When Will We Embrace the Principle of Prudence?

By Adel Al-Rifai Abu Al-Hassan
One of the principles that reflect sound judgement in management, economics and everyday life is prudence. In its broadest sense, prudence means acting with wisdom, foresight and good judgement, weighing risks carefully and resisting the temptation to make decisions without properly considering their possible consequences.
Prudence does not mean pessimism or fear of the future. Rather, it means preparing intelligently for what may lie ahead and taking sensible measures to minimise losses and safeguard resources.
The principle is perhaps best known in accounting, where it forms one of the foundations of sound financial practice. Its essence is simple: an organisation should not base its decisions on profits that have yet to be realised, but should prepare for potential losses when there are reasonable indications they may occur.
If a customer experiences financial difficulties, if warning signs emerge regarding their ability to meet their obligations, or if a legal dispute threatens the recovery of outstanding debts, a well-managed organisation does not wait until the loss has actually occurred. Instead, it creates provisions for doubtful debts so that it is prepared should the risk materialise.
The same principle applies to assets, machinery and equipment. Continuous use inevitably reduces their value and creates future maintenance or replacement costs. Depreciation is therefore recognised to present a realistic financial picture and to prepare for the obligations that lie ahead.
At its core, the principle of prudence in accounting is about anticipating potential losses and establishing the necessary reserves before they occur.
Yet prudence should not remain confined to accounting records. It should become a way of thinking that informs every aspect of life—within families, institutions, the private and public sectors, and, above all, the management of the state.
Individuals prepare for what they expect. Sensible societies make plans before events unfold. Successful governments do not wait for crises before searching for solutions.
Unfortunately, a culture of preparedness remains weak in many aspects of our daily lives. Time and again, we react to recurring events as though they had taken us by surprise.
Ramadan arrives on the same date each year, yet we say, “Ramadan caught us unprepared.” The same happens with Eid. The rainy season comes every year, but preparations begin only after the rains have already fallen. Schools reopen on fixed dates, yet planning for the new academic year often starts only after classes have begun.
The problem is not that these events are unexpected—they are entirely predictable. The problem is the absence of a culture of planning and preparation.
The seriousness of a crisis often lies not in the event itself, but in our failure to prepare for it. A situation that could have been managed with foresight can become a major crisis due to neglect or delay.
This is where the principle of prudence becomes especially important in the governance of the state. A strategic state is not governed by wishful thinking or by reacting to events after they occur. It is governed through foresight, planning and risk management. It monitors warning signs, develops alternative scenarios and builds appropriate safeguards before potential risks become national crises.
This raises an important question: Were some of our national crises the result of failing to apply the principle of prudence? Were warning signs dismissed as remote or unlikely until they became realities for which the nation paid a heavy price?
The purpose of asking these questions is not to assign blame to any individual or institution, but to draw lessons from experience. Countries that learn from their crises do not merely deal with the consequences; they build institutions designed to prevent similar failures from recurring.
The principle of prudence should therefore become part of our national culture. It should begin with the way individuals think, extend into our institutions and ultimately become an integral part of how the state plans for the future.
A strong state is not simply one that responds effectively to crises after they occur. It prepares for them in advance, reduces the likelihood of their occurrence and limits their impact when they do arise.
The cost of preparation will always be lower than the cost of recovery after disaster strikes. Time invested in planning can save years of loss and hardship.
The real question, therefore, is not whether we need the principle of prudence.
It is this:
When will we make prudence an integral part of our culture, our institutions and our approach to building the future?
Prudence is not about fearing the future. It is about respecting it and accepting responsibility for shaping it wisely.
That is one of the defining characteristics of a truly strategic state: the ability to recognise risks before they materialise and to prepare for them before they become crises.

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