5.7 Crisis Management & Contigency Planning (HL) Flashcards
5.7.1 Difference between Crisis Management & Contingency Planning
Define a “Crisis”
Name the two disparate ways that a firm deals with a ‘Crisis’
Define the term ‘Contingency Planning’
State what it involves
State some Examples
Define the term ‘Crisis Management’
State the ‘MAIN DIFFERENCE’ between the two.
CRISIS
Definition:
An unpredicted event that has widespread negative consequences, causing major disruptions to the normal operations of an organization.
There are two disparate ways a firm can deal with a ‘Crisis’:
1. Contingency Planning
2. Crisis Management
CONTINGENCY PLANNING
Definition:
The management process of devising and developing pre-arranged plans to deal with a crisis, in case it actually occurs.
It involves the use of risk assessments in order to be better prepared for a crisis, such as a fire. ( a plan that tells employees what to do in an emergency situation)
IT DOES NOT PREVENT A CRISIS FROM HAPPENING, IT HELPS MANAGE RISK.
Example:
Technological failures, liquidity problems, severe weather conditions
CRISIS MANAGEMENT
Definition:
The management process of responding to an actual crisis facing an organization.
MAIN DIFFERENCE:
Contigency planning involves “preventative actions”
Crisis Management is “reactive and being responsive” to a crisis situation.
5.7.2 Impact on Contingency Planning
The impact of Contingency planning on a firm is explained in terms of:
1. Cost
2. Time
3. Risks
4. Safety
These impacts can be positive or negative.
State TWO POSITIVE and NEGATIVE IMPACTS for each of the above
COST
Positive:
1. Less Expensive - crisis management without contigency planning is extremely costly
2. Plans for Contigency Funds - makes the business more financial prepared to deal with the costs of the crisis
Negative:
1. Costly - management costs in the planning process and need to train staff.
2. Time Consuming - limitless number of what if scenarios that may never occur
TIME
Positive:
1. Detailed plan helps prompt and well-judged decisions at times of crisis.
2. Timely CP help to “Reassure stakeholders” that firm is in control of the situation
Negative:
1. Making CPs uses management time and resources
2. Waste of peoples time - crises may never materialise
RISKS
Positive:
1.Reduced risk - better position to deal with the crisis
2. Minimise quantifiable risk such as accidents or fire
Negative:
1. Unable to prepare firm from all risks e.g natural disasters or pandemic
2. CPs need regular review and planning to reduce risk but this is time consuming
SAFETY
Positive:
1. Protects safety of employees & costumers
2. Chances of threat and damage are limited - ensures safety
Negative:
1. Ensuring Safety = extremely expensive, e.g first aid training for employees
2. Opportunity Cost - ensuring safety for something that may not happen.
5.7.3 The Factors that Affect Effective Crisis Management (A02)
State AND EXPLAIN the four interrelated factors affecting the effectiveness of ‘Crisis Management’
The four factors are:
1. Transparency
2. Communication
3. Speed
4. Control
TRANSPARENCY:
Being and honest with all stakeholders during a crisis. It is about disclosing the truth, such as the scale or severity of the crisis.
As part of its corporate social responsibilities (CSR), the business will need to remain transparent, not just in communicating about the crisis, but keeping stakeholders informed about its recovery plan.
COMMUNICATION:
Informing internal and external stakeholders to help them to know and understand the issue.
Helps to earn support and goodwill stakeholders. A business that chooses not to communicate with its stakeholders risks a public relations disaster
SPEED:
Making prompt decisions and actions in order to return to the business to its normal operations as soon as possible. This is easier with a contingency plan.
Prompt action includes communications with all stakeholders e.g through a staff meeting
CONTROL:
Using a crisis management team to handle a crisis and ensure there is leadership and governance (to prevent worsening or damaging news being spread via social media)
(BASICALLY MAKE UP SOME BULLSHIT)
