Risk Management in International Development

Development organisations are confronted with a wide variety of risks when implementing development projects, particularly in fragile and conflict affected states. International development projects often face implementation challenges related to:

• Lack of quantifiable market rewards and profitability incentives that characterise other industries’ projects,
• Complex and often intangible nature of projects to be delivered under complex social, economic, and political factors that affect the quality of goods/services,
• External driving forces such as international politics, currency exchange or global supply chains,
• Embargoes and sanctions regimes from the UN, EU, US and other donor countries on specific countries, individuals, groups, or organizations affect the ability to engage with debarred/sanctioned entities and individuals, or access goods, services, or cash arrangements in sanctioned countries,
• Political and legal system of the country, often with poor infrastructure and banking systems,
• High security risks, potential social unrests, active conflicts, or post-disaster/post-conflict/post-war situations, and operating in some of the most remote and challenging locations in the world,
• No/limited time between financing approval and beginning of the project life cycle,
• Resource limitation and a high degree of public accountability and reporting,
• Complex stakeholder management and ambiguous role of donor and project supervisors,
• Ineffectiveness of one-size-fits-all approaches.

These require a standardised and flexible approach to project management, supported by sound and continuous risk management. From the perspective of international aid, OECD DAC created an internationally recognized method to categorise risks into three overlapping circles, referred as the ‘Copenhagen Circles’ (Figure 1):

• Contextual risks: a range of potential uncertainties that may arise from a particular context and facilitate or hinder progress towards development priorities of a given society. These may include the risk of political destabilisation, violent conflict, economic deterioration, natural disaster, humanitarian crisis, cross-border tensions, etc. Development agencies and external actors have only a limited influence on whether a contextual risk event can occur but can react to minimise the effects on the objectives.

• Programmatic risks: the risk that programmatic interventions do not achieve their objectives or cause inadvertent harm by, for example, exacerbating social tensions, undermining state capacity, and damaging the environment. Programmatic risks may relate for instance to weaknesses in project design and implementation, failures in coordination, and dysfunctional relationships between development agencies and their implementing partners.

• Institutional risks: a range of potential uncertainties that could facilitate or hinder the efficiency and effectiveness of core operations within the organisation and its staff. These may include management failures and fiduciary losses, exposure of staff to security risks, and reputational and political damages. Current risk management practices are predominantly focused on institutional risk reduction.

Figure 1. Copenhagen Circles

In international development projects, risk management is not just about risk reduction, it involves balancing risk and opportunity, or one set of risks against another. Development organisations have adopted different tools for the management and monitoring of risks. Some focus on risk management at the project level, while others at the portfolio and programme level, and these include different risk categorization. These categorizations are captured in each organisation’s Enterprise Risk Management policy, Risk Appetite, and individual policies and procedures. The following sections will focus on risk management frameworks within the Global Fund and UNDP.

Additional guidance to support this area of work are also available through resources listed below:

• OECD – Managing Risks in Fragile and Transitional Contexts