Page 30 - RMAI July-September 2018

July - September 2018

risks and measure those risks and keep the capital Economy
accordingly. One of the strong tool for such activities Economic development is at all cost, however, this
are Stress and Scenario testing. RBI may create few should not be at the cost of another crisis. The
local and few international scenarios and do the economic parameter such as inflation is at a higher
stress testing, this will tell, how much free capital is end, how the interest rate can be reduced to trigger
required to manage the future risk. the boost in the economy.
If the reserves at this point are released based on the
international ratio, the country could be in a severe
Summary
trouble if few international crises hit the economy or
It is a good time for the government to look into the
shocks in the oil prices remain for the sustained
period. risk management more seriously and start focusing
on risk-based decision. The political compulsion will
We also have to see the resilience of our economy always remain, there is a need to draw a line between
against the developed world. Few days of rain or
the mathematics of the economy and decision for
stress condition cripple the country against the
masses.
developed market.

Reputational Risk

Reputational risk, often called reputation risk, is a risk of loss resulting from damages to a firm's
reputation, in lost revenue; increased operating, capital or regulatory costs; or destruction of
shareholder value, consequent to an adverse or potentially criminal event even if the company is not
found guilty. Adverse events typically associated with reputation risk include ethics, safety, security,
sustainability, quality, and innovation. Reputational risk can be a matter of corporate trust.

This type of risk can be informational in nature that may be difficult to realize financially. Extreme cases
may even lead to bankruptcy(as in the case of Arthur Andersen). Recent examples of companies
include: Toyota, Goldman Sachs, Oracle Corporation, NatWest and BP. The reputational risk may not
always be the company's fault as per the case of the Chicago Tylenol murders after seven people died in
1982.

In risk assessments, reputation risk is often considered as a risk event. However, it can be the end result
of more specific risk events that can have a number of impacts.

“Successful problem solving requires finding the right

solution to the right problem. We fail more often

because we solve the wrong problem than because

we get the wrong solution to the right problem.”

-Russell L. Ackoff

RISK MANAGEMENT ASSOCIATION OF INDIA 29