When you go traveling in some developing countries, which restaurant will you choose as a safe and convenient dinner choice? Most likely, you would choose a restaurant or fast food shop that you had heard of, this is something about reputation; reputation is intangible but directly related to the firm value. Therefore reputation risk management becomes extremely important for every corporation, if you don’t do it well, it may damage your firm value.
What is reputation risk?
Many researches show that reputation is the perception from stakeholders that has positive relationship to the firm value. Reputation risk is the risk that some incidents cause negative impact and damaging the firms’ brand value. It can due to the problems of the company products, rumors spread out, or publicized problem. This loss of the companies can be immediately financial loss, losing further business, decreasing of client base or losing goodwill.
What is special about reputation risk is it interrelated to other risks and if it is not properly managed, it may turn into a crisis that danger the existence of the firm. A lot of business failures were caused by poorly manages of reputation risk.
How to identify and assess reputation risk
Many risks can be quantifying the exposure, but it is not the case for reputation risk, as it is related to some intangible assets and value of the firm, it is difficult to quantify and therefore some subjective method should be use to identify and assess reputation risk. Surveys of stakeholders, comparison with peers, media analysis and focus group meetings all are useful methods to assess reputation risk. Once you identified and assessed some reputation risk issues, you can located it on the risk map according to the frequency and the severity to visualize them and start planning about how to deal with those high severity and high frequency scenarios.
Good example of reputation risk management
In 1982, seven people died in Chicago after...