Crisis Management

Updated on March 20, 2024
Article byAswathi Jayachandran
Edited byAswathi Jayachandran
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Crisis Management?

Crisis management is the implementation of certain steps to reduce an event’s negative effects while working with limited resources and time. The goal is to make strategic decisions to mitigate the crisis in unusual, unstable, and difficult situations. Planning meticulously and thoughtfully is necessary for a crisis that may not be foreseeable.

Crisis Management

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Crisis management equips people with the confidence to tackle unforeseen and challenging circumstances within the company. Employees can comprehend and assess the root causes of a problem and respond to it as effectively as possible. It helps the workforce adapt well to the organization’s unexpected adjustments and take timely action. 

Key Takeaways

  • Crisis management, in an organization’s case, is dealing with sudden and unexpected changes in organizational culture. The process of responding to rapid, unanticipated occurrences disrupts employees, organizations, and external clients.
  • There may be various crises, such as natural, technological, internal, external, organizational, and financial.
  • It helps the workforce adapt well to the organization’s unexpected adjustments and take timely action. In other words, it is a mitigating strategy.
  • A comprehensive management strategy includes organizational initiatives such as business continuity, risk management, emergency response, and disaster recovery.

Crisis Management Explained

Crisis management, in an organization’s case, is dealing with sudden and unexpected changes in organizational culture. The methodology of responding to rapid, unanticipated occurrences disrupts employees, organizations, and external clients. Any emergency scenario that disrupts the workforce and causes organizational instability is a crisis. An individual, a group, an organization, or the entire society can be impacted by a crisis.

Various types of crises are as follows:

Types of Crisis

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  • First, they may be natural crises like earthquakes, tsunamis, etc.
  • They could be technological, such as machine malfunctions and failures due to technology. Some common technological setbacks include internet issues, program malfunctions, and password mistakes.
  • They may be internal. Employee conflict arises when employees disagree with one another and start fighting. The crisis results from boycotts, long periods of strikes, disagreements, etc.
  • External crises such as violence, theft, and terrorism.
  • Illegal actions, including bribes, fraud, data or information tampering, etc., create organizational crises.
  • Financial crises include when an institution files for bankruptcy and cannot pay its creditors.

Ignoring small problems at first can result in a larger issue and an insecure work environment. Therefore, the management must exercise total control over its operations and staff, maintaining an uncompromising attitude at work.

While preparing for crisis management, organizations can be better equipped to deal with unforeseen occurrences that could result in significant or irreversible damage. A comprehensive management strategy includes organizational initiatives such as business continuity, risk management, emergency response, and disaster recovery. Crisis management aims to equip an organization with the flexibility to respond quickly and take the necessary actions when a crisis arises. A company can handle unforeseen situations if ready for the “worst-case scenario.”

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Steps

#1 – Stage One: Pre-Crisis

Three words: planning, prevention, and preparation, sum this up. While anticipating potential crises is important, evaluating the organization’s strengths and weaknesses is also necessary. This helps in planning the weaknesses to cover and the strengths to utilize in managing a crisis. Moving beyond the obvious and critical evaluation of flaws is required. Questions should be such as, “Can the company afford the legal fees and claims brought about by a hostile work environment?”, “Is there a high risk of labor unrest in the company?”, “Is the company dependent on a founder, CEO, or other important people?” Etc.

Watching the news channels to know about law changes is also a good step. Not limited to the things mentioned above, forming a crisis team is also helpful. The team should include representatives from the organization’s key departments. Instructions for support in times of turbulence shall be given in advance, such as what to do if a fire breaks out, whom to contact when things go south, etc.

#2 – Stage Two: Crisis 

Recognizing a crisis is the first step toward resolving it. The focus should be on the people. There should be a spokesperson to announce the event and handle public relations. Similarly, the rest of the team’s roles and responsibilities should be assigned. It is at this stage the pre-planned crisis management training comes in handy. Problems must be understood, and the best course of action shall be taken. A lot of communication is required during this phase to alert everyone to the problem and to launch the various steps that will be done to manage and minimize the situation.

#3 – Stage Three: Post-Crisis

After dealing with the immediate crisis, there is a natural inclination to focus on the specifics and investigate the problem’s causes. However, although the investigations must go on to prevent similar situations, the organization must maintain sight of and focus on trust and reliability.

The crisis team should periodically reevaluate the crisis plan from the perspective of the members’ accumulated experience in actual situations. There will inevitably be elements of the plan that are performed well and those that need to be revised, removed, or completely replaced. Actions shall be taken accordingly.

Examples

Check out these examples to get a better idea of crisis management planning:

Example #1

Ray is the founder and manager of a small business. He wanted to be future-ready and scale his business to a greater height. He knew that, like any business, he would be prone to unforeseen situations. To be prepared for it, he organized a crisis management team. His team consisted of the department heads, even the janitors, who knew every corner and the exit. The team was educated regarding natural calamities and basic technical failures.

Furthermore, important numbers and key personal numbers were exchanged inside the offices. This was done so employees to be aware of whom to contact in which situations. In addition, his team drafted the situations and solutions for the perceivable threats. This is how he built his crisis management strategy.

Example #2

Schwan’s Sales Enterprises Inc., an ice cream company (U.S.), got into trouble for salmonella in 1994. It was ranked 51st on Forbes’ list of private companies for making $1.8 billion. The company delivered ice cream door to door. When there was a wide salmonella outbreak, the company could not confirm whether it was the source. The then-manager of public affairs employed a crisis management plan. They could either shut down production and sales or wait for the results from the health department. The company moved beyond the obvious and did both.

They shut the factory down and called the health department and the FDA to the plant to investigate. He established a “recall task force” with his sales officers and crisis management team. They set up a consumer hotline and initiated a massive recall of the products while giving out the necessary information. Soon after, the test results confirmed that their company was the outbreak’s source. Litigation and settlements were involved. However, the company promptly acted, saving them years of time and money they had to spend on litigation. They did not deny or shift blame but acted on it and found remedies while actively managing the crisis.

Advantages And Disadvantages

Here are the main advantages and disadvantages of crisis management:

Advantages

  • Prevention is better than cure, and thus it saves an organization from the time and costs it might lose in the chance of a crisis.
  • Reduces the negative impact of the crisis, which could have been more if not planned.
  • Saves the reputation of the business.

Disadvantages

  • Planning to manage a crisis involves a lot of time and requires resources that are otherwise unnecessary.
  • Even after crisis management training and allocating duties and responsibilities, people may fail to execute them.
  • Sometimes, situations may go out of control and negatively impact the business’s revenue.

Crisis Management vs Risk Management vs Business Continuity

Here are the key differences between the three:

Key differencesCrisis managementRisk managementBusiness continuity 
Meaning How a company responds to a disruptive and unanticipated occurrence threatens to hurt the company or its stakeholders.Risk management is anticipating, analyzing, and adopting preventative measures to reduce or curb the risk.The ability of an organization to continue providing goods or services at predetermined levels while a disruptive crisis is ongoing is known as business continuity.
FocusFocuses on mitigating the effects of a crisis. Aims to prevent business disruption completelyConcerned with how to keep operations running in the event of a disturbance.
NatureInherently reactive.Risk control is proactive.  Business continuity is proactive.

Frequently Asked Questions (FAQs)

Why is crisis management important?

Restoring normalcy and stability while preventing harm to the organization’s reputation are the objectives of managing a crisis. Another goal is to minimize permanent harm while promptly restoring the organization to normal functioning.

What is a crisis management plan?

Crisis management planning describes how the company will respond to a crisis. The strategy should specify who will act and in what capacity. Good crisis management planning aims to limit harm and resume commercial activities as soon as possible. Every organization must be ready with an executable and well-defined crisis plan before starting its operations. They should expect an adverse situation all the time, even when there are no indications that signal an incoming one.

What is crisis management in public relations?

PR crisis management is defending an organization before the wider public. It is done when a significant event threatens it, it’s standing, and its stakeholders. Therefore, the role of PR crisis management in crisis communication is crucial.

This article has been a guide to what is Crisis Management. We explain its examples, steps, advantages, and comparison with risk management and business continuity. You may also find some useful articles here –