Crisis Management: Planning For The Unpredictable
The world is full of uncertainties that can disrupt both events and businesses, and pose a significant threat to customers, employees and infrastructure. Be it natural disasters, terrorist attacks, fires, pandemics, or Internet of Things era cyber attacks that can cause physical damage anyone in charge of any location where people congregate needs to be prepared.
With the 2016 European Football Championships due to take place in France just months after major terrorist attacks in Paris and Brussels, and with the Rio Olympics and US Presidential elections around the corner, there is a lot of attention on large-scale public events, and how their organizers should respond to unpredictable crises. Just recently, two Major League Baseball games were relocated from Puerto Rico to Miami over concerns about an outbreak of the Zika virus. And on May 15, 2016, a suspect package discovered at Manchester United’s Old Trafford football stadium led to the cancellation of their final match of the season.
What can businesses learn from the way the organizers of major events have responded to such unpredictable threats? The challenge for those in charge of places with lots of people present is managing crises effectively, which means understanding the risks – and being as prepared as possible for all eventualities.
Responding to a major incident of any type is an increasingly complex process that requires detailed preparation and consultation. Local authorities, subcontractors, vendors, emergency services, and employees may all need to be brought into the process to minimize the threat.
The potential financial costs of direct damage are compounded in such incidents by the possible long-term damage to your organization’s ability to function. “Property is no longer the only exposure at risk,” says Scott Bolton, Director of Crisis Management, Global Broking Centre, London, Aon Risk Solutions. “Rather, with civilian casualties now the primary target [of terrorism], organizations must also consider non-damage business interruption, liability and casualty exposures.”
The implications of the response taken are considerable. While not acting can lead to disaster, the decision to play it safe can also prove expensive – a December 2015 decision to shut down schools in Los Angeles after a bomb threat cost around $29 million. This is why developing an effective risk management plan is an essential first step to minimizing the negative impact of a crisis. After all, the worst case scenario can lead not just to loss of revenue and business reputation, but also life.
“Crises usually occur because businesses fail to properly understand and plan for the risks they’re facing,” says Bernie Steves, Managing Director, U.S Crisis Management Practice, Aon Risk Solutions. “When a crisis does occur, oftentimes brands take too long to respond… But in addition to responding quickly, it’s even more important to respond correctly. Ensure your approach is both immediate and thoughtful.”
Putting People’s Safety First
The recent incident at Manchester United is an example of the importance of having a clear crisis management plan and well-trained staff. After a suspect package was discovered, the club worked with the police to quickly identify the threat, make people safe and evacuate the stadium calmly and efficiently. Fans of both clubs behaved impeccably and the evacuation – the first of its type in the UK – was a complete success.
Manchester United’s Executive Vice Chairman, Ed Woodward, was quick to stress the importance of treating the incident as a “live situation” once the device was discovered. He made it clear that “valuable lessons will have been learned from [the day’s] events and it is important that those are shared with other stadium operators to ensure that the safety of the public remains the first duty of us all.”
The speed and efficiency of the evacuation of the stadium was testament to all the advance work the club had put in. And the response from fans was positive, with many taking to social media to praise the handling of the situation. In Manchester United’s case, the fact that cancellation was caused by a fake bomb left behind by a third-party security company during a previous crisis training exercise – although far from ideal – at least speaks to the seriousness with which the club takes potential threats to public safety and its commitment to ensuring it’s properly prepared for all eventualities.
Most importantly, however, “The safety of the fans is our number one aim at every event we host at Old Trafford. Overall, I’m proud of how our staff responded,” says Woodward. “Presented with the same situation in the future, we’d take the same action.”
Setting Roles And Responsibilities
Keeping people safe when an incident occurs depends on anticipating the kind of things that might go wrong, and being prepared to make the (often difficult) decision to order an evacuation that will in itself lead to a financial loss, rather than risk waiting in the hope that it proves to be a false alarm. Getting expert advice to identify the areas of biggest potential risk is a vital step with such complex and potentially catastrophic incidents, in which verified information can be slow to emerge, and confusion about the scale of the threat is often the biggest initial challenge.
First and foremost, however, it is the responsibility of management to consider the safety of those at the affected location. With so many parties and factors involved, it is essential to ensure clear lines of reporting, delegation and managerial oversight, as well as effective lines of communication to third parties that may need to get involved, such as emergency services.
Large events like sporting events or business conferences present a particular challenge in this respect. Beyond the sheer numbers involved, in-house staff can be spread over large areas and be expected to work in conjunction with any number of third-parties. Training can address roles and responsibilities on the day of an event, but it has to be supported by clear channels of communication and effective coordination.
Taking Precautions Against Loss Of Income
If robust training and clear emergency procedures and protocols can help ensure organizations are prepared on the day, and that all relevant safety needs are met, the potential financial implications and exposures also need to be considered. Loss of revenue, public and employer liability, and the costs of cancelling an event – or evacuating an office or factory – can present serious business continuity challenges.
Michael Drayer, CEO of Aon Risk Solutions’ entertainment divisions, specializing in event cancellation and the sports and leisure industry, says: “The time to concern yourself with the financial impact of a pandemic, weather, or terrorism threat is in the planning stages.”
“While risk mitigation strategies are essential, risk transfer, in the form of terrorism insurance, remains important in overall risk management,” Bolton agrees. “While property damage and business interruption remain important, new risks are emerging. These can include non-property damage business interruption resulting from streets being closed after an adjacent attack; threat impacts, with hoax calls made to an organization resulting in closure and subsequent business interruption; and those that impact casualty planning (death in service benefits for example), with terrorism potentially providing a cat-loss scenario.”
“Understanding options, including assessing insurance coverages, can help mitigate the financial expenses or revenue exposures,” says Drayer, “but the time to incept such a program is when the event budget is close to final, not as the event draws closer. By waiting until an event draws near, a ‘new’ exposure like Zika can drive up the rate as the market looks to take this risk into consideration,” he says. “The sooner you can enact cover the better. This is one of the reasons why major international events organizers start the process so early.”
As you conduct a risk assessment to develop your crisis management plan, working with insurance experts can be a good way to minimize risks, including financial ones. Not only can they help you to identify potential risks, and ways to reduce your exposure, they can also help provide peace of mind so that you can take the decision to implement your plan without worrying as much about the financial consequences.
After The Event: Communicating In A Crisis
A mishandling of communication can not only create additional confusion on the ground, but also create long-term reputational damage for the organizations involved. “Given the scrutiny and pressure businesses are under in an age of social media and networked communications, all organizations should have an effective and deployable crisis communications plan,” says Steves. “Information travels faster than ever, and false rumors have the potential to significantly damage brand reputation. Companies cannot afford to operate without a crisis management plan in a real-time news environment.”
This is why reputation management forms a key part of any crisis communications strategy. At the 2012 London Olympics, when a security subcontractor failed to provide the requisite number of security staff for the event and military personnel had to be drafted in to help, the planning mistake cost the company involved £88m in losses and significant reputational damage. A failure to act fast enough to mitigate the impact of a potential threat that leads to injury or loss of life, or even to help affected people understand the cause of the disruption and help reduce the inconvenience they experience, could prove even more damaging.
“A poor response to a crises usually occurs because businesses fail to properly understand and plan for the risks they’re facing,” says Steves. “A failure to respond quickly enough, with honesty, openness and clarity, is one of the biggest mistakes a company can make. It allows others to seize the agenda, especially in the media. And once you lose you control of a situation, it’s hard to recover.” Having a well-trained and experienced Public Relations team is the most effective way to ensure an effective response, and a fair reaction.
The Key Elements Of Effective Crisis Management
There are eight main areas organizations should focus on to ensure an effective response to a crisis, says Steves:
- Ensure all stakeholders are addressed including customers, partners and employees
- Formulate a well-defined plan for time-critical responses
- Establish a clear chain of communication
- Ensure a single point of contact for information
- Secure appropriate insurance coverage
- Put contingency plans in place
- Develop a media response process
- Practice, practice, practice your crisis management and communications plans through mock scenarios
Of course, the very nature of a crisis is that they are usually unpredictable. When information isn’t clear, it is important that someone has the power, responsibility, and organizational support to make the call when to set your crisis management plan into motion.
But the most important thing is to have that plan in place, along with the roles, responsibilities and training needed to ensure that if the worst happens and you need to activate it, your plan can be carried out as smoothly as possible.
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett, Chairman and CEO, Berkshire Hathaway
“Traditionally, terrorism has been defined by attacks on property, resulting in significant business interruption… However, the rise of IS has brought about an increase in the use of shootings versus bombings as well as the targeting of private citizens and public gatherings, as seen most recently in Brussels. This new environment means businesses need to reconsider their risk profiles to more effectively limit the impact of attacks on their people, operations and assets.” – Scott Bolton, Director of Crisis Management, Global Broking Centre, London, Aon Risk Solutions
“A good crisis plan defines different levels of crisis… and outlines the roles and responsibilities for key individuals within the company. The CEO’s role, for example, will not usually be to manage the crisis, but to set the strategy and where appropriate to focus on communicating the company’s position.” – Donald Steel, Associate Director of Crisis Communications at Kenyon International Emergency Services
- Important Steps In Crisis Management – New Straits Times, May 4, 2016
- A Crisis Plan Only Takes You So Far – Wall Street Journal, May 10, 2016
- The New Role Of Insurers in Resilience Planning – Cities Today, March 2, 2016
- Crisis Management Driving Japan M&A – Bloomberg, June 1, 2016
- The Changing Face Of Terrorism – Aon briefing paper