A risk and reliability management appraisal of company failure. An application of risk and reliability managment methodology to the analysis and identification of pattern, causes and symptoms of company failure, including formation of a Data Bank for failed companies.

Abstract

The principal objective of the research is to diagnose the causes and symptoms of company failure and to investigate whether a pattern of failure could be determined to enable management and other interested parties to identify the risks threatening the survival of the company. The current research divides into three main areas 1. Development of a Data Bank and a study of the age structure of failed companies. 2. An application of reliability management techniques to the analysis of company failure data. 3. Identification of causes and symptoms of company failure based on risk management methodology. Data were collected and analysed for approximately 2000 manufacturing companies which had undergone either compulsory or creditors' voluntary liquidation during the period 1970 to 1977. A Data Bank was established with classified information for 16 different groups of companies making up the manufacturing industry. The classification was based on the Standard Industrial Classification. A study of the age structure of each group was carried out and compared with previous studies. Reliability methodology was applied to the analysis of company failure data for the identification of the failure pattern. Best distributions describing failure behaviour of companies were also determined and the validity and application of various statistical distributions were examined. A detailed examination of the histories of some large companies which failed during the period 1970-1977 was carried out. Risks, weaknesses and possible causes and symptoms of failure were investigated and discussed. A list of the causes of failure emerged from the analysis is drawn and the non-financial symptoms are highlighted in a tabular form. Illustrative models for the appraisal of change and identification of causes and symptoms are developed and critical factors discussed. Finally, general conclusions arising out of the research are-presented, along with recommendations for further research and study.