1. Project Risk Management IFAD Kenya Country Team Training Financial Management & Good Governance Nairobi, April 2009

2. 2 What Is Risk? Risk is the uncertainty of outcome – positive opportunity or negative threat – of activities and events It is the result of the combination of Impact & Probability, including perceived importance Project risk is defined as any area of concern that could prevent a project from achieving any or all of its objectives and outputs/ benefits

3. 3 Why & What is Project Risk Management? Why?   Undertaking any project entails risk   A random and ad hoc reaction to the identification and analysis of risk is often fatal to the success and/ or sustainability of the project: unexpected risks arise which have to be dealt with on an emergency, often post factum and more costly basis What is it? Systematic process of managing a project's risk exposures to achieve its objectives in a manner consistent with public interest, human safety, environmental factors, and the law Planning, organizing, leading, coordinating, and controlling activities undertaken with the intent of providing an efficient plan that minimizes the adverse impact of risk on the project's resources, objectives and outputs

4. 4 10 Golden Rules of Project Risk Management Rule 1: Consider Risk Management as Creating Value Rule 2: Embed Risk Management into the Project Rule 3: Identify Risks Early Rule 4: Communicate About Risks Rule 5: Consider Both Threats and Opportunities Rule 6: Clarify Responsibility Rule 7: Prioritise/ Assess Risks Rule 8: Plan and Implement Risk Responses Rule 9: Document and Track Project Risks & Associated Tasks Rule 10: Continuously update, improve and enhance process

5. 5 Source: Business Risk Assessment. 1998 – The Institute of Internal Auditors Avoid Accept Reduce RiskResponse ProcessLevel ActivityLevel Entity Level RiskMonitoring Identification Measurement Prioritization RiskAssessment Risk Management Share

6. 6 Risk Assessment Identification of Key Risk Areas

7. 7 Risk Assessment - Measurement Risk Assessment - MeasurementIMPACT Assessed Values=Impact X Probability High Mitigate and Monitor Mitigate and Report Mitigate and Report to IFAD MediumAcceptMitigate and Monitor Mitigate and Report LowAccept Mitigate and Monitor 0-33%33%-66%66%-100% PROBABILITY/LIKELIHOOD UNACCEPTABLE RISKS ACCEPTABLE RISKS

8. 8 Risk Assessment – Measurement Assumptions and risks Assumptions should not be only about external conditions but also about the internal logic of the project strategy. For example, when increasing agricultural production to increase income, the assumption is that there is a market for the produce Remember that if an assumption is highly risky, then the project design should be adjusted to lower the risk

9. 9 Avoid Divest Divest Prohibit Prohibit Stop Stop Screen Screen Eliminate Eliminate Risk Responses Accept Retain Retain Re-design Re-design Self-insure Self-insure Offset Offset Reduce Control Control Diminish Diminish Isolate Isolate Improve Improve Relocate Relocate Diversify Diversify Share (Re-)insure (Re-)insure Hedge Hedge Securitize Securitize Transfer Transfer Outsource Outsource Indemnify Indemnify

10. 10 Project Risk Management in IFAD Begins at COSOP Countries with high corruption/ governance trends subject to additional checks/ controls embedded into project Risks highlighted in project design documents Review Log frame data - approach to be expanded to each supervision mission Annual Portfolio review – assess fiduciary aspects, project implementation progress, outputs & outcomes, sustainability, likelihood of achieving development objectives and impact in increasing physical & financial assets & improving food security

11. 11 Risk Monitoring Log frame approach to risks Risk Smallholders and their organizations…. (which are) managing and coordinating project activities lack sufficient implementation capacity & are not sustainable at the end of project Risk Mitigation Continue to provide training and technical assistance to build the institutional capacity of all these groups and organizations Using temporary village change agents & embed agricultural extension expertise into village organizations; integrate smallholders into the commercial agriculture sector Indicator Adequate provisions made in project design for project implementation Intensive implementation support provided to improve execution Responsible PMU/ IFAD (CPM)/ PMU/ consultants Timeframe Design document finalised, but provisions to be re- examined in mid-term review Next mission (…./2009)