Champions of risk management

The declaration, in 1979, of the worldwide eradication of smallpox marked a highly unusual achievement. The only human disease ever to be eradicated, the eradication of smallpox is also unusual in being an instance of successful risk management that many people have actually heard about. When it comes to risk management, there is often more attention to the failures than to the successes. While crises, crimes, disasters, and social unrest dominate the front pages, and the attention of our leaders, the champions of risk management whose foresight averts damage and destruction rarely get the credit they deserve.

That is a shame because many development problems have a basis in deficient risk management. Take poverty. While every year many families escape from poverty, others fall on hard times. Illness, for example, is a frequent cause of poverty in developing countries where most people have no health insurance and friends and family provide the only safety net. In fact, the toxic mix of high risk and inadequate risk management are implicated in a host of development problems, ranging from malnutrition, infant mortality, civil strife, crime, violence, to sclerotic private sector investment and job creation. To overcome these problems and prosper, the developing world needs champions of risk management.

In the World Development Report 2014 Risk and Opportunity: Managing Risk for Development, we set out to explore what it would take to improve risk management for development, meaning the process of confronting risks, preparing for them, and coping with their effects. We focus more on the process of managing risk than on risk itself, motivated by the saying that “an ounce of prevention is worth a pound of cure”—old wisdom which has been validated by studies showing that preventing infant malnutrition, reducing disaster losses, and vaccinating against disease brings benefits many times their costs. 

As we explored how the development profession could make the switch from ad hoc crisis response to systematic risk management, we encountered under-appreciated champions of risk management from all walks of life. For instance:

• Families: pooling risk within the family has been a basic form of insurance from time immemorial. Extended family members step in to help out in a substantial way when their relatives fall ill. Migrants assist their families by sending remittances when shocks hit. Families invest in the human capital and social skills of their members, preparing future generations to manage the risks and opportunities they will face.

• Community leaders: Cohesive communities solve many problems that markets and governments struggle with: preventing crime, managing natural resources, getting credit to the poor, and insuring risks that are hard for outsiders to monitor. Communities can mobilize for social change and responsive governance, as in the Arab Spring, or India’s Right to Food movement.

• Entrepreneurs: Dynamic enterprise sectors, fostered by risk-taking entrepreneurs, have enabled hundreds of millions of workers to swap unstable informal occupations with better paid (and often safer) formal jobs. Technological innovation is also helping: market information communicated via cell phones helps farmers in Africa to respond to changes in crop prices; crowd-sourced maps of violent incidents allow people to avoid hotspots; and mobile phone banking is putting modern financial tools in the hands of the poor.

• Policymakers: Today developing countries manage their fiscal affairs far more prudently during upswings than they used to. This helps them to avoid costly contractions and fiscal cuts during downturns; it has also tamed inflation: while 34 countries had annual inflation greater than 50 percent in 1990–94, only Zimbabwe registered that rate by the end of the 2000s. Independent central bankers—and the politicians with the foresight to insulate central banks from electoral cycles—made this possible.

• The international community: Increased openness and modernization have made economic, social, and ecological systems, and risks, increasingly interconnected. Governments, international organizations, civil society, and the scientific community are rising to the challenge of managing risks that cross national borders or that exceed countries’ capacity. Protecting the ozone layer, stabilizing fragile countries, rebuilding after major disasters, and, as mentioned, eradicating smallpox are some examples.

These champions of risk management enable development. Their actions avoid loss of life and property, conquer apathy and excessive risk avoidance, and set people free to pursue opportunities and better their lives. No sector or profession has a monopoly on championing risk management: it is a shared responsibility. This means that whether you work in the public or the private sector, belong to civil society or the international community, are a parent or a student, you too can be a champion of risk management.