Sometimes characters fail, and that's okay.
What's not okay is the binary choice system we, as Keepers/Directors or what-have-you, put ourselves in by insisting that failure = extreme penalty, usually health damage or catastrophic plot damage.
I've often thought this is a holdover from the earliest RPGs, where assuming THACO is X and the character rolls something less than X, the character misses. There isn't a middle ground. Hit, or miss, with the possibility of critical miss or critical hit.
The recent Pelgrane One-2-One systems make different assumptions. It's very difficult to out-and-out fail a roll. The character usually has 2D6 for any test, where a result of 3 or less is a Setback, 8 or less is a Hold and above 8 is an Advance. So the character's only likely to get a Setback around 8% of the time. Whereas the character's very likely either to succeed (perhaps with some complications) or win extra benefits, so long as the die roll is unmodified.
This is in no small part because having the character fail in a One-2-One in any scene other than the climactic ones is boring. Lovecraft didn't end Innsmouth at the part where Roger Olmstead makes a break for it out his hotel window, slips, and falls to his doom. Neither should the Keeper end a story before the character at least understands what's going on and what's at stake.
It's different in a combat-heavy system, where the plot can be irrelevant and the only real criteria for success is how many levels a character gets. In any game where the plot takes second or third place to contests, whether or not a character out-and-out fails a contest is extremely important, because those contests are the only means the character has of influencing the shape of the game in any significant way.
In a game where plot is more important than contests, the character has other ways of changing the shape of the game. The character can create plot, or solve the existing plot, and while this can involve contests it doesn't have to. The character who gets blackmail information on an important NPC and uses that information to force the NPC to do a certain thing, is just as successful as the character who draws her sword and wins a contest, forcing the NPC to do a certain thing. Both these courses of action assume that having the NPC do a thing is as important, if not more so, than getting levels or gathering treasure. However one method involved little or no contests, whereas the other was nothing but contest.
In a plot-focused game there has to be some kind of penalty for those moments when the character fails a test. The question is, what kind of penalty should it be?
I handle failure by ramping up the consequences but keeping the chain going, and I announce the consequences in advance. So:
Player: Okay, now's my chance. I tie together several blankets and, using them as an impromptu rope, escape out of my hospital room to the ground below.
Director: You can do that, but be warned: if you fail this roll, the nurse will come in the room while you're escaping and scream, alerting everyone.
Player: Fine. [rolls, fails]
Director: You reached the ground but now everyone knows what happened and where you are. Security is on its way.
Now, I could have said that failure means the character slips, falls, and injures herself. However it's usually more interesting to impose a story consequence in a story-driven game. Health loss is only an interesting consequence if this is the kind of game where a lot of combat happens, because in those systems health is more important than any other stat. In story-driven games health is rarely the most important stat.
In the above example failure didn't injure the character but it did impose story consequences, thus continuing the chain of events. If the test succeeded the character could probably escape unnoticed. Now the character has to find a solution to the story problem, which is that security will recapture the character unless the player does something to prevent it.
Moreover I warned the player ahead of time. That's important for two reasons: first, it raises tension. The player knows even before the die is cast that there's a significant penalty for failure. Second, by establishing consequences ahead of time the Keeper avoids seeming wishy-washy. Failure has to be failure, not a reason to create more tests until the character finally passes one. Oh, you failed that test? Um. Well, we can have another test … and another … and you're really bad at this, but let's have another test …
The swashbuckling game 7th Sea tried something similar in its death mechanic, by insisting that player characters never died outright in a fight. Instead they became Helpless, and could only be Killed by a deliberate act. This encouraged players to do reckless things in combat - which is the point of a swashbuckling game, after all - secure in the knowledge that, while there might be consequences, they would not necessarily be character-ending ones. Moreover if there was a chance your character could die, that possibility would be flagged by the obvious presence of a Villain capable of taking that deliberate act.
Ultimately this was because 7th Sea valued story over combat, but still wanted a fair amount of combat. The setting was very Douglas Fairbanks, after all, and you can't have that kind of story without at least one sabre duel in some dramatic setting.
Bear in mind there probably weren't any safety nets or guide ropes on set. That's all Fairbanks.
This should be ringing a chord with, say, Night's Black Agents Directors. After all, those games also involve significant combat or chase scenes with potentially fatal consequences for those involved. At the same time the Director probably doesn't want to kill the characters midway through the scenario.
But if you can't or don't want to kill them, there has to be something else you can do. In any game there's usually something, but the Director has to be creative.
At the end of a Thrilling Chase scene across the rooftops of Paris, the agent fails a roll and the enemy gets away. Rather than have the agent who failed the roll tumble to the ground, the Director rules that the agent made the leap but didn't quite get to the rooftop. Instead they landed on the balcony below, taking 1D6 damage. In addition, the Director rules that for the remainder of this scene and the next scene the agent has the Hurt condition, and takes penalties to physical action contests, to reflect sprains, bruises and possibly broken glass injuries sustained during the fall.
If the agent was trying to get away instead, the Director rules that the agent tumbles into an occupied apartment and the enemy does not follow, not wanting to get caught by the police. Or maybe there's a Bane there, if the pursuer is a Vampire. The agent suffers the same damage and Hurt condition as above, and also gains 1 extra Heat. The agent gained 1 Heat anyway just for being in a chase; now the total is 2. Also, the agent now has to deal with the situation the agent tumbled into - whatever it may be.
In both examples there is a penalty and it's a serious penalty, but it does not kill the character or end the session prematurely.
The point to bear in mind is this: in any system, no matter the setting or mechanics, there is always an option that does not involve character death. In Night's Black Agents a character can increase Heat, lose Stability, or suffer penalties to future die rolls to name just three potential consequences. A character can also be Captured, or bitten by a vampire, or lose important equipment or evidence. Say an agent obtains an important Block or Bane only to drop it in the Seine. What happens next?
There is always the possibility of failure, and when a character fails that character must pay the penalty. However it's up to you, as the Daffy of this scenario, as to what that penalty should be.