Testing hypotheses and managing risks

This paper presents two studies that were designed to help the Africa Bureau to strengthen economic analysis during project preparation. The first study draws on experience with NRM projects during the period 1992/1993 to detail five key lessons for future programming. (1) Because NRM projects are inherently risky, hypothesis testing is central to NRM program management. (2) The application of basic economic concepts, such as opportunity costs, incentives, objectives, and constraints, can provide powerful insights for hypothesis testing. (3) NRM programs need social indicators of success as well as economic indicators. (4) NRM programs need a positive approach to risk and failure: even failed projects can provide useful information and lessons learned. (5) To deal with risk and uncertainty, NRM programs need to be flexible and responsive to change. The second study focuses on the NRM organizing framework (which USAID uses in lieu of the traditional logframe) for designing NRM programs. The NRM framework has five levels: (1) actions (includes inputs); (2) enabling conditions (e.g., institutional reforms); (3) promotion of improved practices; (4) changes; and (5) increased income/productivity (results). According to the study, the framework succeeds in generating the policy flexibility needed to respond to changing conditions, but it fails to establish causal links between inputs and outputs, and it is thus unable to identify extraneous variables that affect project viability. nonproject assistance programs in sub-Saharan Africa, the paper concludes with simulations of integrated risk management within the NRM framework.