Disaster risk and forecast-based financing design: A guide to using household economy analysis

Disaster risk financing (DRF) and forecast-based financing (FBF) are new forms of humanitarian action that move away from a solely reactive approach to crisis, and instead encourage the humanitarian and development sectors to take a more systematic and robust approach to managing and financing activities to address emerging risks. Furthermore, household economy analysis (HEA) is a unique methodological framework that determines whether households have the food and cash they need to survive and prosper.

This document aims to support those working in DRF and FBF to use HEA in a way that can be beneficial to the development of DRF and FBF systems. The guide outlines how HEA can be used in the design of different components of DRF. This includes using HEA as an impact model, in the contingency planning, and in the pre-positioning of financing and financial layering of risk.

It is hoped that by providing the impact and quantitative link between the model, contingency planning, and costing, the guide will create a clear line of sight between risk modelling and risk response actions, as well as a common assessment of impact that practitioners can correct and improve throughout DRF and FBF systems. Moreover, it is expected that by modelling likely scenarios, readers can take action before households face the impact of a shock within an FBF and anticipation window, ultimately safeguarding food security and livelihoods from the worst effects of the shock.