Much like traditional investors, development funders often manage portfolios of investments. But what does it mean to manage a portfolio, rather than a collection of grants? And how can you ensure a portfolio adds up to more than the sum of its individual parts?
These are important questions for funders given their unique position in funding social change. While individual organisations are often focused on parts of a problem, funders, through their portfolio perspective, see the big picture. They can identify synergies between organisations, see gaps in efforts to change a system, amplify key messages to decision makers, and capitalise on opportunities that those closer to the coal face of implementation can’t see. Key to funders being able to take advantage of this unique position is effective portfolio management.
Having evaluated portfolios for a range of funders from the public and foundation sectors, we’ve been thinking about how portfolios can best be managed for some time and have pulled out four practices that we have seen support strong portfolio delivery.
1. Be clear on what the portfolio is trying to achieve and build your understanding of how you expect to get there overtime. This may feel like an obvious place to start, but it is absolutely central to portfolio success – and we often see challenges.
For example, many funders have an implicit understanding of how they expect change to happen that they find challenging to articulate when pushed. Additionally, in drawing out implicit theories, we have found that actors working within portfolios have contrasting – and sometimes contradictory – perspectives.
A simple process to develop a theory of change – or similar – can be useful. The best place to start is at the end. What does success look like?
The next step is to unpack how to get there. What are the stepping stones along the way? What are the assumptions we are making from one step to the next? How will we know we are on the right path?
It can be a challenge to land at the right level of detail. Too intricate and the process can become overrun by complexity. Too high-level, and the change pathways are oversimplified to the point of being useless.
We have found it works well to begin by developing a fairly simple portfolio theory of change, building complexity over time, as you deepen both your understanding of how change is in fact happening, as well as your comfort and familiarity with the tool. (See here for an article on exactly this process that we undertook with our partners at iDSI.)
2. Be clear on the roles that various actors play in the portfolio – once you have answered the questions of what the portfolio is trying to achieve, and how this is expected to happen, it is time to turn to who. A shared understanding of each actor’s role is important for both grantees and funders to locate themselves and their partners in the change they are working towards.
It can be helpful to think of the typology of the actors included in the portfolio. Maybe you are a ‘hands-off’ funder, or a ‘convening’ funder. Maybe your portfolio includes ‘drumbeaters’ for advocacy efforts as well as ‘antagonists’ because the theory is that it will be the combination of these tactics that create the space for change.
Stepping back from your theory of change at this point provides an opportunity to reflect on whether the mix looks right – are you missing an important type of player? Is a central element of the theory of change under-resourced? Is your portfolio crowded in to one particular change pathway?
3. Develop management processes at the portfolio level – many of the funders we work with put a great deal of care and attention into the design and set-up of a portfolio, with much less focus on continued monitoring of portfolio performance. Interestingly, this is often in stark contrast to the high level of monitoring and management of individual grants. The lack of portfolio-level management erodes funders’ biggest opportunity to add value.
A simple system for reviewing portfolio progress can go a long way. This could be as straightforward as encouraging and supporting grantees to report on progress against shared outcomes linked to the portfolio theory of change. Portfolio managers can then periodically knit together information from grantee reports into a product that surfaces lessons from across the portfolio. This can then be discussed with grantees, with a view to making decisions about how best to evolve the portfolio.
More sophisticated approaches involve commissioning portfolio evaluations that not only synthesise and make sense of grantee reporting, but add further depth and colour to provide an understanding of how the portfolio is performing in the aggregate. We’ve worked with funders that see one of their main roles as being to use portfolio evaluations to help grantees make sense of what happening at a system level; insights which are beyond the scope of any one organization’s M&E efforts.
4. Manage the portfolio adaptively – Adaptive portfolio management has a slower cadence to adaptive programme management. It is less immediate and real time given the timeframes associated with grantee reporting and grant design, but no less important.
Like complex programmes, portfolios seeking complex systems change require an iterative approach that adapts to the shifting context based on evidence as to what works best.
Funders’ most direct lever for adapting a portfolio is their grant making. Funders can re-shape the portfolio through the addition of new grants, the continuation of existing investments, or the reallocation of funds. Retaining a flexible pot of resources that can be used to respond to events can aid this. A funder might use these funds to top up an existing grant in an area or invest in something new depending on shifts in the context. A more indirect lever is through influencing the work of grantees. This is most effective when all partners within a portfolio are brought together. This opportunity to share experiences across all actors in the portfolio is central to understanding what’s happening overall. Partners can share learning with one another and agree changes to the overall portfolio strategy, as well as the individual strategies of multiple individual actors.
Effectively managing complex portfolios of grants is challenging. It requires a constant flow of reliable information between funders and grantees, and between grantees, brokering different views and perspectives, building agreement on common objectives etc. But when funders are successful in managing these challenges (partly through the four management practices described above), the value they bring to social change extends far beyond their final resources: it allows them to be change agents in their own right.