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What is the cost of reputational harm?

INSIGHT ARTICLE

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It can take years to develop a reputation, but only minutes to damage it. This is true for organizations as well as individuals. Consider these examples:

  • Cybercriminals plant malware on a retailer’s point of sale system and steal thousands of customer credit card numbers.  
  • A national restaurant chain sees its stock price plummet after patrons at various locations become violently ill.
  • The head of a major nonprofit organization resigns when an audit discovers fundraising irregularities.

With these types of incidents becoming increasingly common every day, it is no wonder that executives rank “damage to reputation or brand” as the top risk they face—ahead of economic pressures, regulatory and legislative changes, and increased competition. At the same time, more than three-quarters of executives admit that it is difficult to quantify the financial impact of reputational risk, given its intangible nature.

While calculating the cost of reputational harm can be challenging, it is not impossible. Depending on the facts surrounding the incident that causes the harm, organizations can use one or more methods to quantify the financial impact for insurance, legal and other purposes.

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