Image is what excites any company. Keeping your business reputation up to date is not always easy, as there are so-called reputation risks. The latter refers to situations where organizations may incur losses due to adverse perceptions of the image by customers, shareholders and business partners.
Essence of reputation
The corporate reputation is based on the assessments and opinions that a certain audience has developed about a particular company due to its role and corporate behavior. That is, how the company has established itself, such an opinion about it develops among the population. The image of the organization is created on the basis of such values as decency, honesty, responsibility, attentiveness not only to employees and customers, but also to the environment. But here it is worth noting that there may be different opinions about each company, since each of us has its own evaluation criteria.
Factors on which the image depends
The company's reputation is formed on the basis of internal, that is, created by the company itself, and external, created by the external environment, factors. Environmental factors include:
- quality and level of service;
- quality of products or services;
- literacy pricing policy;
- the ability to set goals and achieve them;
- efficient use of resources;
- sound financial position.
For external reasons, we can distinguish the company's relations with the state, partners, and leaders of public opinion. These include the impact of socio-cultural factors. It is on their basis that the business reputation of the company is formed, since they can affect the assessment both positively and negatively. In fact, organizations are interested in the fact that their products meet customer requirements for various parameters. From the point of view of financial and investment indicators, the company should strive to ensure that partners, investors, suppliers, and so on, form a positive opinion about its activities.
Ideally, companies should control the above factors so as not to drop the image in the eyes of customers and partners. And for this you need to think about managing reputation risks. A good reputation plays a particularly important role in conditions of economic instability.
How not to take risks?
The organization’s risk management concept should be based on an integrated approach. This theory suggests that the risk management process is complex, therefore, it should be identified in a timely manner, and management decisions must be worked out competently, so that at any moment the correct reaction to emerging threats is followed. To keep reputational risks under control, you need to consider managing them. And this process includes several stages:
- identification;
- classification
- assessment;
- risk analysis.
Identification
At this stage, all real and potential risks are identified, that is, those external and internal events that may affect the image of the organization. In the identification process, a search is carried out, a list is compiled, and risk elements are described. Among the latter we can distinguish:
- reasons leading to a dangerous situation;
- hazardous events that may affect the facility;
- various effects that can change the object;
- the consequences of which the subject's assessment will change.
Risk identification is carried out in accordance with the size and degree of formalization of processes in a particular company. If it is small, then identification is the compilation of a number of separate adverse events. In large enterprises, certain standards that are required to be followed are more important. In any of the options, protection of business reputation involves identifying the maximum number of risks that may affect the assessment of a company, enterprise, etc.
At the second stage, the identified risks are structured. The typology is based on a generally accepted classification. It, in turn, allows to facilitate the process of identifying risks, as well as to think over the methods by which work will be conducted with them. Our life is an interaction not only with people, but also with nature, society, the surrounding world as a whole. Therefore, reputation risks are divided into four categories: natural, technical, related to the human factor and socio-economic. Consider each group separately.
Types of risks
Natural means the risks that arise as a result of the phenomena of animate and inanimate nature. They are caused by natural processes in the atmosphere, water, and you should not write off solar activity. In addition, they mean the uncontrolled actions of the biosphere.
Reputational risks associated with human factors are those risks that arise due to the actions of specific people. Acts are understood as meaningful actions, as well as involuntary behavior under the influence of various factors. That is why such risks are divided into physiological, behavioral, motivated and unmotivated.
Technical risks are those that arise due to uncontrolled behavior and the functioning of technical systems. Unexpected behavior of a technique may arise, for example, due to the aggregate displaying properties that the developer was not aware of. In addition, unpredictability may be due to the fact that a person (operator, for example) was not able to prevent this event in a timely manner.
The fourth group is the risks that arise as a result of the actions of a certain group of people or its individual representatives. Actions committed under the influence of the “crowd” are also reputational risks. Examples of this behavior can be cited in huge numbers. For example, the state adopts a certain law, for example, on increasing prices for the import of raw materials. Local government officials sign this document, and there is a risk created by the human factor.
Pure or speculative?
All risks are most often unpredictable. They are pure or speculative. In the first case, risks arise only due to adverse or neutral consequences, and there is a danger in its purest form. In speculative risk, along with adverse and neutral consequences, the benefit or gain that the subject may receive is implied. So, disasters, calamities, accidents can be called as examples of net risks. Speculative risks are those associated with gambling, investment activities, and entrepreneurship. The reputation of the company very often depends on these factors.
Economic and legal risks
The activities of any company are related to finance, and this activity is often risky. Why - no need to explain. Depending on the possibilities of a monetary assessment of the consequences of the implementation of risks, economic and non-economic risks are allocated. The first includes those whose effects are expressed in monetary terms. Accordingly, the latter have no relation to finance.
Legal risks suggest a possible loss of income, capital or the occurrence of losses in the event that internal or external legal norms have been violated. They relate to operating ones, but since they are managed primarily within the framework of financial companies, they are considered financial.
How are risks assessed?
Exposure to a particular risk is measured in various ways. In qualitative terms, each such step receives a potential level of threat; in quantitative terms, the impact of a particular event on the company's profit or value is evaluated. Once the risks are assessed, they line up depending on the degree of their priority. Protection of business reputation is built in such a way that all information about the risks that are registered in the registry during their identification is collected. A special document is prepared in which such factors as the probability of a risk, its consequences, possible regulatory measures and ways to control them are noted. To obtain more complete information, it is important to consider as many details of this event as possible.
How to maintain a reputation?
Each organization is interested in ensuring that its image is at the highest level in the eyes of customers, investors, partners, etc. The company's reputation can be controlled if a risk management system is created. Its task is to provide the desired results under any, even the most adverse conditions. Specific goals and objectives are set already depending on the activities of the company, and they must meet the requirements even at the stage prior to the implementation of risks. Depending on the strategic objectives set by a particular organization, risk management system can be aimed at solving a variety of issues:
- organization survival;
- the implementation of its continuous activities;
- profit preservation;
- maintaining stable performance;
- further growth of the company.
The most important task is to ensure the survival of the organization. It is understood that the implementation of risk should not lead to the final termination of the company. And to continue the work of the company, it must have a management system, material resources, labor and financial resources. In addition, the company must have the legal ability to continue its business.
In order for the reputation of the bank and any other organization operating in the financial market to be continuous, the development of a risk management program should take into account the activities and operations of a particular company, events that could lead to a break in these processes, as well as various resources - material and intangible.
The main thing is risk reduction
There are several communication technologies to minimize reputation risks. Often, all activities come down only to anti-crisis measures, but such management is not enough, since, on the one hand, reputation capital must be accumulated continuously, and on the other, a reputation must be built and strengthened on the basis of a preventive communication model, which guarantees long-term trusting relationships with a key the audience.
Business reputation is built primarily on the basis of trust, and therefore the corporate audience should be aware of the achievements, successes and potential of the company. The main principles of a preventive communication model are:
- reliability - the audience should know about the actual activities of the company, and any fraud, manipulation are excluded;
- openness - it is possible to maintain the image by maintaining bilateral communications with interested parties, the list of company representatives must be transparent;
- dynamism - communications must constantly develop and keep up with the times;
- initiative - the company should be ready for active cooperation with the media in order to maintain its image at the proper level.
Anti-crisis measures
The risk of loss of business reputation may arise at any time and with any company. At the second stage of the communication strategy to minimize them, ways to reduce the impact of problem situations on the reputation of the company are thought out. The public mood in such cases directly depends on three factors:
- existing reputational capital;
- company behavior in times of crisis;
- assessment of the situation in the media.
In such situations, the company should not be discouraged simply with beautiful words. The main thing is to think over really effective anti-crisis measures, which should describe and explain the current situation.
Prevention Methods
Risk management is designed to prevent crises. For this, a set of measures is taken that can reduce the implementation of risks. Moreover, these measures should be carried out exclusively before the onset of a dangerous moment, which will reduce losses. Well-designed ways to minimize risks can solve several problems:
- Detect a possible dangerous event in a timely manner.
- Promptly inform the right people about it.
- Effectively and competently prevent the spread of risk, reducing its consequences for the company.
- Return the company to its initial activity as quickly as possible.
An effective solution to the problem is possible by reducing the quantity and cost of valuables that fall under the influence of dangerous phenomena.
Risk Management Methods
When managing risks, methods are thought out that are aimed at changing the characteristics of a likely hazardous event. In this case, risk reduction is achieved by different processing methods:
- Risk aversion.
- Risk reduction (warning of its probability, reduction of its consequences).
- Risk transfer for regulatory purposes.
These methods are good in that they allow you to save objects physically. The only way to completely avoid possible problems that could turn into troubles for the company and negatively affect its reputation is to abandon what could provoke such an outcome. True, this can be realized far from always, and it is not always at least reasonable. To minimize reputation risks, banks and other organizations of this type often use the following methods:
- create an internal regulatory framework so that it is possible to eliminate a conflict of interest;
- constantly monitor employees, shareholders, subsidiaries for their compliance with legislation and bank secrecy;
- analyze the influence of factors of reputation risk on the activities of the organization as a whole;
- Provide timely settlements on behalf of customers or counterparties, pay funds on time;
- control the accuracy of financial statements and other other published information;
- provide continuous training for employees.
Thus, there are a huge number of different types of risks that can affect the company's activities. But even the most developed control systems cannot always protect against such phenomena. That is why it is important to work out various methods in a timely manner that would help to respond in a timely manner to possible risks that could spoil the business reputation of a particular organization.
