The process of addressing a crisis in a manner that minimizes damage and allows the organization to recover quickly Crisis management involves dealing with crises in a manner that minimizes damage and enables 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 that a company be prepared ahead of time with a crisis management plan. Types of CrisesThere are several types of crises that need critical attention, with crisis management in mind: 1. Accidental DisastersAccidental disasters are those that happen unintentionally by human cause. Fire is one example of accidental disasters that can affect the workforce and 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 DisastersNatural disasters are generally environmental crises that are beyond human ability to prevent. Earthquakes, tornadoes, and floods are examples of natural disasters. 3. Technology DisastersA 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:
4. Conflict of Interest CrisisA 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 in nature each time they occur. 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 crisis are:
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 into meeting demands. These are a 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 CrisesThe process used in tackling the crisis can depend on how a particular emergency arises. There are two primary ways a disaster can arise – a sudden crisis or a smoldering crisis. 1. Sudden CrisisSudden crises are uncontrollable. They happen and catch the organization’s stakeholders off guard. The best examples of sudden crises are natural disasters that occur unexpectedly and without warning. 2. Smoldering CrisisJust like a 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 evolves 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 PlanTo 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 possible risks and how to respond to crises should they occur. It also involves the organization’s 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:
Final TakeawaysIn 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 ResourcesCFI is a global provider of financial modeling courses and financial analyst certification. To help you become a world-class financial analyst, these additional CFI resources will be helpful:
Smartsheet Contributor Andy Marker
No business is immune to crisis, so every company needs to understand the basics of crisis management. This essential guide provides an overview of the topic and insights from leading experts. In this article, learn the different types of crises to prepare for, the stages of crisis management, and the “golden rules” of crisis management, according to experts.
Crisis management is the process of preparing for, managing, and limiting damage from unexpected negative events at an organization. This practice includes anticipating threats, developing strategies to minimize harm, and implementing these strategies when a crisis occurs. Crises share certain attributes regardless of the size or type of organization: A crisis poses a threat to the company, includes some element of surprise, requires action to change the course of events, and demands fast decision-making. Emergencies can occur suddenly when an event happens that’s beyond the organization’s control, such as an earthquake. Or a crisis can develop over time as a small problem worsens because the organization does not see or fails to act on warning signs. This category of smoldering or creeping crisis includes problems like safety issues.
Business crisis management is the series of actions that companies take to identify threats, plan potential responses, and minimize disruption or losses to the business and its stakeholders in the event of an actual crisis. A crisis can stem from internal or external causes and harm a business in multiple ways. The fallout of a crisis often affects more than one dimension. Sometimes, the damage is so great that the company cannot survive. Losses can include the following:
In business, crisis management overlaps with risk management in that organizations use both to consider what could go wrong and how to address it. But risk management focuses on how to prevent crises while crisis management emphasizes how to react. Crisis managers put the bulk of their effort into developing action plans for responding to emergencies and executing these plans. Risk managers concentrate on ongoing ways of preventing threats from arising. Risk management also has a broader remit, dealing with any kind of challenge that could impair a company’s ability to meet its strategic objectives. To learn more about risk management, read “Enterprise Risk Management 101: Programs, Frameworks, and Advice from Experts.”
The four Ps is a mnemonic that captures the essential elements of crisis management — prevent, plan, practice, and perform. These terms remind companies to minimize threats, develop crisis plans, rehearse these plans, and execute them effectively when needed. Several variations on this list of Ps incorporate words like prepare, people, and post-event review. A six-word version summarizes crisis management: Proper prior planning prevents poor performance. Jack Stack, CEO of Illinois equipment company SRC Holdings Corp., writes in his blog that business developed another four Ps to survive the 2009 economic crisis and put these Ps to work again in the 2020 global pandemic. Those Ps include people (keep every employee informed and lines of communication open), positive cash flow (a critical focus to manage debt), practices (managing with transparency and operating strategically), and positioning (find opportunities to position yourself for growth).
Many companies historically neglected crisis management, but experts say this became increasingly risky as the landscape changed. Crises today can escalate more quickly, and the survival of the business can be in the balance. Among the forces at work are the following:
Regina Phelps, Founder of crisis management consulting firm Emergency Management & Safety Solutions, recalls that before the 2020 global pandemic, “Executives were comfortable taking on more and more risk without mitigating crisis measures, processes, teams or plans…. Or programs would be established but funding would decrease over time because nothing happened.” In the aftermath of this major disruption, she says support from senior executives for building crisis management capacity is vital and urges leaders to stay the course.
Crisis managers must anticipate events, and understanding the major types of crises is a good precursor to developing a threat list. For organizations, categories of crises may relate to the area of operation or the nature of the crisis. Boston University scholar Otto Lerbinger in his 1997 book, The Crisis Manager: Facing Risk and Responsibility, divided crises into eight categories: natural disasters, technological, confrontation, malevolence, organizational misdeeds, workplace violence, rumors, and terrorist attacks/man-made disasters. Summaries of these and other types of business crises follow.
For more examples and how companies dealt with them, read “The Most Useful Crisis Management Examples: The Good, Bad, and Ugly.”
Crises never unfold exactly as anticipated, but the planning process develops crisis management skills and a preparedness mindset. That way, you can deal with whatever happens more effectively. “How to Craft a Strong Crisis Management Strategy” explains the strategic responsibilities of senior leaders in crisis management. A crisis management team needs to understand all the calamities that could befall their organization, and that requires consulting operational staff, not just top managers. Once the team drafts a crisis management plan, make sure to allocate adequate resources to train responders, acquire staff or material that may be needed, and update the plan regularly. A major goal of preparation is to keep operations running or resume them as quickly as possible in the event of a crisis. A business continuity plan focuses on this aspect of crisis management. See “Business Continuity Planning: How to Do It Well” to learn more. “Free Disaster Recovery Plan Templates” offers templates for disaster recovery plans at different kinds of organizations and for business needs such as payroll and data.
Crisis management is crucial because the practice helps companies prevent or avert catastrophes, minimize damage from those that are unavoidable, and get operations back to normal as quickly as possible. Events such as the 2020 global pandemic, California’s wildfires, and other disasters have driven home the importance of vigilance and preparation. Being proactive is a basic survival skill. “Even now only about half of all organizations have any kind of crisis management plan. This dearth of preparedness is simply no longer acceptable in a world where global crises are a painful reality,” notes Deborah Hileman, President and CEO of the Institute for Crisis Management. Good crisis management is a competitive advantage. The Incident Command System, which originated as a structure to streamline coordination of different agencies fighting California wildfires, is becoming more widely adopted because it enables faster, more efficient responses. The private sector has enhanced the efficiency of Incident Command System with technology by embedding features such as real-time incident status reports, dynamic organization charts, audit trails of responses, and form generation.
A crisis management effort begins with designating a team and a leader. They will work through the phases of identifying risks, developing and documenting response plans, practicing those plans, implementing them when needed, and reviewing the results. Within these stages fall key tasks such as detecting warning signs, damage control, learning from experience, and updating crisis plans as a result. Creating a crisis management plan is the most challenging part of your preparation. See “Free Crisis Management Templates” to download templates for management plans, helpful checklists, and tabletop exercises. For instructions on building a crisis management team, see “How to Build an Effective Crisis Management Team,” and delve more deeply into drafting a plan in “Step-by-Step Guide to Writing a Crisis Management Plan.” Communication is a vital part of crisis management. Learn how to develop a crisis communications strategy and find the resources you need by reading “Ultimate Tool Kit: Free Communication Strategy Templates, Examples, and Expert Tips.” Use one of our free crisis communications templates to draft communications plans for schools, businesses, social media, and more.
In business, a crisis management playbook is a document that enables you to gather details of your response actions, processes, and roles. In some ways, this guide is similar to your crisis management plan, but the playbook is usually more succinct and oriented to the immediate response. Seeing an example of such a playbook can be helpful. The example of a crisis management playbook below summarizes how a fictional school district intends to respond to its most likely crises. The example goes into more detail on the response to a positive case of an infectious disease among students including how to verify there is a crisis, key messaging points, and post-crisis analysis. Download Example Crisis Management Playbook Word | PDF
Although they sound similar, management by crisis is the antithesis of good crisis management. Management by crisis means that your business is in a constant state of crisis response, leaping from one emergency to the next. When managers are putting out fires all the time, they have no opportunity to plan or take initiative; they are stuck in a stressed-out, reactive mode. Management by crisis can be a hard habit to break because practitioners feel their efforts save the company from disaster. Despite this illusion of productivity, they and the company are not able to operate strategically and perpetuate the conditions that give rise to problems. Leaders who manage by crisis may also manufacture an atmosphere of crisis with the well-intended goal of getting their teams to exert superhuman efforts. However, the result is ultimately employee burnout, low morale, and turnover. Common moves that contribute to a crisis atmosphere include setting artificial deadlines or shuffling staff.
Some pieces of crisis management wisdom are almost universally endorsed by experts and have become unofficial rules. Learning them puts you well on your way to mastering crisis management best practices. Louis Carter, CEO of the Best Practice Institute, advises, “Accept responsibility. Admit if your company made mistakes… (Then) once the storm has passed, gather the team to discuss lessons learned.” 11 Essential Rules for Crisis Management
Michael Fagel, founder of emergency response consulting firm Aurora Safety, emphasizes the importance of committing to crisis readiness for the long term. “Emergency planning is not a light switch, and it’s not a magic wand. It’s a process,” he notes.
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