Importance Of Crisis Planning In Crisis Management

Introduction

A crisis can be defined as a sudden, major, unpredictable event that can cause significant harm to an organisation and its stakeholders (Coombs, 1999). The effects of a crisis on a firm’s performance have been well documented. In Australia, from 1990 to 2001 27 per cent of organisations that experienced high-profile crisis events did not survive (Coleman, 2004). Coleman (2004) also calculated the financial impact of 25 of these crises, and found that firms suffered an average cost of $10 million, with 5 exceeding $100 million.

In spite of the compelling evidence which points to the impact of crisis situations, a startling number of firms lack comprehensive plans to respond should an incident occur. In a study of Fortune 500 USA organisations, Mitroff and Alpaslan (2003) discovered that only between 5 and 25 percent of firms had procedures in place to address to a crisis.

In this essay I will argue that it is better for a firm to develop a proactive approach to crisis planning than a reactive one. I will use the model put forth by Mitroff, Shrivastava, & Udwadia (1987) to explain the contrasting positions. Following, I will emphasise the necessity of crisis planning in risk management and the role of planning in an era of social communication and connectivity. I will then address counter arguments which focus the cost of proactive crisis planning and the importance of leadership in crises, drawing on both academic theory and empirical examples of crises in the Australia/New Zealand landscape.

A model of Crisis Management

To understand the position of proactive vs. reactive approaches to crisis management, I will use Mitroff et al.’s (1987) model of Crisis management. The above model illustrates the crisis an...

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...ed for a situation that does not unfold, than it is to be unprepared for one that does. And while the firm will never be equipped to predict or prevent every crisis it could tangibly face, the process of crisis planning enables the kind of organisational learning which steadies both management and employees to operate effectively under tough conditions, keeping stress levels in check and ensuring decisions are made with clarity and precision. Failure to recognise this need will inevitably result in misfortune: as evidenced by the statistics provided at the beginning of the essay, there are potentially catastrophic financial consequences for domestic firms who ignore the calls to take initiative to plan for contingencies. Put simply, through the arguments developed throughout the paper and the numerous cases detailed, firms who fail to plan are planning to fail.