Operational risk arises from government policy change that influences access to or the cost of operational inputs. It considers how government decision-making can disrupt the normal flow of operations or processes that results in financial, reputational or other loss.
Risk indicators include:
- Procurement issues
- Unknown data/research/evidence
- Change of ownership/scheme
- Inquiry/commission recommendations
- Policy uncertainty
A common and ongoing operational risk to most organisations is in the lack of clear future energy policy settings, which manifest in costly energy pricing and future pricing uncertainty. The price of energy supplied can result in organisations being unable (or unprofitable) to continue operations. Energy policy in particular is multi-faceted and influenced by a significant number of other policies so is particularly difficult to predict. While primarily an example of operational risk, energy policy has aspects of political risk due to the high political sensitivity of the issue.
Operational risk factors are often forecast well in advance before manifesting into regulatory or material change and therefore monitoring and understanding how these will manifest in an organisation is possible. Understanding the broad trends and uncertainty underway and identifying how that could impact an organisation will provide a framework to manage this risk.
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Focused matters such as electoral cycles, government stability and other localised political events.
Where a change is policy creates new conditions on operations.
Where government decisions disrupt business inputs required for normal business operations.
Reputational & Conduct Risk
Can erode an organisation's 'licence to operate' and hamper an ability to engage with stakeholders.
Created through failure to address or enforce critical compliance criteria which could trigger an escalated government response.
Manifests when there is limited organisation wide visibility which means the organisation is unable to realise available opportunities.