Operational risks
Guiding Definition
Potential losses resulting from external physical events and management’s failure to plan and mitigate against these events.
EXAMPLES
- Reduced primary crop or livestock production
- Higher transport costs to haul imports longer distances
- Stranded assets due to shifting production zones
Business Risks - Operational Examples
Climate Change
Campbell’s Soup Company has struggled with extreme weather in California, a key growing region for its carrot supplies. In 2014, California's record-setting drought followed by intense rains led to a 28% decline in profits for its carrot division.
IMPACT
- Reduced agricultural productivity
- R&D spending for more resilient varieties
Water Use and Pollution
Illovo, the South African sugar producer, temporarily shut down a large sugar mill in early 2015 as drought was predicted to destroy $81 million in local production.
IMPACT
- Revenue decline resulting from decreased production