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risk in numbers would be from industries such as finance, where a quantitative approach to risk management is well established. In fact, this is not the case. In financial services, 30% consider reputational risk unquantifiable, a larger percentage than in the overall sample. In contrast, within the energy sector two-thirds felt they could quantify reputational threats. Only one in ten said they could not.

Practice suggests that, although methodologies for quantifying reputational risk have been put forward, none has won general acceptance. Methods centre on business managers estimating the losses that would occur in the event of a service failure that rebounded on reputation, normally by ranking them on a simple numerical scale. The results can be consolidated and

Reputation: Risk of risks

used as a guide to the allocation of resources. The principle appears sound, but is dogged by difficulties, such as the lack of a database of reputational losses against which judgments can be benchmarked and the difficulty of separating direct losses from the less foreseeable indirect ones (a regulatory sanction is finite; the reputational fallout is not). Mr Jackson of Fordham University suspects that reputational risk cannot be measured, and denounces “a faction of empirically minded researchers who want to make it [reputational risk] as scientific as possible”. Even so, many risk managers are attempting to at least prioritise, if not precisely quantify, the various threats against their companies’ reputations.

© The Economist Intelligence Unit 2005


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