Organisational strategy is underpinned by two essential concepts: crisis management and risk management.
While these two terms are often used interchangeably, the differences between these two approaches can be discerned by their frameworks and methods. Understanding the divergence between crisis and risk management can help leaders protect their businesses from the unforeseen.
Importance of Distinguishing Between Crisis Management and Risk Management
The difference between crisis management and risk management isn’t an academic one.
Getting the latter wrong can result in the former. Suppose you don’t understand that something is a risk to your organisation. In that case, you are unlikely to be able to manage any crisis it may create.
A safer strategy is to develop robust strategies that can help manage risk threat events before they materialise or limit any damage they cause, rather than simply mopping up after the event. If either is incorrect, an organisation’s reputation, financial health, and even capacity to continue trading could be on the line.
Understanding Crisis Management
Definition of Crisis Management
Crisis management is dealing with an event that creates an acute organisational threat.
Crises are a specific subset of disruptions that can occur in any organisation. Often, they are described as ‘black swan’ events because they are unexpected and occur out of the blue. The critical aspect of a crisis is that there is little or no time to formulate a response and a need to act immediately or as close as possible to that point.
Core Objectives of Crisis Management
The main tasks of crisis management include securing the safety of people and stakeholders, protecting assets, maintaining operations, and communicating with the public, thus reducing damage and facilitating recovery.
Understanding Risk Management
Definition of Risk Management
Risk management includes identifying, analysing and attempting to manage risks that could negatively or positively impact the organisation.
While risk management can be viewed as a precursor to the more reactive task of crisis management (which typically kicks in after the proverbial horse has already bolted), risk management anticipates problems and attempts to prevent them before they happen, in contrast to crisis management that deals with immediate threats.
Core Objectives of Risk Management
Its objectives are to provide appropriate organisation protection, ensure regulatory compliance, define the enterprise strategy and enhance its agility and longevity. This includes defining a framework for being ‘risk-sensitive’ through a systematic and disciplined approach to handling uncertainty, an inherent and pervasive aspect of every aspect of life, personal or professional.
The Key Differences Between Crisis and Risk Management
Proactive vs. Reactive Approaches
Risk management is inherently forward-looking, as it is about anticipating risks and making efforts to manage them.
Crisis management is backwards-looking, as a crisis is an event that has already happened and requires urgent action to prevent it from getting worse.
Scope and Timing: Pre-emptive Actions vs. Immediate Responses
They cover different terrain, and they operate in very different time frames.
Risk management governs processes designed to avoid problems before they get bigger.
A crisis-management system kicks in once the crisis escalates and requires that ‘solutions’ kick in rapidly to contain the problem.
Resource Allocation: Preparedness vs. Emergency Response
Preparedness determines how resources are deployed in risk management, while responsive resources characterise crisis management.
Risk management assigns resources beforehand by creating systems, training and processes. In contrast, crisis management deploys resources to respond to and resolve the crisis after it has started. This can involve marshalling funds for relief and rescue and mobilising crisis teams and news media immediately.
The Overlap: How Crisis and Risk Management Intersect
Although distinct, crisis management and risk management share some common objectives: mitigating damage to the organisation, minimising its effects on people and their environments, and getting the organisation up and running again as quickly as possible. These goals require planning, clear messaging strategies, and agility when working under changing circumstances.
An integrative crisis and risk management approach can increase organisational resilience. Since the debate on whether management best practices include crisis readiness frameworks or risk management frameworks is ongoing, organisations can move beyond the argument by combining crisis management and risk management by integrating both strategic frameworks, which guide identifying potential risks and addressing them from prevention through response and recovery.
Detailed Comparison of Crisis Management and Risk Management Processes
Crisis Management Processes: Step-by-Step Breakdown
- Crisis identification: recognise the crisis as it unfolds.
- Assessment: evaluate the scope and impact of the crisis.
- Response planning: develop and implement an immediate action plan.
- Communication: inform stakeholders and the public transparently.
- Mitigation: take steps to contain and resolve the crisis.
- Recovery: focus on restoring normal operations and learning from the event.
Risk Management Processes: Step-by-Step Breakdown
- Risk identification: detect potential risks through analysis and forecasting.
- Risk assessment: evaluate the likelihood and impact of identified risks.
- Risk prioritisation: rank risks based on their severity and probability.
- Risk control and mitigation: implement measures to manage risks.
- Risk Monitoring and review: continuously monitor risks and the effectiveness of management strategies.
- Communication and reporting: keep stakeholders informed about risks and management efforts.
Tools and Techniques Used in Crisis Management
In contrast, crisis management is enabled by crisis communication suites, incident management systems, and big-data analytics that are regularly scanned for problems. Such techniques include scenario planning, simulation exercises, and creating a crisis management team trained to deal with a range of crisis types.
Tools and Techniques Used in Risk Management
To identify, assess, and monitor risks systematically, tools include a risk assessment matrix, a risk register, and even risk management software.
Good habits include running frequent risk audits, risk control procedures, and offering training in risk awareness.
Role of Leadership in Crisis and Risk Management
A strong leader in crisis management must be decisive, stay calm and composed, and communicate well with everyone. They must also try to be respected and are the best at leading others when the going gets tough.
To deal with risk earlier and more effectively, leaders should be able to look ahead, see possibilities, analyse data and think proactively. They should create a culture of vigilance and a performance-improvement mentality, where risk monitoring is part of the corporate strategy.
Developing a Robust Crisis Management Plan
A comprehensive crisis management plan includes:
- Crisis identification and assessment protocols: methods to identify and assess the types and scope of potential crises
- Response strategies: predefined actions tailored to different types of crises
- Communications plans: policies and procedures for internal and external communications to help manage public perception and inform key stakeholders
- Logistics: identifying necessary resources and logistics, including emergency funds and response teams
- Training and drills: periodic training sessions and simulation exercises to ensure preparedness and timely crisis response
Steps to Implement and Test Your Crisis Management Plan
- Get an integrated team in place and, with input from all departments, create an extensive crisis-management framework.
- Assign roles and responsibilities: clearly define roles for crisis management team members.
- Train regularly: set up regular training and drills to keep the team sharp and ready to perform.
- Test the plan: conduct drills or other exercises periodically to test the plan’s efficacy.
- Assessment and revision: periodically review and update the plan according to lessons learnt from drills and real-life crises.
Developing a Comprehensive Risk Management Framework
An effective risk management framework should include:
- Risk identification procedures: systematic processes to identify potential risks across the organisation.
- Risk assessment tools: mechanisms to evaluate the likelihood and impact of identified risks.
- Risk strategies: action plans to control and mitigate risks
- Oversight and review processes for monitoring risks and assessment of mitigation strategies.
- It is essential to recognise that risk extends beyond physical spaces, examine our emotions, and embed risk understanding in our everyday lives.
- Risk communications channels: ensuring everyone is fully informed about the risks and how to mitigate them.
Steps to Implement and Evaluate Your Risk Management Framework
- Establish clear objectives: define the goals and scope of the risk management framework.
- Engage stakeholders: involve stakeholders in the development and implementation process.
- Implement risk management measures: put in place the identified risk control measures.
- Monitor and review: regularly monitor the operation of the risk management system and modify it where necessary.
- Report and communicate: Regularly report on risk status and update stakeholders.
Conclusion
Differentiating between crisis and risk management and ensuring multiple communication channels for both approaches can support organisational resilience.
Crisis and risk management require dedicated human and monetary resources, strategic risk planning and proactive leadership.
Through differentiation and effective integration of these practices, organisations can better thrive in periods of stability, prepare for a potential crisis or disaster, and mitigate the impact of difficult circumstances.
Final Thoughts on Integrating Both Practices for Organisational Resilience
As the pace of change increases and the world becomes more volatile, integrating crisis and risk is not a choice – it’s a given.
Companies that create a culture centred around readiness, anticipatory risk management and effective crisis management will be best placed to protect assets and reputation while increasing readiness for whatever tomorrow may bring.
