659 words | ~3 min
A post on Wired's news page yesterday covers the issue of funding and spending by Wikileaks, the website that publishes leaked documents and protects whistle-blowers. It was prompted by an anonymous message to the PGPBoard discussion group by a 'Wikileaks Insider' querying the use of money by Wikileaks, which has received 400,000 euros in donations via PayPal and bank transfers since December, but spent only 30,000 euros of this.
The Wired story is commendably even-handed, and clearly well researched, with (to me) fair evidence from the Wau Holland Foundation, the third party which handles the donations, that abuse of funds is not taking place. However, with the spectres of inefficiency and misuse laid to rest, it's fairly mute on the matter of why Wikileaks is receiving so much more than it spends.
In this sense it misses an important point which applies more generally to non-profit organisations, and which is important to me as a planner and an ex charity analyst. So here it is in bold.
Non-profits need reserve funds to cope with unexpected events.
That's not hard to grasp, and neither is the detail: anyone with a savings account should get it intuitively. Strategic planners often break down future events by probability and impact. For most organisations, from a community centre to BP, reserve funds need to scale in accordance with the potential impact. Fixing the community centre roof will cost less than dealing with a Gulf Coast oil spill, unless you're really being ripped off by your builders.
Probability doesn't affect the requirement for reserve funds so much, except in a yes/no way when combined with impact. If an event would have a huge impact but has a very low probability, you don't bother putting money aside to cope - hence the lack of a market for Alien Death Ray Insurance. Assuming you only set aside reserves for events that have a reasonable probability of impacting on your business, there are two other factors I'd suggest you need to consider: frequency and regularity.
People who live in glass houses and throw stones all day should get window insurance and have their glazier on speed-dial, because broken windows will be frequent and regular (one per throw). People who live in trailers in Tornado Alley should get trailer insurance because the frequency of trailer destruction is relatively high, even though irregular (tornado activity being hard to predict). People who live in stone-floored houses in Cape Town need electric fan heaters in the cupboard because every winter it gets cold, even though it's only once a year for a few weeks (regular but infrequent). People who live on the San Andreas fault with its irregular, infrequent catastrophic shifts are really just kidding themselves.
What about Wikileaks? It's almost the perfect model of a non-profit which needs to insure itself against highly probably, high-impact, highly irregular events of unknown but potentially high frequency. Wikileaks is effectively living on the San Andreas fault, but it's not kidding itself. Nobody in Wikileaks knows whether, on any given day, a government or corporation is going to launch a vastly expensive lawsuit against the organisation which could shut down its operations by court ruling or by forcing it to spend all its money on legal fees. But they know that it's likely, given the nature of their work.
On the evidence, the financial decision-makers at Wikileaks know how much they don't know about the future, and are planning accordingly. Without the benefit of more information, I'll be tentative, but it may turn out that Wikileaks are doing exactly the right thing with all that money.
# Alex Steer (15/07/2010)