Benefits of preparing for risk ‘significantly outweigh costs’, says new World Bank report
9 October 2013
Effective risk management boosts resilience in the face of adversity – especially health problems, weather shocks and economic crises – and enhances people’s ability to take advantage of development opportunities.
It’s also a crucial ingredient in the fight to end poverty, according to a new report from the World Bank, released last weekend.
The World Development Report 2014 says various types of shock play a major role in pushing households below the poverty line and keeping them there.
But risk management can be a powerful instrument for development, bringing security and progress to people in developing countries and others.
Over the past 25 years, the report says, the world has experienced rapid integration, economic reform, technological modernization and democratic participation, but has also endured financial turbulence, job losses and environmental damage.
It argues that proactive, systematic and integrated risk management is needed more than ever.
“We’re advocating a sea change in the way risk is managed,” says World Bank Group President Jim Yong Kim.
“Our new approach calls for individuals and institutions to shift from being ‘crisis fighters’ to proactive and systematic risk managers.
“Doing so will help build resilience, protect hard-won development gains, and move us closer to…ending extreme poverty and boosting shared prosperity.”
On climate, the report says climate change risk has been building nearly invisibly for generations, while extremes such as heatwaves and precipitation “have been increasing for the past 50 years and are expected to worsen.”
But while all countries are vulnerable, “developing countries are disproportionately affected because they have the least capacity to prepare and cope”.
Dr Maarten van Aalst, Climate Centre director, who co-authored a background paper for World Development Report 2014, said: “This focus on risk management is extremely valuable.
“The Climate Centre is keen to contribute to the role foreseen by the World Bank for the international community, and we’re already working with them and others to address the rising risks, particularly emphasizing community resilience, and bridging science, policy and practice.
“For instance, we’re looking for novel financial solutions to foster early action based on credible scientific information, even in the absence of 100% certainty.
“This principle is put into practice through forecast-based funding for disaster preparedness by the Togo and Uganda Red Cross, supported by the German Red Cross.”
A box article in the report advocates subsidiarity – the principle that risk should be handled at the most local level possible – to take advantage of proximity to, and greater knowledge of, the relevant risks.
“This fits the Red Cross Red Crescent vision of helping communities manage their own risks while we stand ready to provide support,” Dr van Aalst adds.
The report finds that the benefits from preparing for risk can significantly outweigh the costs.
But despite the low cost-benefit ratio of better preparation, the evidence suggests that historically more emphasis is placed on “ex post risk management”.
Of total development assistance allocated for disaster-related activities in three decades after 1980, only 3.6 percent (US$ 3.3 billion) went on prevention and preparedness.
The Climate Centre’s decision-making games on deep uncertainty also address what the World Bank identifies as the need – under such conditions – for “adaptive and robust policies and actions that lead to acceptable outcomes in a large range of scenarios”.
“This is a key objective of the Partners for Resilience alliance, which focuses on ecosystem-based risk reduction and adaptation,” said Dr Pablo Suarez, the Climate Centre’s Associate Director for Research and Innovation, who co-designed deep-uncertainty games for the World Bank.
“We need solutions that are robust, not only in light of current risks,” he adds, “but also across a range of possible futures.
“Games allow people to experience these risks and foster better decisions.”
Some risks have fallen dramatically in recent years, says the World Bank. Life expectancy, for example, has risen thanks to expanded immunization, better social safety nets, and improved forecasting of natural hazards.
But its report finds that most people remain ill-equipped to confront shocks, so must depend on shared action and responsibility.
The World Development Report 2014 says its “overarching advice” centres on the need to manage risk proactively at every level in a way that supports national development, municipal infrastructure and household savings.
Indonesian women meet to discuss better ways to reconstruct their village, hit by volcanic eruption. (Photo: Nugroho Nurdikiawan Sunjoyo/World Bank)