Awakening call

Inclusive Economy25 Feb 2014Magda Stepanyan

Should we invest in understanding and managing threats and opportunities beforehand or simply respond to shocks resulting from unmanaged risks afterwards? To me, and luckily many others working in development, this is a rhetorical question. 

This dilemma has confronted development cooperation for decades and it was also the primary focus of a recent discussion on risk management for development, hosted by the international development organization, Cordaid, together with the World Bank.  As CEO of Cordaid, Simone Filippini, said during the discussion in The Hague on 11 February 2014 “… being risk averse is sometimes more expensive than taking risks.”

The fundamental question is then, why is risk management not happening? This question was raised in the 2014 World Bank World Development Report (WDR),  ‘Risk and Opportunity: Managing Risk for Development.’ There are many obstacles, such as lack of resources, lack of coping mechanisms on the side of the national governments or the poor population, lack of knowledge, lack of political commitment, and many others. All are valid reasons. However, let’s think about the possible entry points for risk management. During the discussion, much of the rhetoric was on how to help the national governments and locals (communities, households, individuals) to identify and manage their own risks. With all good intentions, this might be a tricky road if development organizations themselves do not take risk management seriously for their own strategic and portfolio management. In my opinion there is a strong need for adequate efforts to develop capacities of development actors to identity, analyze, and manage risks. Effective risk management cannot be a result of only good intentions. The professionalization of the sector should embrace risk management and benefit from it. At whatever level – global, national, institutional, or organizational – uncertainties should be embraced and risks should be managed in a professional way.

Embracing uncertainties, often ‘deep uncertainties’ [1] is impossible without facing pitfalls, missed efforts, and unmet expectations. Recognizing failures and learning from them is crucial, as was emphasized by Dr. Rasmus Heltberg, a WDR14 core team member and lead evaluation officer with the World Bank’s Independent Evaluation Group. Management of threats and opportunities is closely associated with the complex interaction between success and failure. I insist that managing risks implies also planning for failure. Of course, what I mean by failure is a situation when something can go wrong and we learn from it, rather than a failure that is unnecessary and unjustified (for instance, systematic failure to avoid recurrent drought in the Horn of Africa).

Emphasizing the instrumental role of risk management for development cooperation, the WDR clearly points out the importance of a holistic approach to risk management and its mainstreaming into development programming. Rightly so! Yet the question will always be ‘whose threats and whose opportunities?’ To my understanding it is inevitable to face ethical dilemmas while encouraging risk-based policymaking and risk-based development programming. At whatever extent – individuals, households, communities, private sector, state, international community – there are always different (sometimes contradictory and confronting) agendas, expectations, and intentions. As Prof. Thea Hilhorst from Wageningen University commented during the discussion, risk management for development should be explicitly linked to the poverty eradication agenda.  This is indeed important to anchor the efforts towards shared goals in a synchronized manner. On top of that the diversity of interests and players, which can hardly be embraced, obviously need careful consideration. Here is where inclusiveness is the basic principle. As Mrs. Filippini said during the meeting, “inclusiveness is an export product of the Netherlands.” I agree with this statement based on my own experiences of working in Dutch and non-Dutch environments.

The truth is that nothing mentioned above is absolutely new. Each and every development practitioner faces these dilemmas on a regular basis. Yet conceptualizing risk management for development and articulating its importance for development programming can open a whole new era to ensure better development results. More useful ideas were exchanged during the meeting and more insights are yet to come… But I am confident that the Dutch development cooperation sector will  seriously take risk management on board and make a difference in managing their own risks and thereby helping others to manage theirs. The country that largely lies below  sea level knows very well what it means to face constant risk (of flood, in this case) and how to effectively manage this risk.

In a nutshell, this was an interesting meeting on risk management in development and it will hopefully be an awakening call to many.


1. Also known as Knightian uncertainty in economic cycles, it refers to a situation for which even experts cannot agree on appropriate models to understand it. It refers to the potential outcomes and probabilities of an occurrence, and on how much importance should be given to it.