Manual for Forecast-based Financing

This document provides technical guidance for the design of Forecast-based Financing (FbF) interventions. It has been developed from the lessons and experiences of several ongoing pilot projects, making this manual a living document that will be updated on a regular basis. 

The target audience for this document includes disaster risk managers, meteorologists, hydrologists and people working in other disciplines that are involved in the design of FbF mechanisms. This manual will be used by governments, humanitarian and development organizations.  

Each of the guides of the manual offer a set of general ideas for implementation of FbF interventions, they are mainly an advice and by no means a mandatory step by step process. Although they describe steps, the implementation of them will depend on the context they will be used in.  

It is divided into 7 sections, which can be accessed through the links below:

  1. Glossary of Terms: a list and definitions of the terminology used in this manual.
  2. Feasibility Study for Forecast-based Financing Interventions: before starting an FbF intervention, this is a set of criteria to consider. The suggested criteria should be seen as a guide, not a necessary step-by-step process. Additional criteria could be considered according to the context.
  3. Menu of Triggers: a step-by-step approach to identifying trigger options for the activation of the FbF mechanism.
  4. Prioritization of Forecast-based Actions: provides guidelines for organizations and governments to select the most suitable actions according to the identified risks. It also provides a set of criteria that will inform a better selection-making process, including the use of theory of change and preliminary cost-benefit analysis tools for each of the preselected actions.
  5. Standard Operating Procedures: the key elements that should be considered by disaster risk managers in charge of setting up an FbF mechanism. This will be used to create a flow process, with definitions of specific tasks, roles, responsibilities and resources, in order to guarantee successful implementation of forecast-based actions.
  6. Monitoring, Evaluation, Accountability and Learning: a number of activities to be implemented within each pilot intervention in order to understand, learn about and document the impact of forecast-based actions. This helps build a robust evidence for the FbF concept. This section includes Cost-benefit Analysis.
  7. Financial Mechanism: this document presents the characteristics of the FbF mechanism. During 2017, more details information will be developed about this topic.

This Manual aims at providing guidance for the implementation of the Forecast-based Financing strategy for the German Red Cross, but also for the Red Cross Red Crescent movement and partners.

Many colleagues from the Red Cross Red Crescent Movement, NGOs, UN agencies and academic institutions have giving advice, providing information, commenting on drafts and improving progressively this manual. 

Special thanks are due to the Peruvian Red Cross, Bangladesh Red Crescent, Uganda Red Cross, Mozambique Red Cross, Togolese Red Cross, Tanzania Red Cross and Ethiopian Red Cross for leading the implementation of Forecast-based Financing pilot projects, lessons and good practices from these projects have made this document possible.  

Expert reviews of drafts were also provided by colleagues from the International Federation of Red Cross and Red Crescent Societies (IFRC), Start Network, World Food Programme (WFP), Food and Agriculture Organization (FAO), Deutsche Welthungerhilfe (WHH), World Vision, International Research Institute for Climate (IRI), United Nations Development Programme (UNDP), University College London STEaPP (UCL), Reading University, Oxford University (Institute for Science, Innovation and Society) and University of Lugano, among others.

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Further Documents for the Introduction to the Manual

Download Fbf Strategy 

>> Fbf and SFDRR SDGs PA

Glossary of Terms for Forecast-based Financing

The terminology presented in the document has been analyzed in detailed by practitioners that are implementing FbF interventions, as well by a broad number of actors involved in Early Warning Early Action.

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Feasibility Study for Forecast-based Financing Interventions 

Criteria for identification and design of Forecast-based Financing Interventions

Forecast-based Financing (FbF) is a mechanism that uses climate and weather forecasts to trigger timely humanitarian action, before a hazard hits the exposed population. These actions are automatically funded when the triggering forecast is released.

This mechanism has been progressively developed since 2008. Several pilot projects are ongoing, which are contributing to build evidence about the potential to transform the current humanitarian system. Lessons, best practices and recommendations from these projects are the base for the development of a solid Forecast-based Financing knowledge management strategy.

A successful Forecast-based Financing implementation will depend on several aspects, ranging from availability of risk information to engagement of potential stakeholders. 

Learning from ongoing pilot experiences, this guide sets out a set of new considerations that can be used to select intervention areas that are most “ripe” for the introduction of Forecast-based Financing, encouraging the establishment of interventions that further consolidate knowledge and practice in this area. Based on the results of discussing each of the questions in this document, practitioners can focus their priorities in the design of a specific Forecast-based Financing intervention, focusing on the areas that need greatest support.

The guideline is divided in four parts: Risk Assessment, Forecasts Capabilities, Government Level and Organization Level analysis. After exploring each of these considerations, practitioners can select countries and/or regions for Forecast-based Financing interventions, and gain an understanding of which hazards would be ideal for each project. The qualitative responses can also indicate where more work should be directed in a particular intervention; for example, if one region has excellent forecasts but not enough information about risk factors, extra effort in the project should be focused on identifying and analysing those risk factors rather than focusing in forecast capacity, in the same direction if the feasibility study identify that the DRM capacity of the implementing organization needs improvement, the project/intervention could include a component of capacity building . At the end of this guide, there is a set of suggested question that could be used by the researcher to guide the study towards a deep understanding of the best strategy to implement a Forecast-based Financing intervention.

Target Audience for this guide: 

Scoping studies can be done directly by technical staff of the implementing organization/government, or could be conducted by external consultants. The process could take from one week to one month, depending on the level of details and geographical extension that is targeted.

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Menu of Triggers for Forecast-based Financing

Step-by-Step Approach to Designing Trigger Options

Introduction

When making a Standard Operating Procedure in a FbF framework, disaster risk managers and decision makers need to select which forecast trigger to use for which action. The menu of triggers is a document, prepared by a technical team, that outlines the “menu” of trigger options. With these options, the humanitarian and/or development teams can decide which trigger to select for each of the prioritized early actions and preparedness for response actions. Target audience for this guide The main target audience for this guide are technical teams, mainly working at hydro-meteorological agencies, climatologist and research institutions. Given the nature of the design of a Menu of triggers, which involved not only analysis of hydro-meteorological factors but a sound understanding of risks, it is essential a close collaboration with risk analysis and early warning systems experts.

What is addressed in a Menu of Triggers?

The menu of triggers gives a set of options according to the lead time of the forecast. It answers the following questions: 

  • What is the hazard? What are the risks? What is the “danger level”?
  • How much lead-time can the forecast give us? What are the probabilities at each lead-time?
  • If we take action based on this probability, how often will we act in vain?
  • How often will this forecast trigger?

A trigger is a forecast that is issued, which exceeds both the danger level and the probability threshold, leading to the initiation of predefined actions. This probability threshold is agreed upon beforehand amongst all stakeholders. In FbF, the trigger will be defined by the attributes of the scientific forecast of a likely extreme event. To trigger is to say yes to taking early action based on a warning (i.e., act to activate the SOP). Once the main hazards that will be tackled through the FbF mechanism are selected, the menu of triggers’ options are developed with the following four steps:

1. Review and analyze the available early warning system, risk assessments, and forecasts.

2. Define danger levels for the selected hazards and for the intervention area.

3. Assess the accuracy of the available forecast for the intervention area.

4. Design the menu of triggers – the options for triggering early actions.

The above steps are described in detail in the document. The menu of triggers can be developed for any hazard, including floods, cyclones, cold waves, heat waves, and droughts.

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Further Documents for Menu of Triggers

Download Example: Bangladesh – Flood 

Download Example: Bangladesh – Cyclone

Download Example: Mozambique – Cyclone

Prioritization of Forecast-based Actions

This document presents reflections and lessons from the experience of several ongoing Forecast-based Financing pilot projects. It provides a 6 step process to select forecast-based actions that will be automatically funded and triggered based on forecast information. It is an illustrative reference document for Forecast-based Financing interventions. Red Cross and Red Crescent national societies and other humanitarian and development organizations engaged in Forecast-based Financing are encouraged to use this selection process in a flexible way for an effective outcome of their interventions, follow the process in the most flexible and iterative way according to the respective context.

Forecast–based Financing (FbF) is a mechanism that uses climate and weather forecasts to enable timely disbursement of funds to implement advanced preparedness actions before a potential disaster happens and early response intervention. Many times, early actions are not taken due to lack of available funds in the exact moment when they are needed or because of a lack of quality forecast information, absence of systems and procedures to use these funds effectively and also due to the short window of time for early action. The disbursement of funds for emergency assistance can then only provide relief after the fact, meaning only after the disaster strikes. Forecast-based Financing enables the implementation of these early actions, prior to a disaster, based on a sound understanding of risks, hazards, vulnerabilities, exposure, impacts, danger levels, forecast capability, predetermined triggers and precise community-level actions that can be implemented within the lead time.

Forecast-based Financing aims to build on existing early warning early action strategies and preparedness plans to minimize disaster risks and reduce the impact of disasters in communities ( see Early Warning Early Action - Mechanisms for Rapid Decision Making ). Institutionally, it will improve operational preparedness and response capacity to act early to reduce the impacts of disasters. Early response should be considered to deal with the residual risks (as risk 0 does not exist). Timely and qualitative response will ensure that further suffering is avoided.

Target Audience for this guide:

Prioritization of forecast-based actions requires engagement of actors at all levels, from residents, community committees, DRR field committees, civil society organizations, government (local and national) departments, Red Cross and Red Crescent national societies, United Nations agencies and other humanitarian and development organizations, research institutions including climate science community and private sector and other relevant actors. This guide could be used a broad range of actors. 

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Standard Operating Procedures for Forecast-Based Financing

There are a number of barriers to effective use of forecasts and implementation of early actions. Firstly, forecasts of hydrometeorological variables, such as river flow or level, need to be translated into a probability of impact, which is the information that is necessary for deciding what action to take. Secondly, there are also institutional and political barriers to using uncertain forecast information, particularly given the perceived high consequences of ‘acting in vain’. In addition, humanitarian organisations and at-risk stakeholders do not have a clear mandate for action based on probabilistic signals of likely losses, and when a forecast is made that indicates a heightened probability of a disaster, are not confident in determining what action is “worth” taking. Lastly, funding sources for forecast-based early action are few; the bulk of funding is available only post-disaster, or through long- term project agreements.

These obstacles are interlinked, for example, an action that needs to be taken two days in advance of a flood would be worth taking if there is confidence in the forecast system out to two days. Therefore determining what actions are worth taking, how to implement those actions and by whom will be in some part related to how far in advance of a disaster the forecast has skill. The guide No. 1 of this manual has shown the process to analyse forecast skills, lead teams and ultimately to define the menu of triggers that will inform which are the danger levels for the activation of the Forecast-based Financing mechanism. In guide No. 2, has shown the process that stakeholders should do in order to prioritize forecast-based actions. This guide No. 3 shows the key elements that should be consider to elaborate an standard operating procedure for the implementation of the selected action(s). 

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Monitoring, Evaluation, Accountability and Learning​

A number of activities to be implemented within each pilot intervention in order to understand, learn about and document the impact of forecast-based actions. This helps build a robust evidence for the FbF concept. This section includes Cost-benefit Analysis. 

Cost-Benefit Analysis (CBA)...

...is a tool used to compare the benefits and costs of a project, program or action. The conclusions drawn from a CBA are in terms of the Benefit/Cost (B/C) ratios, which allows the determination of the economic benefits obtained for each dollar invested in the project.

In the humanitarian context, a CBA is commonly used to consider what happens if a disaster occurs with vs. without an intervention in place. This analysis allows the comparison of the cost and benefits of different types of actions, which serves as criteria to choose the best action to be implemented.

There are three different approaches to conduct a CBA in the humanitarian sector:

a) Hypothetical approach: backward-looking (action was already implemented) or forward-looking (action has not been implemented yet).

b) Comparative approach: between two similar communities (intervention vs. control group).

c) Before-and-After approach: same community before and after an intervention takes place.

Considering that Forecast-based Financing actions had not been implemented yet, first, a hypothetical forward-looking approach can be done. Then, as soon as the Standard Operational Procedures are triggered, when it is feasible a comparative approach using intervention vs. comparison (control) communities may also be implemented. 

Further Documents for Monitoring, Evaluation, Accountability and Learning

CBA for FbF Methodology

CBA MEAL

>> CBA MEAL Case Study Bangladesh Cash

Light MEAL strategy

>> Evaluation Purpose

>> Template for monitoring

>> Example Theory of Change

>> Best practice in survey development

>> Example household survey

>> How to select comparison areas

>> Example Evaluation Report

>> Example Lessons learned Workshop

Rigorous MEAL strategy

>> Template for monitoring

>> Example Theory of Change

>> Example Baseline Survey

>> Togo Survey French

>> How to select comparison areas

>> Best practice in survey development

>> Example household survey

>> El Nino Report

Forecast-based Financing Financial Mechanism

Funding for early action should be:

  • agreed in advance and quick to release;
  • held as close to the operational level as appropriate: decentralised to the district or community; or delegated to the implementing partner;
  • linked to specific triggers, or where these cannot yet be agreed in advance, mobilised by swift and light processes on the basis of available evidence and shared analysis;
  • supplementary to core programme funding;
  • linked to specific activities, which themselves are contextualised rather than standardised;
  • tied to people and organisations that are already on the ground with demonstrated capacity, contextual understanding, and actual programmes on which to build;
  • transparent and accountable about what resources can be brought to the table in a pre-crisis phase in support of activities within the government plans, and about what surge capacities are there once the government has triggered a response, based on the mutually supported EW system and mutually agreed triggers;
  • linked to government budgets, at local and national level.

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