5.7 Crisis management and contingency planning

Full video class on YouTube, summary and notes on Instagram, class extracts on TikTok, text below. Have fun!

The main point of this class is to distinguish between crisis management and contingency planning.

In this part of class, we are discussing the differences between crisis management and contingency planning. As always, I am trying to keep you busy and asking you to copy and fill in the table below.

Crisis is a period of extreme difficulty or danger. Crisis management is the process of dealing with a crisis or an emergency. As you can see from the definition, crisis management is something that happens after the crisis. So, you let crisis happen and then you try to minimise its effects. That is why, crisis management is reactive: first, crisis happens and then organisations react to it. Since there is no pre-planned procedure in crisis management, it is ad hoc in nature.

Keep in mind that plural for crisis is crises! “One crisis, two crises". Not “two crisises”!

Contingency is a future event that is possible but not 100% likely to occur. Contingency planning is preparing an action plan for potential crisis. As you can see from the definition, contingency planning is something that happens before the crisis. So, you try to prevent the crisis before it happens. That is why, contingency planning is proactive because organisations are planning what to do in case of an emergency, before it happens. Since there is a pre-planned procedure in contingency planning, it is bureaucratic in nature.

How successfully an organisation manages crisis depends on these factors:

1. Transparency
2. Communication
3. Speed
4. Control

Before you continue reading, copy the table below and try to fill it in with your own ideas. After that, read the rest of the chapter and see how your ideas relate to what’s in the textbook.

Transparency is the extent to which information regarding costs, damage, consequences, etc is made available to relevant stakeholders. If crisis management is not transparent enough, then stakeholders are kept in the dark, they panic and do not trust managers. If managers are too transparent and disclose every single bit of information about how crisis is managed, then managers are perceived as incompetent and not being able to take situation under control. So, in order to have “just enough” of transparency, organisations that deal with crisis should be transparent, but should not disclose everything at once. Some things are better to be available post-fact, in order to prevent panic.

Communication in crisis management refers to establishing reliable official channels for spreading up-to-date information Just a quick reminder that we already learnt what communication in business is in class 2.6. If there is no communication, then stakeholders will eventually get information from alternative unreliable sources (such as rumours) and will not have a clear and up-to-date information regarding crisis management. However, if there is too much back-and-forth communication, then crisis management is prolonged. The “golden middle” could be one-way communication, which refers to keeping stakeholders informed and updated, but not requesting feedback on what is being communicated.

Speed in crisis management is the rate at which crisis management decisions are made and executed. If crisis management is too long, then the effects of crisis are too harmful. However, fast decisions are often careless, which might only worsen the effects of the crisis. Ideally, crisis management decisions should be quick but verified, meaning that some key stakeholders should quickly consider decisions from various perspectives before they (decisions, not managers) are executed.

Control in crisis management refers to the extent to which organisation has power to influence the course of events and people’s behaviour. If there is lack of control, then, obviously, crisis goes out of control. If there is too much control, it might result in demotivated staff that resists change, which might only worsen the effects of crisis. The solution to the right degree of control might lie in centralised decision-making with a degree of flexibility and teamwork.

Now look up “top business crises of all times” online and break them down into transparency, communication, speed and control, thinking whether there was too much or not enough of them and what organisations could have done exactly in order to have the perfect amount of each of the crisis management factors.

Impact of contingency planning is discussed in terms of these factors:

1. Costs
2. Time
3. Risks
4. Safety

Before you continue reading, copy the table below and try to fill it in with your own ideas. After that, read the rest of the chapter and see how your ideas relate to what’s in the textbook.

The four key concepts of this part of class are costs, time, risk and safety. Of course, you already know what these things mean and there is no need to define them. However, as you read further, please keep in mind that we are discussing costs, time, risk and safety not in general, but relative to contingency planning.

With regards to costs, they are saved in the long term. However, in the short term, costs are higher. For example, purchasing fire extinguishers increases short-term costs but reduces costs in case of fire because damage caused by fire is minimised thanks to fire extinguishers.

With regards to time, less time is needed to react to an emergency because there is a plan in place, so stakeholders know what to do in case of crisis. However, more time is needed to develop a contingency plan. For example, fire drills are time-consuming and disrupt the working process but reaction time is minimised in case of real fire.

With regards to risk, it is lowered if crisis actually happens. However, maybe, contingency plan will never be used, so it is a waste of time, in a way… For example, most people who practice fire drills never end up in a real fire (luckily), so from a certain (weird) perspective, they wasted their time preparing to something that never happened (thank God).

With regards to safety, safety regulations minimise risks. However, it is impossible to guarantee 100% safety anyways…For example, practicing fire drills still does not mean that everyone will survive in case of real fire (sadly).

Now get back to “top business crises of all times” that you hopefully looked up as you were reading the previous part of this chapter and think how organisations might be impacted positively and negatively if they used contingency planning to prevent the crisis. Make references to costs, time, risks and safety.

Make sure you can define all of these:

1. Crisis
2. Crisis management
3. Contingency
4. Contingency planning
5. Transparency
6. Communication
7. Speed
8. Control
9. Contingency planning costs
10. Contingency planning time
11. Contingency planning risks
12. Contingency planning safety