5.7 - Crisis Management and Contingency Planning

Crisis Management

Involves the steps a business can take to limit the damage caused by an unpredicted event or crisis
Aim is to return to normal business operations as swiftly as possible
A way to achieve this is to use a contingency plan that was prepared in case the crisis happened
Crisis management would also focus on communication, trasparency, speed, and control of the situation
Main feature of a crisis is that it’s usually unpredictable and needs quick action

Contingency Planning

The process of creating an action plan that an organization would follow in case of a crisis or an unexpected event
Contingency plan is proactive, while crisis management is reactive
Companies try to predict potential issues and address them before they arise
A business should have a range of diff contingency plans for diff event types
In addition to having some people focused on contingency planning, a business must prepare all employees for the crises that may arise

Aim of any crisis management situation is to return to normal business operations as quickly as possible
Effective crisis management depends on:
- Communication
- Transparency
- Speed
- Control

Communication

Effective communication w/ both external and internal stakeholders is needed in times of crisis
Internal one-way communication w/ employees firstly ensures everyone understands the problem, plan, and responsibilities
Later, two-way communication may also be needed
External communication is also important
- Keeping ongoing dialogue w/ suppliers, customers, and the public can earn goodwill when it’s needed most

Transparency

Full disclosure of the seriousness of the situation may be the best option in a crisis
Ppl are usually sympathetic w/ disaster, but this could go away if they discover info was hidden
Businesses should be transparent w/ employees too
- The team will probably be on board w/ the decisions if it’s clear to them how and why certain decisions are taken

Speed

Rapid decision-making and effective implementation of those decisions will help achieve the aim of returning to normal
Using a contingency plan can help

Control

An organisational structure that’s well understood by all members of an organization can be helpful in times of crisis bc it makes the chain of command and responsibilities clearer
A well-defined hierarchy may be helpful to mobilise and control a response to a crisis, w/ orders moving down the chain of command quickly

Cost

If a crisis happens, contingency plans are designed to help managers make rapid, well-judged decisions and minimize the cost of a crisis
- This includes paying out damages, or losing staff, machinery, and customers
Having a plan minimizes the chance of managers making costly mistakes in a high-pressure environment
For plans to be relevant they need to be reviewed and updated regularly
- This has an opportunity cost in terms of resources
These plans may be too costly to allocate staff resources to develop contingency plans that may never be used for small businesses
When planning, businesses usually purchase insurance that covers costs resulting from things like severe weather events or employee injury
While insurance is worthwhile, it carries a monthly cost that needs to be a part of the budget

Time

If solutions to potential problems are evaluated in advance, then rapid implementation should be possible
The business should be able to return to normal quickly and minimize losses
Actions that are swift and well thought out help reassure all stakeholders that the crisis is being dealt with and is under control
Time involved in creating and regularly updating a contingency plan needs to be considered in relation to the time or speed neded to act in times of crisis
- Time spent now could increase speed later

Risk

An effective plan can help to minimize the risk of potential accidents or loss of life

Safety