, but none of those involved us having taken a calculated risk at the outset; they’d just plain failed. And failing isn’t the same as taking a risk and losing; if we define a “risky” project as one with anything less than a 100% chance of success, then virtually every grant is risky.

So maybe we weren’t doing as good a job at risk taking as we thought. But, we are a young organization—just shy of our 7th birthday—and when we look at more recent grants, we think we are taking more risks more often. In the early days we probably hadn’t built up enough of a track record to responsibly take on a great deal of reputational or financial risk.

As a more established organization today, we feel more comfortable trading on some of the capital we’ve built up over time and taking some bigger chances, and our Board has pushed us in this direction. For example, as part of our efforts to advance health care payment reform, we have established what we call our lofty “go big or go home” goal: a statewide or regional proposal for mandatory alternative payment arrangements introduced in New York State by 2017. (This is risky because the Foundation is just one player in the debate about how to use better financing incentives to encourage more efficiency and quality in health care delivery. Our investments could inform the debate but not result in the positive change we care about.) In addition, we are looking at projects related to controversial but critically important health and environmental issues like hydraulic fracking. We also funded a baseline study to help measure the impact of New York City’s proposed ban on supersize sugary beverages, knowing that court challenges could potentially delay or block implementation of the measure (as has happened already!).

As we move toward more intentional risk taking, we also keep in mind that we should not take risks simply for the sake of taking risks. But achieving a balanced portfolio of projects with some high-risk, potentially high-reward initiatives—like our health reform work, or the refugee project—feels right for us.

The trick, of course, is always keeping it top of mind. Our CEP surveys help us to do that—we assess the opinions of grantees, stakeholders, and staff biannually—but we realized that we need to pay closer attention and assess our risk taking more regularly.

For our Foundation, it wasn’t enough to have a discussion, develop some principles, see our survey scores improve, and call it a day when it came to risk. Taking a hard look at the outcomes of those intentionally risky projects we funded early on—and realizing that almost none had failed—forced us to take a fresh look at how we were putting our principles on risk tolerance into practice, and whether we were being too timid.

 

A Guide to Risk Taking at NYSHealth

In April 2011, a group of staff met and considered the topic of risk taking in our grantmaking. Some shared understandings emerged from the discussion, which are captured by the discussion notes below. In addition, a recommendation was made to develop a checklist (also included below) that could be used by staff to more systematically assess the potential level of risk when evaluating a proposal or project.

 

What is NYSHealth’s definition of risk taking?

  • No guaranteed returns, definite possibility that a project won’t work
  • Risk is best considered along a spectrum of possibility
  • It can involve “getting out of our comfort zone” by doing new things or working with unfamiliar entities
  • There are different “flavors” of risk such as risk to our reputation, financial risk, the opportunity costs involved, our ability to attract/retain staff, and our relationships with partners

 

Why should NYSHealth take risks?

  • Taking a risk can produce bigger potential rewards
  • Don’t take risks for the sake of taking risks
  • Taking a risk can fill a gap that no one else is addressing
  • Taking risks can make us a leader and improve our reputation

 

When should NYSHealth take risks?

  • When we have the ability to manage/mitigate risk
  • When NYSHealth has a unique or competitive advantage
  • When it is consistent with our mission and priorities
  • When an opportunity is time-sensitive
  • When NYSHealth has a track record of success to fall back on
  • When it is “the right thing to do”

 

A Checklist: Elements to Consider When Assessing Risk

  • What is the track record and capacity of the organization?
  • Are there multiple partners involved? If so, does that increase or decrease the risks involved?
  • To what degree are all the details of the project worked out?
  • Is the project using an untested model, or relying on something that has been proven?
  • How small or large is the financial cost?
  • Are the expected outcomes short, medium, or long term?
  • How easy or difficult will it be to measure impact?
  • Is this a politically sensitive topic?
  • What factors in the external environment could influence the project?
  • What changes in circumstances could potentially affect the project?
  • How much internal expertise does NYSHealth have in this area?
  • How certain is the sustainability of a project, if sustainability is an applicable goal?

 

James R. Knickman is President and Chief Executive Officer of the New York State Health Foundation and serves as a member of CEP’s Board of Directors. You can find him on Twitter @JimKnickman.

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