Australia Ratings’ Operational Capability Assessment provides an independent view on an operation’s capability to support its asset in performing as expected. Such capability is assessed via a ranking - from ‘Superior’ (highest strength capability) to ‘Failure to Perform’ (lowest strength capability).
Despite operations and businesses having strategies, opportunities and risks that are unique to themselves, there are general operational aspects on which a comparison can be made. A benchmark can be used to help compare an operation’s capability and effectiveness in supporting asset performance - both financial and operational.
Benchmarking Operational Capability
To illustrate, let us look at a scenario: An investor is considering different assets (in which to invest in) – a unit in a managed fund and a trade receivables
system. The two types of income-producing assets cannot be directly compared when considering the potential risks to the reliability and stability
of the income being produced. This is because they are utilised under different types of operations. However, after all key factors to the respective
operations have been reviewed; an overall assessment of each operation’s capability to support its assets can be used by an investor or other counterparties
for comparative purposes.
The table below outlines the two different operations mentioned above – AssetWatch Trade Receivables and La Trobe Financial Asset Management. The two assets have unique operational risks. We assessed the key factors (from Superior to Failure to Perform) relative to each operation and determined an overall strength of the capability of these operations to effectively support their income-producing asset. These overall assessments provide an investor or other counterparties an opportunity to benchmark against prescribed investment objectives.
Table 1: Operational Capability Assessments are comparable
|Operational Capability Assessment rankings||AssetWatch Trade Receivables||La Trobe Financial Asset Management|
|Ownership, Performance and Outlook||Superior||Very Strong|
|Experience and Skill of Management and Staff||Superior||Very Strong|
|Governance – AssetWatch Operation^||Very Strong||N/A|
|Governance – Trade Receivables Financing Facility Origination^||Superior||N/A|
|Risk Management and Compliance||Superior||Very Strong|
|Custody of Fund Assets*||N/A||Very Strong|
|Asset and Data Security||Superior||Strong|
|Information and Data Systems and Technology||Superior||Strong|
|Financial Adequacy and Stability||Adequate||Strong|
|Overall Operational Capability Assessment||Superior||Strong|
^Key factors that are particular to the operation of AssetWatch. *Key factors that are particular to the operation of La Trobe Financial Asset Management.
Determining Operational Capability
A variety of general operational factors, including those that are specific to the operation, are reviewed by Australia Ratings to determine the strength of an operation’s capability and effectiveness in supporting an asset’s performance. These key factors include:
Depending on the type of operation being assessed, adjustments are made to reflect the individual nature of an operation, including:
The collective consideration of all the listed factors will achieve an overall assessment of the strength of an operation’s capability and it is this assessment
that enables comparative exercises. Despite operations varying in type, Australia Ratings’ independent Operational Capability Assessment will facilitate
the ranking of these operations in order of strength of capacity to support the performance of their relevant income-producing assets.
Find out more about Operational Capability Assessment.
Daniela Crisafi, Director, Australia Ratings