Brand Valuation

by R. Krishnaswamy on April 11, 2010

Being skilled mathematicians, Actuaries are able to analyse past events, assess the present risks involved, and model what could happen in the future.  Actuaries then forecast the long-term financial implications of business decisions to assess the most likely outcome and the chances of more or less favourable outcomes occurring.  Traditionally, actuaries have played a vital and irreplaceable role in the design, management and control of Life Insurance Industry and Pension Funds that millions of people rely on for a dignified retirement and financial security for their families.

Recently, the Actuarial skills which have enabled insurance companies and pension funds to prosper for over a hundred years have been applied to issues outside the domain of traditional actuarial concerns.  For problems as diverse as decommissioning of nuclear power plants to setting lending criteria for a clearing bank, the actuarial assessment  of risk has enabled project sponsors to make informed investment decisions.

Actuaries are increasingly involved in wider areas such as corporate finance, asset management and major capital projects – all areas where making financial sense of the future has never been more crucial than it is today.

In collaboration with the Engineering Profession the Actuarial Profession has evolved a methodology known as RAMP (Risk Analysis and Management for Projects) – just one example of the very essence of actuarial thinking: making financial sense of the future of business.

Another area where Actuaries are slowly making their presence felt is the Banking Industry where there is considerable scope for using actuarial methods in assessment of risks such as credit risk and market risk and determining risk  based capital requirements.  Actually the concept of Actuaries entering into fields other than Life Insurance and Pension is not new but as old as the entry of the Actuarial Profession.  More than 150 years back welcoming the formation of the Actuarial Institute the MORNING HERALD remarked as follows:

We hope the time is not far distant when (the actuaries) will be found devoting their energies to those subjects of a somewhat cognate character for which their education and habits of thought peculiarly fit them, such for instance, as the more abstruse questions of our national and political economy and the investigation of the many equivocal theories of banking and currency.

Though the concept is 150 years old, only now Actuaries have started diversifying into areas other than Life Insurance and Pension.  There is no end or limit to what we Actuaries can do in this regard and search for new areas where our presence will be useful will have to continue.  It is indeed refreshing to find the actuaries testing the boundaries of the applications of the actuarial methodology and finding more and more extensive applications of this methodology.

One such area  has just opened up which has a very vast potential and where Actuarial inputs are vital for arriving at the correct assessment.  It is the area known as BRAND VALUATION.  The entire concept of Brand Valuation has been developed only during the past one decade.  Brands have assumed a lot of importance during the recent years and the general tendency of the public to go in for Branded goods is too well known.  This has created a growing awareness among corporates about the Financial Power of the brands they own.  There has been all round awareness that Brand has a value.  But the greatest discovery of the last decade of the previous century is evaluation of  methodologies for valuing Brands.  During the past five years quite a good number of methodologies have been evolved for valuing Brands.

Surprisingly all the methods bristle with Actuarial techniques and call for a multi-disciplinary approach including Actuarial discipline. Even more surprising is the fact that the authors of these methodologies are presumably not aware that actuarial inputs can considerably enhance the credibility of these methods.  It is here that Actuaries can play a very important role.  Actually the whole concept of Brand Valuation is in its evolutionary stage and this the correct time for the Actuaries to make their presence felt in this area.

The entry of Actuaries and injection of Actuarial Techniques into Brand Value methodologies will enhance the credibility of the results brought out by Brand Valuation and accelerate the process of creating awareness about Brand Valuation.

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