1. IL Reform Risk-Based Approach & GAC Agenda Dec. 2010 1

2. Risk Based Approach: How ORAF brings GAC to Projects Operational Risk Assessment Framework Governance Risks F & C Risk Risk-Based Approach introduces one overarching risk framework for IL First time GAC Issues central and addressed systematically in IL operations Also highlights F & C specifically (IDA Controls) This will provide a critical step towards the integration of functional risks into operations 2

3. 3 Risk-Based Approach

4. Risk Assessment-- Principles Systematic and holistic approach – Team work (multi-disciplinary) – ORAF applied throughout the project cycle – Standard definitions, guidelines – Link to Project Development Objectives (results) Clarified governance and accountability structure – Roles of project teams, CMUs, SMUs, etc. – Regions to monitor and manage country and regional risks levels Ability to assess Bank-wide portfolio risks – Portfolio risks to be monitored Bank-wide 4

5. Operational Risk Assessment Framework (ORAF) PROJECT STAKEHOLDER RISKS 1.1 Stakeholder Risk OPERATING ENVIRONMENT RISKS 2.2 Institutional Risk (sector / multi-sector level) 2.1 Country Risk 2 IMPLEMENTING AGENCIES RISKS (including FM & PR risks) PROJECT RISKS 3.2 Governance Risk 3.1 Capacity Risk 4.3 Program & Donor Risk 3.3 Fraud & Corruption Risk 4.5 Other Risks (Top 2) 4.2 Social & Environmental Risk 4.1 Design Risk 4.4 Delivery Quality Risk 3 1 4 PROJECT DEVELOPMENT OBJECTIVE(S) (Key Results) Risks to ProjectDevelopment Objective(s)

6. Guidance for Risk Assessment 6

7. A Collaborative Effort 7 Task Team (with CMU and EXT support as needed) Evaluates Stakeholder Risk CMU Evaluates Country Risk Relevant SMU staff Evaluates Institutional Risk Project Team (including safeguard fiduciary specialists, lawyer, disbursement officer…) Evaluates Implementing Agency Risks and Project Risks

8. Dynamic Risk Reporting During Project Preparation The task team is responsible for reporting new risks that come to light or new information that would change risks ratings and move the project out of the low-risk category During Project Implementation The task team is responsible for updating the risk rating and reviewing progress made by the country in implementing mitigation measures as part of ISR reporting. The Sector Manager confirms the overall risk rating at least once a year through the ISR. 8

9. GAC and ORAF Linkages 9 GAC Assessment Tool Knowledge Generation Governance Risk Fraud & Corruption Risk Country Risk: Systemic Fraud & Corruption Capacity risk: Institutional Fraud &Corruption ORAF Mitigation Actions Functional Risk Areas

10. How GAC Tools Can Support ORAF Implementation I: 10 Ongoing efforts underway to develop assessment tools that are timely and cost-effective Intensive effort needed to support CMU, SMU and TTL use of these tools Value Chain Analysis GAC-in-Projects “How To” note Political Economy Analysis GAC-in-Projects “How To” note Problem driven governance analysis Standard Fiduciary Analytics Financial management; procurement Assessment Tools

11. How GAC Tools Can Support ORAF Implementation II: 11 For both risk assessment and mitigation, aligning GAC in Projects work with ORAF implementation is the priority Training GAC in projects training for TTLS Effort underway to integrate GAC into investment lending core curriculum INT support for task teams Should these training efforts be scaled up? GAC in projects community of practice Joint effort: OPCS, INT, RVPs Online knowledge platform ramping up Risk mitigation: GAC support, tools and skills

12. Thank You! 12