What can go wrong with a Forecast-based Financing project?

Achieving great things

The goal of Forecast-based Financing is to reduce the impact of disasters.

In the precious window of time between a forecast and a potential disaster, FbF releases resources to take early action. Ultimately, we hope this early action will be more effective at reducing suffering, compared to waiting until the disaster happens and then doing only disaster response. For example, in Bangladesh, people who received a forecast-based cash transfer were less malnourished during a flood in 2017.

With the promise of increased effectiveness, the concept of FbF is rapidly gaining traction in the humanitarian and development sectors. Clearly, FbF can be a saving grace for people who would otherwise experience a catastrophe.

However…what could possibly go wrong?

FbF doesn’t inherently have a higher chance of “going wrong” than much of our other work. But because it is new, people might not realize potential pitfalls.

Here we outline several ways in which FbF can go wrong – some are inevitable, and some can be avoided.

Let’s create a fake country – let’s call it Madeupsville.

In Madeupsville, FbF has taken off, and is widely implemented by everyone. However, in Madeupsville, people are starting to run into a few problems…

Graphics: Rebeka Ryvola / Climate Centre

Implications

Clearly these problems are bad. Consequences could include:

• Direct harm to people, or missed opportunity to help people.
• Bad press that means people abandon FbF even though it could have been useful if implemented well in some places.
• Reputational damage to organisations that implement FbF that affects our ability to help people in real disasters (including potential loss of general funding).

Solutions:

Though these stories from “Madeupsville” were – you guessed it – made up, they are all based on events that actually happened.

A few people not working in “Not Madeupsville” have come up with recommendations that may help many of these problems.

Here’s what they learned from these (very real) experiences.

• Invest in the capacity to act.
  Invest in basic organizational development, including volunteer training, staff salaries, and basic infrastructure. This will allow your local organizations to act on a meaningful scale when faced with a major disaster forecast.

• Measure what matters and use the results.
  Monitor and evaluate relevant indicators to understand what’s working. Be honest about what is not working. When results are known, adapt programming accordingly. Newcomers – ask for the advice from others already piloting and measuring.

• Be transparent about risks.
  Communicate the meaning of triggers and manage expectations about forecast accuracy. Understand that forecasts aren’t perfect.

• Be smart about data.
  If you want the best possible data– you must invest in improving information management and data quality.

• Minimize complexity:
  More data won’t automatically make your forecast trigger better. Focus on knowing and improving the skill of the forecast and quality of risk data. Even if you have very few indicators but have good quality data, your model is likely to be more effective.

• Agree on goals.
  Donors, implementers and at-risk people should have a common narrative of what the FbF system is meant and not meant to achieve. This will require education and communication.

• Ensure financing is put to good use.
  Financing is not a goal in itself. Early actions should be based on vulnerability assessments and what different social groups actually need and want in the event of a disaster.

• Include household-level perspectives in system design and monitoring.
  So that unexpected or adverse consequences can be noticed quickly.

• Link to wider risk financing strategies.
  FbF is not designed to address every type of risk; FbF should slot into an overall ecosystem for risk management.

• Invest in systems and procedures.
  FbF is not just about science and clever uses of data. It must be underpinned by systems that channel funds efficiently, turn money into goods and services that are useful to people, and ensure all of this is done without malpractice, corruption and fraud. Make sure you have people who understand financial management, governance and political economy on your team.

• Be cautious about pilots.
  Think about how your work contributes to longer-term (transformational) change to the institutions and processes that create or enhance risks. Don’t be hasty to “scale up” assuming what worked in a pilot will work on a much larger scale.

• Don’t go too fast.
  Ensure technical expertise keeps up with new FbF work.

• Identify the right time for FbF.
  There should be an enabling environment in which to embark on an FbF project. This starts with meaningful interest and willingness of key actors.

• Think about whether this is really a good idea.
  Consider whether FbF would be an efficient, equitable and cost-effective way of reducing risks, or whether other instruments or approaches might be better – this could be other ways of providing finance, or it could be just investing resources in preparedness and prevention.

FbF holds immense potential to transform how humanitarians operate, avoiding disaster impacts before they happen. Changing systems is a complex endeavour, and can be achieved if we are transparent about things that inevitably “go wrong”, while keeping a clear focus on what we mean by “going right”.

Have a what could go wrong story? Please share your experiences and learnings in the comments!