Close the skill gap with the Financial Modeling & Valuation Analyst (FMVA)® Certification >> Enroll today and save!

Crisis Management

The process of addressing a crisis in a manner that minimizes damage and allows the organization to recover quickly

What is Crisis Management?

Crisis management involves dealing with crises in a manner that minimizes damage and allows the affected organization to recover quickly. Dealing properly with a crisis can be especially important for a company’s public relations. Crises come in several forms and it is recommended in all cases that a company be prepared ahead of time with a crisis management plan.

 

Crisis Management

 

Types of Crises

There are several types of crises that need critical attention with crisis management in mind:

 

1. Accidental Disasters

Accidental disasters are those that happen unintentionally by human cause. Fire is one example of accidental disasters that can affect the workforce and can leave a lot of damage to the entire organization. Especially in fields such as mining and construction that involve physical labor and operation of large machinery, drastic accidents that can happen to the workforce in the performance of their duties can lead to serious consequences.

 

2. Natural Disasters

Natural disasters are generally environmental crises that are beyond human ability to prevent. Earthquakes, tornadoes, and floods are good examples of natural disasters.

 

3. Technology Disasters

A majority of undertakings in an organization involve technology in one way or another. In some cases, a slight disruption in a company’s technology structure can cause all operations to come to a standstill. Some technology crises can happen accidentally while others can be maliciously caused. Under technology disasters, you will find examples such as:

  • Malevolence crisis – Criminal technology attack by opponents; hostile employees with malicious intentions of destabilizing the organization
  • Cybercrime crisis – Intentional theft crime by technology
  • Critical virus attacks – Accidental or maliciously infected

 

4. Conflict of Interest Crisis

A crisis involving a conflict of interest can be very tricky to manage as it involves political factors. It does not provide a particular step-by-step guide, as such crises tend to be unique each time. However, that does not mean that there are no best practices and strategies that can be implemented. Some events that would fall under a conflict of interest crises are:

  • Rumors – False news on an organization and its products. An example is spreading rumors that a certain organization’s products are contaminated or defective. Bad news travels fast and once such a rumor is started, intensive public relation strategies may need to be implemented to calm the fire. Such a rumor can destroy an organization completely. So in these cases, companies can spend considerable sums to keep their image clean.
  • Product tampering – Opponents can buy products of a rival company in volume, tamper them and then release them into the market. This kind of strategy happens between business rivals who are malicious. One example of product tampering happened to Pepsi Corporation in 1993 when there were claims of syringes found in Diet Pepsi cans. After a thorough investigation and arrests of culprits, Pepsi Corporation had to undertake an intense campaign to restore the public’s confidence in the company.
  • Headhunting – Pouching of top executives or senior management staff can happen between companies that are neck-to-neck in competition. Business rivalry is the major reason for this kind of crisis.

 

Other types of crises include workforce violence and employees’ confrontation crises such as boycotting, go-slow, picketing, and sit-ins with intentions of “arm twisting” the organization in meeting their demands.

Such are the few of the many unforeseen problems a company can face. In all cases, the focus will be to resolve the issue at hand and introduce structured means to prevent future occurrences.

 

Causes of Crises

The process used in tackling the crisis can depend on how the particular emergency arises. There are two primary ways a disaster can arise, which are a sudden crisis and smoldering crisis.

 

1. Sudden Crisis

Sudden crises are uncontrollable. They happen and catch the organization stakeholders unaware. The best examples of sudden crises are natural disasters that occur unexpectedly and without warning.

 

2. Smoldering Crisis

Just like smoldering fire, smoldering crises start slowly and quietly with a few to no signals at all. They move in phases, and each stage must be contained and tackled in time before it develops into a greater crisis and eventually evolving into a major disaster. An illustration of such crises is that of toxic work behavior that eventually leads to turning the whole company culture sour.

 

Crisis Management Plan

To counter any looming crisis, a proper process and plan must be used for effective crisis management. A crisis management plan is a documented outline of a process to follow for an organization to respond effectively to a crisis.

Crisis management planning will focus mainly on building infrastructures that help the company negate possibly risks and how to respond to crises should they occur. It also involves the organization workforce and the crisis management team in testing the methods and having regular internal training on the processes.

 

The following guidelines are recommended for establishing good crisis management plans:

  • Identify an individual from your workforce to take over crisis management role as a manager. Or, you can employ a professional crisis manager who can help you in planning crisis management processes.
  • Initiate frequent training and refresher courses on handling crises. Drills and fake operations must frequently take place to keep refreshing stakeholders on emergency responses to crises.
  • Form a crisis team to work under the leadership of a crisis manager. When a crisis occurs, this is the team that should be able to respond quickly. A veteran of several training and drills for such occurrences, it is expected to be in the frontline in directing other stakeholders on what to do and where to assemble to avoid further accidents.
  • Planning responses and crisis management processes for various potential crises is highly recommended. It takes several approaches and processes to address different crises.
  • Initiate systems that can effectively monitor or detect foreseeable crises signals early enough in order to tackle the situation before it gets out of hand. Examples of such systems are smoke detectors that can detect potential fire long before it gets out of hand.
  • Provide a list of key persons in case of a crisis and their contacts. The contact information must be displayed where anyone can see and easily access them.
  • Identify the ground person to be notified immediately when a crisis occurs. Apart from a crisis manager, there must be a coordinating person among employees who possess first-hand news on a looming crisis. It should be the same person who can be trusted by his colleagues with vital information on any suspected crisis.
  • Identify a central point where the employees can assemble and the exit points to use in case of a crisis. Emergency exit doors with ease of opening them must be labeled well and an emergency central place identified and properly labeled as well.
  • Regular testing of the crisis management process and emergency equipment and updating them frequently or as needed.

 

Crisis Management Cycle

 

 

Final Takeaways

In any organization, whether it is small or large, problems or dangers are bound to happen that can disrupt the smooth operations or affect it negatively. The organizational hazards, which can occur unexpectedly and drastically, are capable of causing immense harm to its workforce or stakeholders. Such occurrences can be defined as crises, and it is essential to manage them with efficiency and tact.

 

Additional Resources

CFI is a global provider of financial modeling courses and financial analyst certification. To help you become a world-class financial analyst, these additional resources will be helpful:

  • Black Swan Event
  • Leadership Traits
  • SMART Goal
  • Time Management

CFI's Corporate & Business Strategy Course

Learn to perform Strategic Analysis in CFI’s online Business Strategy Course! The comprehensive course covers all the most important topics in corporate strategy!