1. IB Business Management
5.7 – Crisis Management and Contingency Planning (HL Only)

2. Learning Outcomes
The difference between crisis management and contingency planning (AO2)
The following factors that affect effective crisis management: (AO2)
Transparency
Communication
Speed
Control
The following advantages and disadvantages of contingency planning for a given organization or situation:
Cost
Time
Risks
Safety

3. Key Question…..
What is the difference between crisis management and contingency planning? How are these linked?

4. How do businesses deal with crises?
Contingency Planning – Planning for the event of a crisis occurring. This is a pro-active approach.
Crisis management – The way a business responds once a crisis has occurred.
Contingency planning can help to make crisis management more effective

5. Crisis Timeline Contingency Planning Crisis Management Pre-crisis
Prior to the event
• What is going to happen? • What are we going to do about it? • What can we do ahead of time to get prepared?
Warning
Indications that there is or may be or could be an event liable to cause a significant impact on the organisation
Crisis Management
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 Repair to the organisation

6. What is a Crisis?
Noun:
A time of intense difficulty, trouble, or danger.
A time when a difficult or important decision must be made
What type of crisis situations might occur?
cri·sis/ˈkrīsis/

7. What kinds of crises can occur?
A hostile takeover bid
Fire
Environmental disasters
Terrorist Attacks
Power Failure
Pressure group or unwelcome media attention
Faulty or dangerous products
Sudden strikes by the workforce
A major customer withdraws it’s custom or becomes bankrupt
Natural disaster
Machine failure
A competitor launches a new product
Fraud
Health Scares
Severe recession or slump in demand
Change in exchange rate

8. Business Crisis
Some real examples…..

9. 1982 – Tylenol cyanide scandal
7 people died after taking Tylenol extra strength tablets.
The product’s market share dropped from 37% to 7%
After investigation it was reported that the packages had been tampered with
To what extent could the business have prepared for this? How?
What do you think the firm should have done to manage this crisis?

10. 1995 – Nick Leeson and Barings Bank
Barings was the oldest merchant bank in London.
One of it’s Singapore office employees, Nick Leeson lost $1.3 billion due to speculative investing

11. 2004 – Coca Cola and Dasani
Public outcry after the press revealed that the Dasani water that Coca Cola was charging 95p a bottle for was sourced from tap water
It was then discovered that the water contained traces of cancer causing bromates
To what extent could the business have prepared for this? How?
What do you think the firm should have done to manage this crisis?

12. 2010 – Ash Cloud
At Easter 2010, a volcanic ash cloud grounded planes over Europe and cost European airlines $1.7 billion
To what extent could the business have prepared for this? How?
What do you think the firm should have done to manage this crisis?

13. 2010 – Snow Chaos
In December 2010, bad snow cost the UK economy up to £1.2 bn per day
To what extent could the business have prepared for this? How?
What do you think the firm should have done to manage this crisis?

14. 2011 – Blackberry Internet failure
A hardware breakdown caused 2 days of internet failure for users of Blackberry service.
This was devastating to the company as it has many business customers that rely on their service
To what extent could the business have prepared for this? How?
What do you think the firm should have done to manage this crisis?

15. 2015 – Volkswagon emmissions
The company admitted in September to using illegal so-called defeat devices in up to 11 million diesel vehicles worldwide. The software was installed cheat emissions tests
The company has set aside 6.7 billion euros ($7.4 bn) to pay for the costs of the scandal. But, according to some estimates, the cost of legal claims, fixes and regulatory fines could exceed 30 billion euros.
To what extent could the business have prepared for this? How?
What do you think the firm should have done to manage this crisis?

16. Using contingency planning and crisis management effectively to minimise the impact of a crisis
Dealing with a Crisis

17. The following advantages and disadvantages of contingency planning for a given organization or situation:
Cost
Time
Risks
Safety
Contingency Planning

18. Contingency Planning Preparing for predictable and quantifiable crises
Preparing for unexpected and unwelcome events
The aim is to:
Reduce the risk of the crisis occuring
minimise the impact of a crisis
plan for how the organisation will resume normal operations after the crisis

19. 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
Identify which crises situations it is worth planning for
Determine a strategy to prevent each crisis & to deal with a crisis should one occur. This may involve spending on necessary resources
Draft plans and identify responsibilities
Communicate plans
Simulate crises and the operate of each plan

20. Task Watch the 2 video clips from Japan.
These show 2 simulations of crisis situations.

21. What might be included in the contingency plan for the following situations
Strike at an airline
Fire at a factory

22. Task
What are the advantages and disadvantages of contingency planning in terms of:
- Cost
Time
Risks
Safety

23. Contingency Planning Advantages Disadvantages Can be time consuming
Certain crises can be avoided/risk reduced
Faster reactions in crisis event minimise the damage
Improves safety
Staff are reassured (Maslow’s safety needs)
Planning process improves communication and encourages forward thinking
Can be time consuming
Resources can be wasted planning for events that never happen (opportunity cost)
Plans may become outdated
Not all crises are foreseeable

24. The following factors that affect effective crisis management: (AO2)
Transparency
Communication
Speed
Control
Crisis management

25. What do businesses need for effective crisis management?
Transparency – Being open and honest
Communication – Effective communication with stakeholders
Speed – Responding quickly
Control – Leadership take control and implement a coordinated approach

26. Task
Look at the video ‘Crisis management in action – The BP coffee spill’
What point is this video trying to make
Now watch this video:

27. Task Look at the video ‘A heartfelt apology’ from the boss
Look at the other crisis situations….. How could businesses involved deal with these situations

28. Task Read the article ‘Eurostar – Contingency planning failure’
Evaluate Eurostar’s approach to managing the crisis.
Is there evidence of:
Transparency
Communication
Speed
Control

29. Research Task
Investigate a recent corporate crisis in a country of your choice. How effective was the crisis management team in handling the crisis?
You should include detail about:
The crisis and what it involved
What contingency planning had taken place (if possible)
How the company dealt with the crisis
What effects the crisis had on the company (financial, reputation etc)
An evaluation of whether the business handled the crisis well. What evidence was there to suggest that they were transparent, communicative,
Suggestions for how the crisis could have been handled better

30. Suggested Crisis….. Gulf of Mexico oil spill Toyotas faulty breaks
Union Carbide Bhopal tragedy
Huntingdon Life Science
Pepsi syringe scandal