Finance may be a primary consideration but it is not the only cost to a business in preparation for a crisis.
Being ill-prepared can damage the relationship with customers and employees, and ultimately, if the crisis is badly handled, it can damage the business’ reputation.
Complex, fast-moving threats to organizations can happen at any time, so being prepared for a crisis is about having the right people having been trained with communication tools and strategy in place ahead of an inevitable yet unforeseen event.
Business management consultants Mossadams produced a useful cost management guide to dealing with a crisis in April 2020, which sets out six elements to pay attention to. These are strategy (covering a customer analysis, product mix, recovery plan and financial forecast), assessing operating models, the trade-off between risks and opportunities, a situation analysis and a financial analysis.
According to the Harvard Business Review “When companies seem ill-prepared in the face of a crisis, the first question people ask typically is, “Where was top management?”
Ideally, it advises, boards should dedicate a block of time each year to better understand and prepare for major threats to the business.
It advises that boards should have both a strategy and a core team at board level trained and ready to deal with the crisis itself, as exemplified by the UK Government’s Cobra (Cabinet Office Briefing Room) group.
Of course, for a business facing a crisis the key is to take control of the messages and immediately review finance. While directors might worry about a hit to profits, in fact they should first and foremost have a plan in place for controlling expenses and for protecting and managing cash flow. Of course, ahead of the event it is wise to build up some financial reserves and to avoid taking on debt wherever possible. The less outside funding a business has to sustain when dealing with a crisis, the better.
Part of preparation for a crisis, however, and arguably as important, is the way it handles its messaging and nurtures the relationships crucial to its continued existence.
Stakeholders, customers and employees are likely to be panicked and worried about their future so communication is essential, not only to keep people informed and reassured in the present but also to protect the business’ future once the crisis is over. Indeed, critical to any crisis is to plan for emerging from the crisis so that the business does not remain in crisis mode.
In a crisis, everyone becomes acutely aware of the behaviour of others. This is therefore a key factor for reassuring stakeholders.
In this context, it really is a case of leading by example, so, perhaps it would be unwise for a business to pay out dividends to its CEO, when others are having their working hours cut or suppliers are receiving fewer orders because a business is scaling back activity..
The lesson is that preparation for a crisis is infinitely preferable to being faced with reaction without it.