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Debating quantitative impact vs. qualitative impact

Pierre Dorion explains how to weigh a short-term financial risk against a damaged reputation in this Expert Response.

How do you weigh the impact of something that has an immediate financial effect versus the impact of something...

that has no immediate financial effect but, for example, damages your company's reputation?

This is referred to as the quantitative impact versus the qualitative impact. The quantitative impact can be determined by evaluating financial losses (lost revenue, assets or production units; salary paid to an idled workforce, and so forth). It's also important to note that quantitative impact usually increases over time: The longer a business interruption or disruptive event lasts, the greater the cumulative losses.

Qualitative impact, on the other hand, is much less tangible than quantitative impact, and therefore more difficult to evaluate. It includes such factors as reputation, goodwill, value of the brand and lost opportunity, among others. Qualitative impact can lead eventually to financial losses over time -- due to loss of customer confidence, for example -- but estimating losses in financial terms is usually not practical or even possible. In a business impact analysis, a risk's qualitative impact usually is rated using a numeric scale (1 to 10, for example) based on the magnitude of the impact on a specific area (for example, on company reputation).

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