What is the role of the challenge fund investment panel?

Another practical blog (sticking to my New Year's resolution!)...

One of the issues that has been debated within the design team and with DFID during the design phase and as we progress with the implementation phase is the role of the ABIF Investment Panel (IP). While it appears to be the norm in the world of challenge funds to have an IP, as a newcomer to the world of challenge funds, I wanted to go back to first principles and look at how their role could be defined to maximise the panel's value added in the ABIF governance structure.

This kind of questioning has even led me to ask whether we need an IP at all? This may sound a bit radical (a dangerous thing to sound in the development consultancy business), but it is interesting to note that in the new DFID £350 million Girls' Education Challenge Fund (GEC), the idea of the investment panel was dropped between the Business Case being prepared and the project being re-tendered. So it seems that we are not alone in thinking about this issue...

So what is the role of the ABIF IP? As things stand, it is envisaged that the IP will review the Fund Manager's assessment at both of the two stages in the application process (concept notes and full proposals). The panel will comment on selected concept notes before short-listing and will make the final funding recommendation to DFID from the full proposals received at the end of the application process.

It is important to consider this role in the context of what the Fund Manager is being paid to do, and what the Fund Manager is being held accountable for.

Principally, the Fund Manager is paid to design the fund strategy, administer the challenge fund process, market the fund to applicants and support them through the process, undertake eligibility and assessment reviews, manage the profile of the portfolio (size of individual projects, location, risk of investment etc), and oversee monitoring and evaluation. These are the contractual undertakings for which DFID is paying the Fund Manager a fee.

In terms of accountability, it is the Fund Manager who is accountable for the performance of the fund at output and outcome levels. The targets and the milestones that the project is expected to achieve have been agreed between the Fund Manager and DFID during the design phase and are recorded in the project log frame.

So coming back to the role of the Investment Panel, the original intention (based on precedent) was that at both concept note and full proposal stages it would be the panel that would accept or reject applications. This seems to be the standard-ish approach across most DFID challenge funds. However, after much debate, we agreed that this would have two negative consequences that could be avoided with an alternative structure:

1. There was a mis-match between authority and accountability: If the IP could either force the Fund Manager to work on an application with which the Fund Manager was unhappy, or the IP could reject an application that the Fund Manager wanted to pursue, how could the Fund Manager be held accountable for the outputs or outcomes of the project; and
2. There was a clear duplication of roles with an imbalance of resources: If the IP was re-scrutinising applications for eligibility and re-assessing them from a strategic fit and budget priority point of view, then there was a serious question as to what role this left for the Fund Manager (essentially became a fund administrator) and whether the budgeted 3 days/3 months for members of the IP was sufficient.

This was the rationale behind restricting the panel's traditional role at the concept note stage. The ABIF panel can only comment on concept notes that had been pre-selected by the Fund Manager; they will not even see any concept notes that the Fund Manager has rejected and cannot throw out any concept note that the Fund Manager has approved.

My view is that this important change to the standard approach was a major step forward  in strengthening the ABIF governance structure. There was a much clearer alignment of authority and accountability and resources.

However, the ABIF IP still makes the final funding recommendation after the Fund Manager has assessed the full proposals received in the second stage of the application process. This, again speaking personally, I consider to be an unresolved contradiction between authority and accountability in our governance structure. This arrangement essentially postpones a large part of the problems mentioned above.

Importantly, there is no way that the Investment Panel can introduce a project for funding and they cannot force the Fund Manager to work on a project against the Manager's professional judgment, but they can still reject applications that the Fund Manager believes are fundable.This authority clearly has implications for the respective accountability of the Fund Manager and the Investment Panel that are not consistent with either party's contractual status.

It would be interesting to see what would happen in the purely hypothetical (and totally undesirable) situation in which the panel rejected a project that the Fund Manager believed should be funded. Would DFID reject the panel's recommendation and go with the Fund Manager (in which case, where does this leave the governance structure) or would DFID go with the panel despite the Fund Manager's judgment (in which case, who would be accountable if the project missed its targets because of this decision)? You could imagine that in extremis, this situation could lead to the resignation of either the Fund Manager or the Investment Panel just because both were doing their job as laid out in the governance charter.

So, if I had my way, and the Fund Manager was responsible for the final funding recommendation to DFID (the GEC approach), would there be an ABIF Investment Panel at all? I remember sitting in a meeting with DFID during the design phase and saying "I really don't see why we need an Investment Panel at all". Looking back on this, my underlying thinking was wrong, I should not have been accepting the role envisaged and then questioning the need for the panel in principle, rather I should have been accepting the need in principle and questioning the role. We all live and learn!

So thinking about things now, I can come up with four key (non-duplicating) responsibilities for a challenge fund investment panel:

1. Scrutinise the management of the challenge fund process to ensure that the Fund Manager is following due process and achieving key performance indicators;
2. Undertake a quality assurance process on the Fund Manager's assessment of applications and funding recommendations in the context of the project's desired outputs and outcomes;
3. Act as an independent arbiter of any complaints received from applicants that cannot be resolved by the Fund Manager; and
4. Ensure that the monitoring and evaluation arrangements overseen by the Fund Manager are appropriate to the context and resources of the project.

I have no idea how things will eventually work out with the ABIF governance structure, but we are having a useful and very constructive discussion. We will see whether we stick with something like the current design, or we move towards the GEC model.


(Note: the GEC has a dedicated DFID Team whose role includes something like the four points described above. This is an approach justified by such a large project, it would be inappropriate to a project the size of ABIF.)