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Why risk management for development organizations is important

Magda Stepanyan's picture

The following post is a part of a series that discusses 'managing risk for development,' the theme of the World Bank’s upcoming World Development Report 2014.

There are three fundamental challenges in mainstream risk management for development organisations: a culture of blame, lack of adaptive capacity on the part of development organisations and the lack of a shared concept of risk management.

Quite often the manifestation of risks is associated with failure, which subsequently leads to blame. This in turn hinders proactive risk-taking behavior among development organisations and limits their performance. Often we forget that only by failing can we learn to succeed. At the same time, there are also failures that are unnecessary and avoidable if risks are systematically taken into account. Failing to prevent recurrent crises, for example, is unjustified. Recurring drought and hunger are not typical of the Horn of Africa as a geographical region. They are signs of continuing failure on the part of local governments and the international community to address the risks of drought and hunger, which then results in recurrent crises.

Another reason why risk management is still in its infancy is that development organisations lack the capacity to respond or adapt. The assumptions about cause and effect relationships built into the design of development interventions often become obsolete during the course of their implementation. In constantly evolving development situations it is essential to ensure fast – virtually real-time – learning, enabling a speedy withdrawal from activities that are failing and a scaling up to support activities that get the expected traction.This requires a certain degree of flexibility in development interventions and adaptive capacities on the part of organisations which are not yet there.

The introduction of risk management facilitates such flexibility through structured consideration of the significant contextual changes, i.e. through early detection of potentially threatening or beneficial events for any development initiative.

The highly dynamic nature of threats and opportunities requires rapid learning and responsiveness on the part of development organisations as the risks change. 
Another fundamental challenge to mainstream risk management, which I would like to mention here is that the concept of risk management has yet to be defined and agreed upon in the development sector.

How can development organisations implement risk management?
The practice of risk consideration in development organisations often goes no further than a consideration of the risks known at the time when a project or programme is designed, which in turn shapes the whole ‘theory of change’ i.e., which activities to implement and what results to expect. Accordingly, the prioritization of project and programme monitoring is often focused on monitoring the progress and signaling any significant deviations from the activities planned or the (intermediate) results expected. In this sense, the traditional form of progress monitoring implies a retrospective analysis of what has already happened with little possibility of anticipating the future dynamic.
The introduction of risk management instead can enrich and extend the approach to monitoring in two ways:

1. Start with a forward-looking view. Risk management helps to look one step ahead and to ‘anticipate’ or ‘envisage’ events that, if they occur, could influence an organisation or its interventions. From this perspective, risk management breaks the vicious cycle of rigidity imprinted by LogFrames. It introduces flexibility into development activities through systematic and structured consideration of potentially threatening or potentially beneficial events.

Broadening the focus of monitoring towards more ‘anticipation’ beyond the threat-related mentality, will significantly help to improve the planning and implementation processes and highlight problem areas and opportunities in development initiatives at any given time. Monitoring the likelihood, magnitude and potential (financial) impact of such scenarios is crucial to ensuring that the development organisation is able to respond to emerging changes. Subsequently, proper planning of response measures will help to increase the resilience of any development intervention, as well as the ability to adapt to the constantly changing context.

2. Implement a broader scope. Risk management takes a broader focus not only in terms of threats but also in relation to opportunities that could facilitate the implementation of the activities or achievement of the results. Thus, risk management implies purposeful scanning of the environment for newly emerging threats and opportunities that could influence the realization of the objectives (in either a positive or negative sense). This is especially important for innovative initiatives. Such a perspective broadens the scope of a traditional M&E approach to encompass the domain of new possibilities and opportunities and allows holding organizations accountable for the opportunities seized or missed.

In a nutshell, it is vitally important for development organisations to address the uncertainties they face on daily basis and manage their risks. Development organisations need to embrace this thinking and adopt a new way of working. Only then can we talk about increased effectiveness of development sector as a whole.



Submitted by Grant Rhodes on

It is good to see that 'risk' is now being considered. But as a former WB staffer I fear that management focus on eliminating even basic economic and financial discourses in operations - let alone: theoretical background, definitions, due diligence and process - will mean such development banks and 'innovative' finance vehicles (for example the Global Fund) are simply talking abstractly about 'risk' after the fact; and failing to examine what senior managers failed to listen to the train coming down the track before the fact (and why).

So let's see what the current re-organisation therefore brings and whether a 'knowledge bank' that cannot provide more concrete (positive) incentives (the stick and negative incentives belong to others) can continue to exercise its historical power to influence popular discourses? On the other hand, the best way forward maybe to just recover traditional instruments that where build on risk analysis (and yes that means dusting off those old economics books from for example von Neumann and Morgenstern or Arrow)and re-spin them taking account of sociological processes:

This is also a cross post from The Broker blog.

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