Which of the following is an example of a political risk that should be considered when identifying the nature and type of risks in cross-sector collaborations?
A) Inability to construct and operate within budget
B) Change in demand or inflation
C) Change in policy
D) Change in interest rates
The correct answer and explanation is:
Correct Answer: C) Change in policy
A political risk in cross-sector collaborations refers to any potential threat to project success that stems from government actions or political instability. Among the options listed, a change in policy directly relates to political decision-making. When governments revise regulations, laws, or frameworks, it can significantly impact how collaborative projects operate, particularly when these projects span both public and private sectors.
For instance, a public-private partnership (PPP) involved in infrastructure development may rely on a long-term policy commitment for tax incentives, subsidies, or regulatory support. If a new government comes into power and shifts the policy direction, that project could lose funding, face stricter regulations, or even be canceled altogether. These risks are especially critical in countries with unstable political systems or where changes in leadership often lead to abrupt policy reversals.
Political risks are different from economic or operational risks. Options such as inability to construct and operate within budget, change in demand or inflation, and change in interest rates fall under financial or market risks. While these are also essential to consider, they do not arise from political processes or decisions.
Understanding political risk is essential in cross-sector collaborations because they often rely on government support or involvement. A change in environmental policies, trade agreements, or even leadership priorities can create uncertainty and disrupt otherwise well-planned ventures. Therefore, thorough risk assessment must include close analysis of the political environment, stability of governance, likelihood of policy shifts, and the robustness of existing legal agreements to protect the collaboration.
In conclusion, a change in policy is the most accurate example of a political risk in cross-sector collaborations and must be carefully analyzed to ensure project sustainability and success.