INSTITUTIONAL

AND RISK ANALYSIS

FISSEHA M. (PHD. CAN)
INSTITUTIONAL ANALYSIS

• Aim of the tool

• To analyze the institutions that have a bearing on the core issue of your intervention

• When to use it?

• This tool is particularly useful at the start of the intervention and when the issue of
strategies for change is raised
 WHAT IS AN INSTITUTIONAL ANALYSIS?

• In this tool the term ‘institutions’ does not mean ‘organizations’.

• Institutions refer to cultural values, legal frameworks, market mechanisms and political
processes: the ‘rules of the game’ (Brouwer et al 2012).
• The tool will therefore help you to think critically about how different aspects of
institutions influence your intervention.
• There are no other ‘widely accepted’ tools for analysing institutions despite the fact
that the concept of institution is so important to social change-focused development.
• Institutions involve rules, organizations and social norms that facilitate human
and organizational action.
• Institutions are therefore important to the attainment of efficient, sustainable and
equitable development outcomes (through, e.g., the creation of trust and
confidence in societal systems such as the financial system, etc.).
• Formal institutions (e.g., the laws governing the workforce) are just as important
as informal institutions (e.g., traditional system of labour in some societies).
• Organizations are structures that have been either created to take advantage of the
opportunities for action provided by existing institutions, or created to implement
new institutions such as laws and regulations.
 WHY DEVELOP AN INSTITUTIONAL ANALYSIS?

•Institutional Analysis - Step by step

•Step 1:
•Identify the relevant institutions that have a bearing on the core issue of your
intervention.
 Write the core issue in the middle of the flip chart.
 Brainstorm to find out the key institutions influencing (positively or negatively)
the core issue—values, norm, laws,policies; organisations, groups, structures,
networks, services, citizens demands, actions, etc.
 Group the institutions identified under the headings meaning, control, association,
action (see examples below).
• Examples of questions that you can use to help brainstorm on ‘meaning’:
• What are the general beliefs in the government and society about the emerging issue?
• What are the norms and values in the community and the society at large?
• What are the main theories, conceptual frameworks and bodies of knowledge being
used to set policies and design interventions?
• How much alignment or contradiction is there between the different theories and
between theory, cultural values and practices?
• Examples of questions that you can use to help you brainstorm on ‘association’:
• Which organized actors are important to the emerging issue (government agencies, donors, NGOs,
CBOs etc.)?
• What contractual, formal or informal relationships exist among these different organizations?
• Examples of questions to help brainstorm on ‘control’:
• What is the national policy on the emerging issue? How is the emerging issue ‘being dealt with in
relation to other national strategies and policies (e.g., Poverty Reduction Strategy Papers (PRSPs))?
• What are the specific mandates of the different organizations?
• What are the rules and regulations governing the institutions?
• What are the private sector policies and strategies?
• What are the informal rules governing established practices?
• What are the reasons behind these informal systems?
• Examples of questions to help brainstorm on ‘action’:
• As a result of the above, what services are actually operating?
• Who is using them and what are the patterns of behavior?
• How significant is the informal sector and how would you characterize
its behavior?
• How do staff of service providers behave towards their clients?
• What type of corrupt behavior exists in the sector? What is the level?
• Step 2:

• Reflect on:
• What are the implications for your intervention?
• Which positive institutions do you need to re-enforce and build on?
• Which institution should you try to change? – indicate them on the
analysis sheet.
WHAT IS RISK ANALYSIS?

• What Is Risk Analysis?

• Risk analysis is the process of assessing the likelihood of an adverse event occurring
within the corporate, government, or environmental sector.
• Risk analysis is the study of the underlying uncertainty of a given course of action and
refers to the uncertainty of forecasted cash flow streams, the variance of portfolio or stock
returns, the probability of a project's success or failure, and possible future economic
states.
WHAT IS RISK ANALYSIS?

• Risk analysis is the process that figures out how likely that a risk will arise in a project. It
studies the uncertainty of potential risks and how they would impact the project in terms
of schedule, quality and costs if in fact they were to show up.
• Two ways to analyze risk are quantitative and qualitative.
• But it’s important to know that risk analysis is not an exact science, so it’s important to
track risks throughout the project life cycle.
• Risk analysts often work in tandem with forecasting
professionals to minimize future negative unforeseen effects.
• All firms and individuals face certain risks; without risk,
rewards are less likely.
• The problem is that too much risk can lead to failure.
• Risk analysis allows a balance to be struck between taking risks
and reducing them.
UNDERSTANDING RISK ANALYSIS

• Risk assessment enables corporations, governments, and investors to assess the probability that
an adverse event might negatively impact a business, economy, project, or investment.
• Assessing risk is essential for determining how worthwhile a specific project or investment is
and the best process(es) to mitigate those risks.
• Risk analysis provides different approaches that can be used to assess the risk and reward
tradeoff of a potential investment opportunity.
• A risk analyst starts by identifying what could potentially go wrong.
• These negatives must be weighed against a probability metric that measures the likelihood of the
event occurring.
• Finally, risk analysis attempts to estimate the extent of the impact that will be
made if the event happens.
• Many risks that are identified, such as market risk, credit risk, currency risk, and
so on, can be reduced through hedging or by purchasing insurance.
• Almost all sorts of large businesses require a minimum sort of risk analysis.
• For example, commercial banks need to properly hedge foreign exchange
exposure of overseas loans, while large department stores must factor in the
possibility of reduced revenues due to a global recession.
• It is important to know that risk analysis allows professionals to identify and
mitigate risks, but not avoid them completely.
TYPES OF RISK ANALYSIS
RISK ANALYSIS CAN BE QUANTITATIVE OR QUALITATIVE.

• Quantitative Risk Analysis

• Under quantitative risk analysis, a risk model is built using simulation or deterministic
statistics to assign numerical values to risk.
• Inputs that are mostly assumptions and random variables are fed into a risk model.
• For any given range of input, the model generates a range of output or outcome.
• The model's output is analyzed using graphs, scenario analysis, and/or sensitivity analysis
by risk managers to make decisions to mitigate and deal with the risks.
• For example, an American company that operates on a global scale might want to know how its
bottom line would fare if the exchange rate of select countries strengthens
• A sensitivity table shows how outcomes vary when one or more random variables or assumptions
are changed.
• The outcomes can be summarized on a distribution graph showing some measures of central
tendency such as the mean and median, and assessing the variability of the data through standard
deviation and variance.
• The outcomes can also be assessed using risk management tools such as scenario analysis and
sensitivity tables
QUALITATIVE RISK ANALYSIS

• Qualitative risk analysis is an analytical method that does not identify and evaluate risks with
numerical and quantitative ratings.
• Qualitative analysis involves a written definition of the uncertainties, an evaluation of the extent of
the impact (if the risk ensues), and countermeasure plans in the case of a negative event occurring.
• Examples of qualitative risk tools include SWOT analysis, cause and effect diagrams, decision
matrix, game theory, etc.
• A firm that wants to measure the impact of a security breach on its servers may use a qualitative
risk technique to help prepare it for any lost income that may occur from a data breach.
LIMITATIONS OF RISK ANALYSIS

• Risk is a probabilistic measure and so can never tell you for sure what your precise risk exposure is
at a given time, only what the distribution of possible losses are likely to be if and when they occur.
• There are also no standard methods for calculating and analyzing risk, and even VaR can have
several different ways of approaching the task.
• Risk is often assumed to occur using normal distribution probabilities, which in reality rarely occur
and cannot account for extreme or "black swan" events.
• The financial crisis of 2008, for example, exposed these problems as relatively benign VaR
calculations greatly understated the potential occurrence of risk events posed by portfolios of
subprime mortgages.
• Risk magnitude was also underestimated, which resulted in extreme leverage ratios
within subprime portfolios.
• As a result, the underestimations of occurrence and risk magnitude left institutions unable
to cover billions of dollars in losses as subprime mortgage values collapsed.
WHAT IS RISK IDENTIFICATION?

• Risk identification is also a risk management process, but in this case it

lists all the potential project risks and what their characteristics would be.
• If this sounds like a risk register, that’s because your findings are collected
there.
• This information will then be used for your risk analysis.
• Though this process starts at the beginning of the project planning phase,
it’s an iterative process and continues throughout the project life cycle.
WHAT IS RISK MANAGEMENT?

• Finally, risk management is the overall process that project

managers use to minimize and manage risk.
• It includes risk identification, risk assessment, risk response
development and risk response control.
BENEFITS OF RISK ANALYSIS

• To understand risk analysis, note the importance of examining risk in methodical detail.
Why? There are several reasons.
• Avoid potential litigation
• Address regulatory issues
• Comply with new legislation
• Reduce exposure
• Minimize impact
• Risk analysis is an important input for decision making during all the stages of the project
management cycle
• Project managers who have some experience with risk management in projects are a great resource.
We culled some advice from them, such as:

• There’s no lack of information on risk

• Much of that information is complex
• Most industries have best practices
• Many companies have risk management framework
• Risk analysis is done in extremes
DETERMINING IMPACT

• Through qualitative and quantitative risk analysis, you can define the potential risks by determining
impacts to the following aspects of your project:
• Activity resource estimates
• Activity duration estimates
• Project schedule
• Cost estimates
• Project budget
• Quality requirements
• Procurements