a2 objectives and strategy unit 6 contingency planning
TRANSCRIPT
A2 Objectives and StrategyUnit 6
Contingency Planning
Crisis in business
Crisis – an unexpected event that threatens the well being/survival of a firm
Some are predictable and quantifiable (changes in exchange rates) and contingency planning is necessary
Others are totally unexpected (Asian Tsunami) where crisis management will be used
Task: Produce a mind map with examples of crises for a business. You may discuss it with the person next to you. (5 mins.)
Crisis in business
Environmental disasters e.g. oil spillageFraudulent activities of employees e.g. EnronHealth scares e.g. BSE, SARS, Bird FluMajor customers withdrawing their custom e.g. Rover closing for suppliersFaulty or dangerous products e.g. Cocal Cola’s Dasani WaterWorkforce strikes e.g. Fire service, London Underground workersHostile takeovers e.g. Malcolm Glazer & Manchester UnitedPressure group activities and unwanted media attentionCompetitor launching new productDemand and fashion changesSevere recession or slumpMachine failure = production problems
BBC, 2005
BBC, 2005
BBC, 2004
BBC, 2005
Contingency planning vs.
Crisis Management
Contingency Planning
Preparing for unexpected and usually unwelcome events that are reasonably predictable and quantifiable
Usually non-critical events, time to prepare and gather data and ask ‘what if’ questions
Crisis ManagementResponding to a sudden unexpected event that poses a significant threat to a firm.
Damage limitation, heavy emphasis on Public Relations and media relationships
Need flexible approach and a quick responsive crisis team
Contingency Planning (The stages)
1. Recognise the need for it
2. Distinguish between critical and non-critical future issues, deal with critical first e.g. computer system crash for a bank is critical
3. List all possible crisis scenarios using ‘what if’ and sensitivity analysis
4. Look for ways to prevent the crisis
5. Formulate crisis plans – how should each department act and what resources are necessary
6. Simulate the crises and the operation contingency plan using software or actual exercises
Sensitivity Analysis
Technique used to reduce uncertainty in decision-making
Looks at how much changing variables will impact on results of decision
E.g. what would happen if a machine fault could not be fixed in 10 days but 20 days, How will a 15% increase rather than 10% increase in raw materials cost impact on the business
The analysis uncovers at what level variables does the project become unacceptable
Costs of Contingency Planning
Can be very time consuming
Requires highly qualified staff to work on it (expensive)
May be seen as a waste of money if nothing ultimately goes wrong
Effects of crises on a functional area
Each function of a business will be effected and must be able to respond and manage a crisis situation.
Task: Describe how each of the following area will respond in a crisis? (5 mins)MarketingFinanceOperationsPersonnel/Human Resources
Think about examples such as the Dasani and the Buncefield oil depot fire examples
Answers
Marketing – Public relations needed to limit damage to reputation
Finance – Immediate cash expenditure needed on advertising campaigns, clean up campaigns or response to a hostile takeover bid
Operations – Need careful contingency plan to ensure customers needs met, particularly if JIT is used
Personnel – Direct autocratic leadership needed, quick decisions and internal communication necessary, effective, rapid and truthful external communication needed
Risk Management
All firms face risk
Management must rehearse the many things that could go wrong
The damage caused to a reputation could be permanent
Risk must therefore be carefully assessed and managed
Student ActivityIn groups you must analyse the potential crisis your chosen business may face and then produce contingency plans and crisis management strategies for each crisis.
Group A - Bill’s ButchersGroup B - Tyre manufacturer supplying a car manufacturerGroup C – A clothing retailer such as FCUK Group D – BP (British Petroleum) Group E – Nestle
Each group must come up with potential crisis the other businesses may face. Each group must then describe any contingency plans or how they would crisis manage the crisis proposed.
Student Activity
Complete question 2 on exam paper January 2004