...but is only one aspect of what we can achieve with effective risk management.
Resilience has become a sexy word in development. Ban Ki Moon has said that resilience should be an important component of the post-2015 agenda; there is a blooming industry of publications with the term resilience incorporated into their titles; daily google searches for the word resilience have roughly doubled in the past few years.
From a risk management perspective, resilience can be understood as the ability of a system to withstand and recover from negative shocks. Given the plethora of risks people face in their daily lives, and the damaging and sometimes permanent effect that negative shocks can have, resilience is clearly a worthy goal of improved risk management. This is especially the case for the poor: with few assets to help them prepare for these risks, and often without good access to markets and government services, they are often disproportionately exposed to and affected by negative shocks.
As Brian Walker points out in a recent blog, one problem with all of the attention that resilience has been getting is that it is rarely clearly or consistently defined. If resilience is going to part of the post-2015 agenda, there needs to be greater consensus about what it means and how it can be measured.
That is only one part of the discussion needed, however. More attention should also be given to the management of positive shocks as a component of risk management.
The World Development Report 2014, Risk and Opportunity: Managing Risk for Development argues that in the search for development taking risks in pursuit of opportunity may be as important as mitigating the losses derived from negative events. From starting at a new school and opening a new business to introducing new technologies and opening an economy up to increased trade, growth and development require making changes and taking risks. Yet evidence shows that people, and especially poor people, are often reluctant to take risks. Preparation for risk – in the form of increased knowledge, protection, and insurance – can help to reduce potential losses, thereby making people more willing to take necessary risks.
Not only is the increased prosperity that can come from better managing the upside of risk important in its own right, it is also crucial for increased resilience to negative shocks. A simple example suffices to illustrate this: a farmer’s ability to withstand a drought depends in part on the steps taken to prepare for such a shock, such as whether the farmer has crop insurance, but also on how the farmer has managed her yields in the good times.
The goal of risk management should thus be to both decrease the losses and increase the benefits that people experience when they face and take on risk. Risk management can then be a powerful tool for development. It can build resilience to adverse events, as well the prosperity that can be achieved only through the sustained growth that managing risk effectively can offer.
- WDR 2014