Crisis management
Crisis management involves identifying a crisis, planning a response to the crisis and confronting and resolving the crisis. Crisis management can be applied in almost any field of endeaver, but it is most commonly used in international relations, political science and management. For more about crisis management in international relations, see international crisis.
In general terms, the theory of crisis management can be divided into crisis bargaining and negotiation, crisis decision making, and crisis dynamics.
In management
In business there are three main types of crisis:
- Financial crisis - short term liquidity or cash flow problems; and long term bankruptcy problems
- Public relations crisis - negative publicity that could adversely effect the success of the company
- Strategic crisis - changes in the business environment that call the viability of the company into question - for example the introduction of the automobile was a strategic crisis for buggy-whip manufacturers
Steps should be taken to prevent a crisis from occuring. Companies should always be planning ahead and projecting likely outcomes. They should avoid decisions that have the potential to turn into a crisis. Always know your "worse case scenario" and have a contingency plan just in case.
If prevention has not been successful, then the following six steps should be undertaken immediately:
- Do an objective assessment of the cause(s) of the crisis.
- Determine whether the cause(s) will have a long term effect or whether it will be a short term phenomena.
- Project the most likely course of events.
- Focus all the most capable people (including yourself) on activities that will mitigate or eliminate the problem.
- Look for opportunities - there could be a "silver lining"
- Immediately act to guard cash flow.
If it is a financial crisis do not wait for further evidence before acting. Immediately take actions to maintain or increase cash flow. These could include:
- accelerate accounts receivable payments even if this requires the granting of discounts
- decelerate accounts payable payments even if this means losing discounts
- increase short term sales
- maintain or increase profit margins on sales if possible
- reduce expenses:
- eliminate non-essential expenses
- sell non-mission critical assets
- reduce payroll
- outsource non-mission critical operations
- renegotiate loans and other debts wherever possible - obtain interest-only loans or extended payment terms
If it is a public relations crisis, act immediately to prevent or counter the spread of the negative information. Containment may require intense media activities. Use every media available to you to provide a counter argument or question the credibility of the original negative publicity.
See also
