(Originally published at Toomre.com)

Nick Barcia has written about the 3 Ms of Risk Management – Monitor, Measure and Manage. In financial services companies, measuring some types of risk is fairly straight forward. How many S&P equivalents are you long or short? Where is your risk on the interest rate curve, or in foreign currencies?

Other types of risk are harder to quantify. How do you quantify operational risk, or perhaps even more difficult, reputational risk?

Reputational risk can be viewed as the risk that a company’s reputation, its corporate goodwill, and so on can be diminished, or perhaps even enhanced. It falls into the area of public relations and marketing which often seems a little too murky and fuzzy for good quantitative risk managers. Yet it is an important area that is becoming even more important as laws and technology changes.