Organisations prepare contingency plans in recognition of the fact that things do go wrong from time to time
Contingency planning involves:
- Preparing for predictable and quantifiable crises
- Preparing for unexpected and unwelcome events
The aim is to minimise the impact of a foreseeable event and to plan for how the organisation will resume normal operations after the crisis
Contingency plans
The contingency plan:
- Identifies alternative courses of action that can be taken if circumstances change with time
- Details standby procedures to enable the continuation of essential activities and services during the period of the emergency
- Includes programmes for improving the business in the longer term once the immediate situation has been resolved
Steps in drawing up a contingency plan
- Recognise the need for contingency planning
- Identify possible contingencies - all the possible adverse and crisis scenarios
- Specify the likely consequences
- Assess of the degree of risk to each eventuality
- Determine risk strategy to prevent a crisis & to deal with a crisis should one occur
- Draft the plan and identify responsibilities
- Simulate crises and the operate of each plan
Dealing with the “what if” question
Scenario analysis:
- This involves constructing multiple but equally plausible views of the future
- The scenario consists of a “story” from which managers can plan
Sensitivity analysis
- Involves testing the effect of a plan on alternative values of key variables
- e.g. the effect of a 50% loss of capacity
Crisis management
- Crisis management involves:
- Identifying a crisis
- Planning a response
- Responding to a sudden event that poses a significant threat to the firm
- Limiting the damage
- Selecting an individual and team to deal with the crisis
- Resolving a crisis
Stages of a crisis
Pre-crisis | Prior to the event |
Warning | Indications that there is or may be or could be an event liable to cause a significant impact on the organisation |
Crisis point | When the event begins to cause significant impact on the organisation |
Recovery | The acute stage of crisis has passed and the organisation is able to focus on a return to normal operations |
Post crisis | Evaluation of the effects |
Role of the crisis manager
- Crisis assessment
- Event tracking
- Managing human considerations
- Damage assessment
- Assessment or resources and options
- Development of contingencies
- Managing communications
- Co-ordination with external bodies
- Controlling information
- Controlling expectations
- Managing legal requirements
Advice on handling a crisis
- Appoint a crisis manager
- Recognise that the crisis manager is likely to adopt a more authoritarian style than is normal
- 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 phenomenon
- Project the most likely cause of events
- Focus on activities that will mitigate or eliminate the problem
- “Look for the silver lining”- opportunities in the aftermath
- Act to guard cash flow
Dealing with the financial aspects of a crisis
- Accelerate accounts receivable (payment by debtor)- by offering a discount if necessary.
- Slow up payment to creditors where possible.
- Increase short term, sales
- Reduces expenses - especially “non mission critical” expenses
- Outsource non mission critical operations.
- Re-schedule loans
Dealing with the “people” aspects of a crisis
- Form a crisis team
- Designate one person only to speak about the crisis to the outside world
- Act to prevent or counter the spread of negative information
- Make use of the media to provide a counter argument
- Do not tell untruths - trying to manipulate or distort the information will backfire
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