CONTINGENCY PLANS Contingency planning is a systematic approach to identifying what can go wrong in a situation. Rather than hoping that everything will turn out OK or that "fate will be on your side", a planner should try to identify contingency events and be prepared with plans, strategies and approaches for avoiding, coping or even exploiting them Contingencies are relevant events anticipated by a planner, including low-probability events that would have major impacts. Contingency planning is a "What if?" skill important in all types of planning domains, but especially in contested and competitive domains. The objective of contingency planning is not to identify and develop a plan for every possible contingency. That would be impossible and a terrible waste of time. Rather, the objective is to encourage one to think about major contingencies and possible responses. Few situations actually unfold according to the assumptions of a plan. However, people who have given thought to contingencies and possible reponses are more likely to meet major goals and targets successfully. The following questions can help develop contingency plans: 1. 2. 3. 4. 5. 6. 7. 8. 9.
What events may occur that require a response? What disasters might happen during execution of the plan? What is the worst case scenario of events for the situation? What scenarios are possible for the situation? What event would cause the greatest disruption of current activities and plans? What happens if costs of the plan are excessive? what happens if delays occur? What if key people leave the organization? What are the expected moves of antagonists and competitors? Who or what might impede implementation of the plan?
CRISIS MANAGEMENT- PLANNING &ACTION Contingency planning Organisations prepare contingency plans in recognition of the fact that things do go wrong with 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 Repair to the organisation
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
the
effects
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
Contingency Planning Vs. Crisis Management When running a business, problems are virtually unavoidable. It is how you deal with these problems that can be the difference between failure and success. You must have contingency plans in place so you are prepared when problems arise. You must also be able to manage a crisis once it occurs
Purpose: Contingency Planning
A contingency plan is also known as a backup plan. It is a ready-made strategy you can implement immediately upon a change in your business's condition. The plan is designed to enable your company to weather unfavorable circumstances. Contingency plans should exist for
everything from financial downturns to natural disasters. Having this plan in place will keep your business operational, if not profitable, during circumstances that could adversely affect it. Purpose: Crisis Management
Ideally, your crisis management strategy should be implementation of your contingency plan. This is not always the case. You simply cannot anticipate every disaster that can befall your company. When an unforeseen circumstance occurs that can put your business in a bad position, you must analyze and react to the situation. Your action must be swift and decisive to avoid making a bad situation worse.
How to Implement: Contingency Plans
The best contingency plans are the ones you never have to use. Management should meet and discuss both the goals and the strategies to attain them. Once management designates a primary strategy, it should create two or three alternate routes in the event the primary does not work. For example, say a commercial bank wants to expand its business by targeting out-of-state businesses. The strategy ends up costing more than it is bringing in. A contingency plan is to concentrate on local businesses and expanding outward through word-of-mouth. How to Implement: Crisis Management
A contingency plan is not always suited to a crisis. Not meeting sales goals is a problem. The building of your roof collapsing is a crisis. Losing half your business to a competitor is a crisis. The key to crisis management is keeping a level head. You must analyze the situation quickly, but thoroughly. You must act in a timely fashion, but not without thinking. A crisis may ultimately be too big to manage, but if you stay calm and act appropriately, your business may survive.
Examples of crisis management cases with solution adopted
1.Tylenol (Johnson and Johnson) In the fall of 1982, a murderer added 65 milligrams of cyanide to some capsules on store shelves, killing seven people, including three in one family. Johnson & Johnson recalled and destroyed 31 million capsules at a cost of $100 million. The affable CEO, James Burke, appeared in television ads and at news conferences informing consumers of the company's actions. Tamper-resistant packaging was rapidly introduced, and Tylenol sales swiftly bounced back to near pre-crisis levels. When another bottle of tainted Tylenol was discovered in a store, it took only a matter of minutes for the manufacturer to issue a nationwide warning that people should not use the medication in its capsule form.
2. Odwalla Foods When Odwalla's apple juice was thought to be the cause of an outbreak of E. coli infection, the company lost a third of its market value. In October 1996, an outbreak of E. coli bacteria in Washington state, California, Colorado and British Columbia was traced to unpasteurized apple juice manufactured by natural juice maker Odwalla Inc. Forty-nine cases were reported, including the death of a small child. Within 24 hours, Odwalla conferred with the FDA and Washington state health officials; established a schedule of daily press briefings; sent out press releases which announced the recall; expressed remorse, concern and apology, and took responsibility for anyone harmed by their products; detailed symptoms of E. coli poisoning; and explained what consumers should do with any affected products. Odwalla then developed through the help of consultants - effective thermal processes that would not harm the products' flavors when production resumed. All of these steps were communicated through close relations with the media and through full-page newspaper ads. 3. Mattel Mattel Inc., the toy maker, has been plagued with more than 28 product recalls and in Summer of 2007, amongst problems with exports from China, faced two product recall in two weeks. The company "did everything it could to get its message out, earning high marks from consumers and retailers. Though upset by the situation, they were appreciative of the company's response. At Mattel, just after the 7 a.m. recall announcement by federal officials, a public relations staff of 16 was set to call reporters at the 40 biggest media outlets. They told each to check their e-mail for a news release outlining the recalls, invited them to a teleconference call with executives and scheduled TV appearances or phone conversations with Mattel's chief executive. The Mattel CEO Robert Eckert did 14 TV interviews on a Tuesday in August and about 20 calls with individual reporters. By the week's end, Mattel had responded to more than 300 media inquiries in the U.S. alone. 4. Pepsi The Pepsi Corporation faced a crisis in 1993 which started with claims of syringes being found in cans of diet Pepsi. Pepsi urged stores not to remove the product from shelves while it had the cans and the situation investigated. This led to an arrest, which Pepsi made public and then followed with their first video news release, showing the production process to demonstrate that such tampering was impossible within their factories. A second video news release displayed the man arrested. A third video news release showed surveillance from a convenience store where a woman was caught replicating the tampering incident. The company simultaneously publicly worked with the FDA during the crisis. The corporation was completely open with the public throughout, and every employee of Pepsi was kept aware of the details.This made public communications effective throughout the crisis. After the crisis had been resolved, the corporation ran a series of special campaigns designed to thank the public for standing by the corporation, along with coupons for further compensation. This case served as a design for how to handle other crisis situations.[
