Leverage Risk Metrics
The greatest risk to a company’s ability to survive is when it owes money to creditors or lenders. Here, its ability to pay back those creditors must be viewed as a critical metric for the company to monitor, particularly given various uncertainties the company may face in the current economic climate. Clearly a business which is cash-rich and carries no debt is in a much happier and healthier (less risky) situation, although even here it should still monitor its cash inflows and outflows and carefully manage its working capital cycle. But a company which owes money to others – especially when it is also waiting on receipts due from its own debtors/customers is in a far riskier position. The company may suffer from a steady deterioration in sales, or worse a one-time shock, either of which can negatively affect it’s ability to repay its creditors.
Reputational Risk Metrics
Reputational risk can occur when there is some kind of bad publicity and other factor likely to damage the company’s brand and reputation. Examples might be faulty products, poor customer service, an employee or director being invoiced in some kind of scandal, fraud or other dishonest behaviour (such as the case recently of VW falsifying it’s emissions test data).
The best ways to overcome reputational risks are to avoid them in the first place. But in the event they do happen, how quickly and how well the company responds can help to mitigate any damage. Hence a useful metric to track here would be speed of response, proactivity of customer service, and so on. For example, where a manufacturer needs to make a product recall, how quickly it can contact all its affected customers, recall the product, check/rectify the problem and have the repaired product (or suitable replacement) back to the customer will often be the key metric here.