21778 Chap.5 Portfolio Theory and Resource Fit
Portfolio Theory and Resource Fit
Diversify, but only what you can run
Portfolio theory says that spreading income across several streams lowers financial risk, and the Week 2 reading weighs the benefits of diversification against its issues. This chapter adds resource dependence: every stream needs a matching resource mix, tested for sustainability, independence, capacity and profile.
It recomputes the cricket club’s fee dependence after its two planned appeals and sets out a five-move method for screening any new stream.
Where this shows up in the assessments
The Fundraising Plan asks for three options that strengthen the strategic revenue mix, either by leveraging existing streams or by adding new ones.
Portfolio theory explains why adding a stream can reduce risk; resource dependence explains why it might not be worth it. Using both lets you argue for a recommendation and admit its limits in the same paragraph, which is the balance the rubric rewards.
What this chapter covers
- 01
Portfolio theory in fundraising
- 02
Benefits and issues of diversification
- 03
Resource dependence
- 04
Sustainability, independence, capacity and profile
- 05
Recomputing fee dependence
- 06
Correlation between revenue streams
- 07
Screening a proposed stream
Worked example · free
Test whether a new appeal really diversifies a club's revenue
- 1Before: 56,000 ÷ 80,000 = 70%.
- 1After: total 100,000, so 56,000 ÷ 100,000 = 56%.
- 1Resource check: the appeal needs volunteers and a donation platform; capacity is the test.
- 1Correlation: the donors are the fee payers, so a fall in membership would hit both streams.
Key terms
- Diversification
- Spreading revenue across several streams so that the loss of one does not end an organisation’s work.
- Resource Dependence
- The link between a revenue stream and the resources needed to win and keep it, so new income requires a matching resource mix.
- Revenue Concentration
- Heavy reliance on one stream, or on a few funders inside a stream, which raises financial risk.
- Correlated Streams
- Revenue streams that rise and fall together because they depend on the same people or conditions.
- Capacity
- How easily a resource can be used and what other resources must be mobilised with it, one of four tests for resource fit.
Portfolio Theory and Resource Fit FAQ
What is portfolio theory in fundraising?
Borrowed from finance, it holds that an organisation can reduce financial risk by spreading income over several streams instead of depending on a single one. The Week 3 case applies it to ask whether an event had become a high-cost, high-risk stream within the RSPCA’s wider fundraising portfolio.
Can diversification make an organisation worse off?
Yes. The lecture quotes research that more diverse income can reduce fundraising efficiency, that some sources may not fit the mission, and that some organisations lack the structure or skills to win several types of revenue. Each new stream has a development and maintenance cost.
What are the four questions for testing a resource?
Sustainability asks how reliable and replaceable the resource is. Independence asks whether it is tied to other resources or conditions. Capacity asks how easily it can be used and what else it needs. Profile asks how using it affects the organisation and whether there are downsides.
How do I show diversification in numbers?
Recompute each stream’s share with the new income added to the total, holding the other lines steady, and state that assumption. Then look past the percentages to the donors: if the new money comes from the same people as the old, the streams are correlated and the real reduction in risk is smaller than the shares suggest.
What does correlation mean for a revenue portfolio?
Two streams are correlated when the same people or conditions drive both, so they rise and fall together. The cricket club’s plan aims for lower-correlation streams such as grants, sponsorship and recurring digital gifts. Appeals aimed only at members who already pay fees add income but leave the club exposed to the same registration risk.
Assessment move
For every stream in your case, write down the resources it consumes and score them on the four questions. When you recommend a new stream, recompute the shares with the new income added to the total and state your assumptions. Finish by asking whether the new donors overlap the old ones. Keep the five-move screening method on one card and apply it to each recommendation before you draft it.
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