Many companies recognise the importance of risk management, partly through changes in legislation, but also because companies have come to realise that it is necessary to recognise and understand risks in order to maximise opportunities. Over and above this, however, companies need to be aware of potential crises that, in the worst case scenario, could have a catastrophic impact on the company. Some recent examples include:
Enron financial scandal;
Toyota brake failures;
BP, Deepwater Horizon well blowout;
Tepco, Japan, nuclear power plant disaster following earthquake and tsunami.
Three elements are common to most definitions of crisis:
(a) A threat to the organisation;
(b) The element of surprise;
(c) A short decision time.
For these types of crises, it is imperative to have a crisis management plan in place.
With extensive experience in opportunities and risk management, we can assist your company in setting up a crisis management plan.
In general, crises fit into one of seven categories:
- Natural disaster
- Technological crises
- Organisational Misdeeds
- Workplace Violence
Some crises come “out of the blue” and, by definition, are almost impossible to prevent. On the other hand, some crises evolve over time perhaps due to inadequate internal controls or misguided management decisions. In this latter case, it is the responsibility of senior management to monitor the situation in order to recognise the danger signals, develop an appropriate containment strategy and implement the necessary actions.
In many cases, where the cause of the crisis is beyond the control of the organisation e.g. natural disaster, the credibility of the organisation rests on its response to the crisis both actual and perceived.
Two of the main elements of successful crisis management are openness and communication. Companies that lose the trust and goodwill of their customers may suffer long term effects that outweigh those of the initial crisis. Evidence or even the suspicion of a cover-up can totally destroy a company’s reputation.