CRISIS MANAGEMENT

TYPES, STAGES, CONSEQUENCES & STRATEGIES

by Atindya K Ghosh

Table of Content• Introduction

• What is Crisis?

• What is Crisis Management?

• Crisis Management Objectives

• Types of Crisis Management

• Stages of Crisis Management

• The Crisis Life Cycle

• Consequences of Crisis Management

• The Transaction’s risk Management Process

• Strategies for Crisis Management

• Conclusion

by Atindya K Ghosh

IntroductionCrisis happens more than we imagine. They are not always easyto see unless they affect our own lives.

What is Crisis?

A crisis is anything that has the potential to significantly impactan organization.

What is Crisis Management?

The overall coordination of an organization's response to a crisis,in an effective, timely manner, with the goal of avoiding orminimizing damage to the organization's profitability, reputation,or ability to operate.

Crisis management involves identifying a crisis, planning aresponse to the crisis and confronting and resolving the crisis.

by Atindya K Ghosh

Introduction

Crisis Management Objectives:

Crisis management has four objectives:

• Reducing tension during the incident.

• Demonstrating Corporate Commitment and Expertise.

• Controlling the flow and Accuracy of Information.

• Managing Resources Effectively.

by Atindya K Ghosh

Types of Crisis ManagementDuring the crisis management process, it is important to identify types of crisis in that different crisis

necessitate the use of different crisis management strategies. Potential crisis are enormous, but crisis

can be clustered.

1. Natural disaster i.e. natural crisis, typically natural disasters.

2. Technological Crisis i.e. technological crisis are caused by human application of science

and technology.

3. Confrontation i.e. confrontation crisis occur when discontented individuals and/or groups

fight businesses, government, and various interest groups to win acceptance of their

demands and expectations.

4. Malevolence i.e. an organization faces a crisis of malevolence when opponents or

miscreant individuals use criminal means or other extreme tactics for the purpose of

expressing hostility or anger toward, or seeking gain from, a company, country, or

economic system, perhaps with the aim of destabilizing or destroying it.

5. Organizational Misdeeds i.e. crisis occurs when management takes actions it knows will

harm or place stakeholders at risk for harm without adequate precautions.

6. Workplace Violence i.e. crises occur when an employee or former employee commits

violence against other employees on organizational grounds.

7. Rumors i.e. false information about an organization or its products creates crisis hurting

the organization’s reputation.

by Atindya K Ghosh

Stages of Crisis Management

The Crisis Lifecycle

• Stage One – The Storm Breaks.

• Stage Two – The Storm Rages.

• Stage Three – The Storm Passes.

by Atindya K Ghosh

Consequences of Crisis

Management1. The Breaking Crisis:

• Control seems to be slipping out of the company.

• Lack of solid detail about the crisis. Hard-to-provide information

demanded by the media analysts and others.

• Temptation to Resort to a short-term focus, to panic and to

speculate.

2. Spread and Intensification of Crisis:

• Speculation and rumors develop in the absence of hard facts.

• Third parties – regulators, scientists and other experts – add

weight to the climate of opinion.

• Corporate Management comes under intense scrutiny from

internal and external groups.

by Atindya K Ghosh

Consequences of Crisis

Management

3. Rebuilding Needs:

• To manage reputation. There are opportunities in a crisis to build

positive perceptions of the company or product that last beyond

the crisis period.

• Company Communication / culture. The company embarks on a

long-term programme to tackle management issues and

communication problems that exacerbated the crisis.

by Atindya K Ghosh

Consequences of Crisis

ManagementProblem and Challenges in Crisis Decision – Making:

• Surprise and hesitation. The shock of a crisis can create a delay in

response that allows your critics and the media to fill the gap with

negative comment and speculation.

• Pressure and stress must be channeled by the discipline of a crisis

strategy.

• Mistaking Information Distribution for communication.

• Treating key audiences as “opponents”.

• Good crisis management is essential, but never a substitute for daily risk

management processes.

• Risk Management processes should apply to all customers, although

depth and detail may depend on the transaction and customer.

Transactions involving credit or other types of financial risk should

incorporate a risk management process.

by Atindya K Ghosh

Consequences of Crisis

Management

The transaction's risk management process:

A transaction's risk management process should focus on five areas:

• Knowledge of your Client Company and product.

• Knowledge of your customer/underwriting.

• Structure and documentation.

• External risk mitigation/portfolio management.

• Crisis management.

by Atindya K Ghosh

Strategies for Crisis Management

1. Know your product

• It’s important to know your company’s risk philosophy.

• What is the risk appetite for this product, geography and

customer?

• Does the company’s success depend on this single

transaction?

• Companies and financial institutions usually know their

products very well because they’ve developed them.

However, selling a product in a new or changing market

may create new product dynamics or risks, and these must

always be addressed.

by Atindya K Ghosh

Strategies for Crisis Management2. Know your customer/ underwriting

• Every company should have a KYC [Know Your

Customer] and / or underwriting process for assuming

financial risk.

• Financial risk is not just providing financing to a customer;

the potential for fines, duties or legal action or dependency

on one customer for a substantial portion of sales are

additional examples.

• Operational and reputational risks can also have financial

impacts. Clearly, greater financial risk requires better risk

management and higher compensation. The underwriting

process should focus on a customer's capacity and

willingness to meet financial obligations.

by Atindya K Ghosh

Strategies for Crisis Management3. Structure and documentation

• There is no single formula for determining an appropriate

deal structure. The goal is to achieve a reasonable balance

between positive and negative factors.

• Elements of a good company structure include:

i. Key Risk Identification and Mitigates.

ii. Proper Identification of the Legal Entities Involves.

iii. Appropriate ties between Cash Flows and Purpose.

iv. Early Warning Signals.

v. Level of Monitoring appropriate to the level of Risk.

vi. Remedies to act when Mutual Expectations are not met.

vii. Proper Risk / Reward balance and clear Communication of

Expectations between all Parties.

by Atindya K Ghosh

Strategies for Crisis Management4. External risk mitigation/portfolio management

• External risk mitigation is an important risk managementtool which can also support additional business generationthrough freeing capacity by distribution of risk.

• Risk mitigation techniques

i. It includes funded and unfunded risk participations

[where one party sells a portion of a transaction’s risk to

one or more third parties].

ii. Insurance [a third party insures the transaction for certain

events].

iii. Credit Default Swaps [one party purchases credit

protection from another party, similar to insurance in

many ways].

iv. Collateral.

by Atindya K Ghosh

Strategies for Crisis Management

5. Crisis ManagementDespite a solid risk management process, there will be

problems because we cannot predict all crisis events and protect againstthem. Be prepared to deal with a crisis event and take actionimmediately – identifying and assessing issues and options andobtaining expert advice as needed.

6. Crisis Communications

Good communication is the heart of any crisis managementplan. Communication should reduce tension, demonstrate a corporatecommitment to correct the problem and take control of the informationflow. Crisis communications involves communicating with a variety ofconstitutes: the media, employees, neighbors, investors, regulators andlawmakers.

by Atindya K Ghosh

Conclusion

The broad lesson emerges from this review of international

practice with regard to crisis management. One is that there

are a number of tools, techniques and procedures that can

be of invaluable assistance to managers in preparing for and

dealing with a crisis. Developing crisis management plans,

envisaging and preparing for alternative scenarios, and

using exercises to simulate crisis can all be helpful in

preparing for a crisis. Two all of these supports have

limitations, and if used incorrectly can make the crisis

worse rather than better. There can be no replacement for

good judgment and leadership in these circumstances.

by Atindya K Ghosh

Thank You

by Atindya K Ghosh