How to Manage the Risks in Fragile States
By 2015 more than 50 percent of the world’s poor are projected to live in conflict-affected and fragile states, and by 2025 that proportion could rise to 82 percent. Aid donors and the UN development system want to effectively deliver results in fragile states, but these are complex and risky situations, where the potential for project failure and financial losses is significant. In this context, donors need to better manage the risks.
Risk management is hard enough because it’s about trade-offs and resolving operational tensions between risks and potential benefits. But put the international community together and it gets even harder. Every part of the UN and every donor has a different system. The combination of these disparate systems does not necessarily add up to effective risk management. Why? First, harmonization is difficult to achieve because varying donor objectives, incentives, definitions, and funding mechanisms place centrifugal forces on the UN system. Second, uneven quality and relevance of risk-related information available to donors and actors inhibits a coordinated effort.
There are things the UN and donors can do to improve the way risk management is done in fragile state contexts:
- Donors can first agree to adopt common definitions on risks and a common framework for risk management as a starting point.
- Building from that framework, donors could then collaborate with the UN to develop a set of common minimum risk management standards to use in fragile state settings. Donors could explore limiting their own claims for compensation in case a UN development project in a fragile state should fall short of its planned objectives, if all agreed minimum standards were met and a good faith effort was made.
- Donors can also revisit their guidelines for joint risk management assessments in addition to using pooled donor funds as a platform for common risk management responses.
- The UN can share its own risk management processes with donors and provide quality, timely, and honest reporting on projects to donors.
- The UN should also continue its own internal efforts to harmonize its language and practices across agencies without creating additional burdens to already stretched UN development practitioners in the field.
For a joint approach to work, a convergence of political choices among donors is key. Donors must determine their own strategic objectives, risk appetites, and the nature of the relationship that they seek with the UN.
These are general suggestions to address a very complex issue. We should remember that risk management is contextual and approaches will vary depending on circumstances. For a more in-depth look at these issues and suggestions on how to achieve smart risk management, download CIC’s white paper by Marc Jacquand and Shelley Ranii on UN Development System Risk Management in Fragile States, which was prepared for the Utstein Group’s 2014 spring meeting.