Right now charities are making tough decisions about cuts to services, while seeing demand for those services rise and public funders are also facing the dilemma of where money should go. The minister for civil society, Nick Hurd, said there was a risk that these funders will "cut the things that are easiest to cut and we will lose some things in that process".
Charities and funders alike will be tempted to make cuts as straightforward as possible but there could be a danger that the services they choose to cut are the ones that have the most impact in the community.
When facing increased competition for funds, we naturally look for solutions that maintain as much of our own services as possible. But sometimes we need to take a step back and consider all the other organisations that play a part in achieving success. This can lead to different, and perhaps more difficult, decisions.
In the charity sector, most of our aims rely on activities being delivered by several organisations, not just our own. In a new Impact Networks report from New Philanthropy Capital (NPC), we call this web of activities and organisations 'impact networks'.
For example, helping someone leaving prison to hold on to a job requires co-operation between organisations providing training and advice, offering work experience placements, campaigning for access to employment, and brokering jobs.
The absence of one of these activities can reduce the chance of success, while duplicating activities in the network could waste resources. When it comes to cutting funding, we need to take this network into account.
During our research into impact networks, we found several charities working well together to improve performance.
For example, Thames Reach, a London homelessness charity, did not have any direct experience of working with Irish travellers, but recognised that they were a disadvantaged group needing help. By partnering with a small organisation working with the Irish community in Lewisham, Thames Reach improved the available services.
Large charities have an important role to play in developing impact networks, as long as they avoid imposing their own agendas on smaller charities. RNIB has played an important role in supporting the development of the UK Vision Strategy.
This is a great example of a network of large and small organisations and individuals working together with a common aim. RNIB's chief executive, Lesley-Anne Alexander, admits that the project is ambitious but makes them a "more powerful force for change".
Macmillan Cancer Support is another investor in impact networks, skilled at spotting gaps in support for people with cancer. Its approach is to invest in other organisations best placed to fill a gap – working with Citizens Advice Bureaux and others to provide advice on finance and benefits, for example.
But funders need to recognise the strengths of these networks too. What happens to these successful partnerships when budgets are under pressure? A failure to recognise these relationships could compromise the services offered and hinder results.
Admittedly, there are challenges to charities working together. Developing a close working relationship takes time and requires trust. Charities providing similar services may be reluctant to collaborate for fear of being in direct competition with one another. Charities may also have to accept that they must let go of services that are more effectively provided elsewhere in the network.
Yet in a constantly changing funding environment, it is vital that charities and funders work together to maximise impact and that funders understand the idea of impact networks to fund effectively and avoid cuts that may have wider, unintended consequences. Those looking to fund outcomes, not outputs, need to look beyond the boundaries of a single organisation.
Joe Ludlow is author of the Impact Networks: Charities Working Together to Improve Outcomes report written with the NPC while Clore Social Fellow 2010