Crisis management

Revision as of 21:24, 4 March 2019

Developed by Tom Ruetgers

Abstract

Crisis Management in general terms defines how an organization or individual responses to an unwanted (suddenly) occurred event. The terminology is used in several different contexts. The most popular ones are: politics, nature, finances and organization sector. This wiki article focuses on crisis management within organizations in a project management environment. It will introduce how project managers identify crisis and states how to deal with crises, based on the proactive crisis resolution approach. No matter how well a project is planned and prepared, it is impossible to eliminate all unknown variables, due to the rapidly changing world and conditions. Therefore, risk management should not only focus on the prevention of a crisis, but also on how to deal with the situation, if a crisis occurs. Which sounds theoretical spoken quite simple is in the practical world often more difficult. To perform well and survive a crisis, the project management has to cooperate with the executing management and activate a crisis management team. Furthermore, a separate crisis communication team has to be formed to take all communication related actions. Moreover, the article will introduce which aspects are mandatory for a functional crisis management plan and how to execute the crisis management plan by applying to a practical case study. Lastly, a conclusion will be drawn, which highlights the limits (threats) and benefits (opportunities) in crisis management.

Introduction

A crisis can emerge in two different ways: On the one hand by a suddenly occurred fatal event, collapse of a construction for instance. On the other hand, a crisis can also occur slowly. Due to badly monitoring or even suppressed expenditures, projects can get out of control and exceed objectives drastically. In such a situation it is necessary, that the project manager realizes that the current circumstances are no longer manageable to meet requirements of the project. A crisis in general is defined as a time of intense danger or when a difficult and important decision must be made. ^[1].

Figure 1: Crisis management context ^[2]

A crisis usually proceeds in three stages: Pre-Crisis Stage, Acute-Crisis Stage and Post-Crisis Stage.

Pre-Crisis Stage

The first stage is the Pre-Crisis Stage (also called "precursor stage" or "prodromal stage") ^[3], when someone on the project recognizes pre-warning signs or discovers a critical situation. Mostly, the person escalates the situation and shares the information with its supervisor. At this time, the information about the critical situation is not visible outside the project or organization. It is up to the project manager if he or she takes action to eradicate the problem or not. ^[4]

Acute-Crisis Stage

If the authorized person underestimates, overestimates or is not aware of the pre-warning signs, the critical situation develops to a crisis. As soon as the critical situation becomes known outside the organization, it gets considered as a crisis. Most likely, the project and the associated companies are attracting negative public attention, which harms the firms reputation and puts even more pressure on the project management team. Thus, the managing and project team may be weakened and infighting begins. The project management team stops its continuous process and starts to develop a crisis management strategy, which includes: defining a crisis management team, crisis communication team, developing a crisis management plan and executing it.

Post-crisis stage

Lastly, after the crisis is under control, the Post-Crisis stage begins. The responsible parties start to communicate with the customer, consumer or society and try to restore its faith. The crisis communication team is in charge for this task. Subsequently, the crisis will be analysed and evaluated to identify the root of causes. Additionally, the project will be reviewed regarding all aspects which were identified in lesson learned sessions. Depending on how strong the project was damaged, a project recovery team and manager will be determined to keep the continuous progress of the project back on track. ^{[3] [5]}

Crisis Management

For the completeness of this article, the three most common crisis management approaches apart from the proactive crisis resolution approach will be mentioned and shortly described:

Belt-and-Suspenders Approach: This approach implies that buying sufficient insurance will immunize the project against problems. It illustrates that it is statistically cheaper to buy insurance against a loss than to correct it. Moreover, it follows the 'betting on odds' mindset, since the probability of a crisis is so low, that it does not need a proactive approach.

Pint-the-Blame Approach: This approach is similar to the first one and basically implies that taking responsibility for the crisis should be avoided from the start. The plausible denial culture is prevalent in heavily bureaucratic companies. The communication strategy has to be defined by denials, excuses and alibis. Most important is to reasonable claim another party to put them in charge for the crisis.

Slash and Burn Approach: This approach cannot be strictly assigned to crisis management. Nevertheless, especially old fashioned organizations tend to use this approach in crisis. Instead of following a proactive approach and mitigate the crisis, the slash and burn approach implies to find the "guilty" individuals within the project and dismiss them. The fact of firing people can be used in the communication strategy by stating that the responsible persons were dismissed instantly. But, this method adds no economic value, burns money, punishes people and destroys confidence within the project.

Proactive Crisis Resolution Approach: This approach is project management oriented and contains of known project management methods and frameworks. Hence, this approach will be analyzed and explained in detail further in this article. ^[6]

Regarding the proactive crisis resolution approach, the first step after the crisis is identified, is to isolate it. Once the crisis is isolated, it becomes enormous easier to manage it, since any misleading and possible dangerous diversionary paths have been blocked off. One useful project management tool which could be implemented to isolate the crisis is the Muda, Mura, Muri method. ^[7]

Figure 2: Crisis management process ^[8]

However, this does not automatically implicate that the optimal solution is suddenly presented. Probably there are still several options to take, which have to be considered by the decision maker (the crisis management team). But once the crisis is identified, isolated and different option are proposed, it is less complicated to make decisions, which is key in crisis. A crisis will not get solved by taking actions blindly, but the real danger in a crisis is to fall into "analysis paralysis". If the decision maker is obsessively over-analyzing he or she tends to end up totally incapable of managing the crisis. Therefore, the overall mindset in crisis management should be goal-oriented, pragmatic and time efficient. ^[9]

To manage the project out of the crisis the following steps have to be taken:

1.) Build a Crisis Management Team (CMT)

2.) Create a Crisis Management Plan (CMP)

3.) Develop a Crisis Communication Management (CCM) strategy

4.) Execute the Crisis Management Plan

5.) Recover the project and bring it back on track

Crisis Management Team

After the Acute-Crisis Stage is reached, the Executive Management Team (EMT) will activate or build a Crisis Management Team (CMT), which has to execute the Crisis Managemenet Plan. The CMT’s role is to respond quickly and efficiently in providing their expertise and support. ^[3]

In certain organizations crisis management teams do exist before a crisis has arisen, especially in hazardous industries such as the chemical, oil, pharmaceutical and airline industries. In this case, the CMT just needs to get activated. If a crisis management team does not exist, it needs to be created as fast as possible. The team should be cross functional designed, to ensure that all aspects of the crisis are covered. Therefore, the group of a CMT should consists of four pillars:

• Project experts: people who are very familiar with the project, who can help to identify the root of causes quickly.
• Crisis experts: managers who have been in a crisis before and can help to lead the CMT through the decision making process based on experience.
• Communication experts: Someone in the CMT should be responsible for all internal and external communication channels and lead the crisis communication team.
• Stakeholder experts: Persons who ensure, that the project crisis does not conflict with stakeholders interests or the business continuity plan. ^[10]

The CMT may be a mix of internal and external experts to widen the scope. The CMT has to analyze the essential and to make decisions fast. Hence, a clear hierarchically structure within the CMT is needed. Thus, a crisis management officer has to be determined (similar role to project management officer (PMO) in a project). He is responsible for the team and its decisions. Furthermore, the PMO / CMO has to lead, control and monitor the crisis / the project. ^[11]

Crisis Management Plan

It is highly recommended to create a management plan before a crisis has erupted. This implies to design a crisis management plan before the project has started. During the risk assessment process it should not only be planned how a crisis can be prevented, but also how a crisis will be managed. The main advantage at that point of time is that no decisions are being forced or rushed by time pressure. In fact, a crisis management plan has to strive to make as many routine decisions as possible. ^[12] Since project management teams are familiar with project management frameworks it makes sense to use project management methods, to design the crisis management plan. The two most popular frameworks to build a project management plan are on the one hand the Project Management Plan (PMP) according to the Project Management Institute (PMI) standard and on the other hand the Project Initiation documentation (PID) based on the prince2 standard.^{[11] [13]}

"Eliminate guesswork and structure the crisis management plan in an easy way. You simply want to know where the flashlights are before you need them" ^[9] Thus, organizations which operate in more hazardous businesses (chemical, oil, pharmaceutical and airline industries) create crisis management plans before they need them. However, several crisis arise without any concrete preparations and the crisis management plan needs to be developed. It is needless to say, that each crisis needs its own individualized crisis management plan. An crisis management plan for an oil platform breakdown needs other requirements than a financial crisis. Nevertheless, the structure of a crisis management plan, indifferent to the causes, has to follow four steps:

Figure 3: Crisis management steps ^[14]

1.) Take charge quickly

After the Acute-Crisis Stage has reached, there is no time to waste and the Crisis Management Team has to be activated / built as soon as possible. Next, a crisis management command center has to be established. If the crisis occurs in long distance from the headquarter, the CMT should visit the spot of the crisis, set up a command center and open lines for communications. If it has not been done yet, the crisis management officer has to be determined. Thereby, externals and internals of the organizations get a face to the crisis, which underlines that someone takes charge of the crisis. ^[9]

2.) Determine the facts

The second step is to determine the facts, which includes reconstructing the information to obtain the facts and recognizing the problems which will be encountered.

"The problem in this stage is that usually you don’t know what you don’t know. There may be too little information, or there may be far too much, with no way to sift out what is important." ^{[15] [3]}

However, the "real" facts have to be investigated and determined, which implies to differentiate between actual happened events and information that is mixed up with emotions. Therefore, the CMT should talk directly to the employees which were involved in the situation. If a number of employees are providing information, the stories might differ from one to the other, influenced by emotions and interpretations. Even if the information is not helpful for solving the crisis, it is very important to know all details. Firstly, to ensure that the responsible persons know the full story and to not get surprised during the next steps and secondly, to be ahead of the public press at any point of time.

3.) Communicate the crisis

The most sensible topic during the crisis is communication - intern as well as extern. In an age where information and news get spread all over the world through media channels within minutes, there is no chance to hide a crisis or conceal particular details. Therefore, the biggest challenge is, when the crisis reaches public: Controlling the message. The CMT must be able to respond to all accusations and needs a rock solid communication strategy. The next step is to handle a hostile press. It is not unusual in project crisis that innocent people get hurt or lose their lives or the environment is significant damaged. As a consequence, it is just a matter of time until the press will blame the organizations or project team, whoever might seem responsible for the incident. A detailed crisis communication approach will be introduced in Crisis Communication Management. ^[9]

4.) Fix the problem

The last step of the crisis management plan is to actually fix the problem. Therefore, classic project management methods can be used. Such as the PMI Kanban approach (I.initiating, II. planning, III. executing, IV. monitoring and controlling, V. closing) or Scrum framework for instance. ^{[16] [11]} What the crisis management plan provides precisely is strongly dependend on the type of crisis. An oil platform crash needs different provision than a cyber attack. The initial step should be to recoup losses. It will show whom was harmed (employees, investors, stakeholders or customers), that the organization does care about them. Thereupon, the crisis management plan should implement any changes which are needed, no matter which resources are necessary to do so. ^[3]

Crisis Communication Management

As already mentioned, the CMT has to build a separate crisis communication management team (CCM), which takes care of the entire information flow among the crisis. The two main task are controlling the message in the first place and handling a hostile press afterwards. In crisis, even if it is time intensive, the group of interests, which has been harmed (employees, shareholders, investors or customers) should be informed in advance, before the bad news reach the public. Even if the news are formidable, informing the group of interest preferentially appeals confidence-inspiring. There are several strategies to communicate the crisis with the press and all externals. This article will introduce the 3R approach by Stephen Carver: ^[17]

I. Regret - Firstly, before going into the facts, the crisis communication officer (CCO) has to show empathy, because the public forgives humans rather than corporations.

II. Reason - Secondly, it has to be communicated in detail why the crisis happened. In communicating a crisis the CCO has only one shot to appear credible. There is no space for lies or secrets, if other details reach the press afterwards it will create a second crisis.

III. Remedy - Thirdly, it has to be explained precisely how the crisis will be solved and what measures will betaken to prevent this from happening again in the future.

Executing Crisis Management - A practical case study

To illustrate the Proactive Crisis Resolution Approach more descriptive a simplified crisis management example will be stated. The case study is inspired by a real life example (the collapse of the Norwegian gas platform "Sleipner A" in 1991) ^[18], but supplemented by fictional assumptions to demonstrate the overall theoretical framework. ^{[3] [19]}. The following situation and circumstances are given: A construction company has the order to build an oil platform on the sea for a known oil drilling concern. The construction company is in charge for the whole project set up. During the construction a fatal collapse happens, due to a design-calculation mistake. While the collapse, several employees were working on the site and the drill was already bored in the ground. One save worker observed the disaster from a boat and calls the emergency hotline first and informs his project management leader secondly. How to proceed from here on?

• Step 1: Build a Crisis Management Team (CMT). The project management has to inform immediately the executive management and subsequently the CMT will be activated. (Assumed that the construction company has prepared this scenario within risk management before the project has started). Furthermore, a Crisis Management Officer (CMO) will be determined.

• Step 2: Create a Crisis Management Plan (CMP). The CMT will take charge quickly. The crisis will be aligned to the crisis team. Furthermore, if the headquarter of the company is too far away from the crisis location, the CMT will set up a crisis command center to the nearest coast location. As a next step, the CMT will talk to all involved employees to determine the facts. As soon as the facts are clear, the communication strategy will be developed. The investigations have shown, that during the first stress test the platform collapses and a big part of it sunk. Lastly, it will be planned how the problem will be fixed, depending on how big the damage on the construction is.

• Step 3: The Crisis will be communicated: Before setting up an official statement, the customer and shareholder of the company will be informed in advance to show integrity. Secondly, the crisis will be communicated to the public followed by the Regret-Reason-Remedy approach. All relevant communication channels will be used. For example, an official statement will be published on the companies' homepage. Next, at least one reliable news channel will be contacted. The construction company will claim a serious and fact based reporting for giving them the story first. Thus, the message get controlled and a hostile press can get handled.

• Step 4: The CMP will be executed in seven steps, which is inspired by the Kanban framework, but executed more detailed.

I. The best (only) option will be chosen, in this example it is to reconstruct the damaged parts. Besides, the company will make sure to recoup losses and get in contact will all harmed parties.

II. To forecast the reconstruction process a best and a worst case scenario will be done. Hence, a range of costs can be given. The analysis has shown, that the recover cost are between 500 and 1000 million US$.

III. The exercises will be scheduled (for example by applying the Gantt Chart). It will take 18 months To rebuild the damaged part.

IV. The reconstruction process will be strictly monitored and controlled with milestones. Weekly meetings will monitor the progress of the construction process.

V. The reconstruction process will be evaluated. The new construction is safer and the over-cost stayed within the given range, since the repairing costs are 700 million US$.

VI. A written report will be prepared, which states all events: before, during and after the crisis.

VII. It has to be ensured changes were made and that an event like that could never occur again. The company enhanced the planning process: the mathematical model always gets double checked from another party in the future.

• Step 5: Recover: Once the crisis is overcome, the CMT is no longer needed and either the project management team takes care of the project again or a recovery project management process will be initiated. The executive management decided that the crisis was handled well and that the project will be continued. New KPIs will be set for the overall projects, since the 700 million US$ cost and the delay of 18 month were not planned.

Recovery and Prevention

The last step of crisis management regarding the proactive project management approach is to bring the project back on track. The Post-Crisis Stage is reached and the project has probably taken several hits. First of all, the risk assessment should be supplemented by the findings which were made during the crisis and captured in the final crisis management report. Additionally, the project has to be evaluated once again and decided in cooperation with the executive management, if the project will be continued or cancelled. This depends entirely on the constraints of the project, the consequences of the crisis and how well the crisis was handled. If the project will be continued, the objectives have to be redefined, since the project probably extended all cost and time limits. From this point of time on, the project can be regarded as a troubled project and the Recovery Project Management can begin.^[20]

Conclusion

Every project in all organizations around the globe tries to avoid to reach the stage, where crisis management will be needed. However, if a crisis occurs, it is highly important to not panic and follow the generic step by step instruction to rescue the project and to bring it back on track. One limit of crisis management is, that it's concentrating strongly on the crisis only. But while taking care of the crisis itself, the CMT has always to keep an eye open for what is going on in the organization. Mostly, a crisis will not only yield external opponents, but also internal hostile pressure. Therefore the CMT has to look out and make sure, that they are always backed up by the executive management, so that no one else takes profit from the crisis. On the other hand, Steven Fink interprets a crisis also as an opportunity. Even if the project is in trouble, it gets a lot of attention and this could be also used as an advantage to re-scale the project or to even improve it.

"Someone will take advantage out of the crisis - why shouldn't it be you?" ^[9]

Annotated Bibliography

• ^{[19] [17]}: Is written / spoken by Stephen Carver, a Senior lecturer Professor in Project & Programme Management at Cranfield University. He worked on projects for the oil business before moving on to work at Virgin. Former he was working directly for a global CEO as head of Project & Programme Management Strategy.
• ^[9]: Steven Fink is one of the US leading experts in crisis management and crisis communication. Moreover, he is the president of Lexicon communications (www.crisismanagement.com) and wrote the first book on crisis management (first edition: 1986). His work and findings are fundamental and constitute the basis for crisis management.
• ^[3]: Edward S. Devlin's work is based on the crisis management approach by Steven Fink and enhanced by several aspects. Edward S. Devlin founded the first company in the U.S. which was specialized in Disaster Recovery Planning consulting services. Additionally, he wrote one of the most famous crisis management related books. Hence, he is often referred as the "Father of Disaster Recovery Planning".
• ^[4]: Is written by Mark Price Perry, who worked 19 years as a business Driven project management consultant and contributed to over 1000 articles on the digital platform projectmanagement.com, which is powered by the Project Management Institute.

References

1. ↑ "Oxford Dictionary"; 2018.
2. ↑ Personal creation
3. ↑ ^{3.0 3.1 3.2 3.3 3.4 3.5 3.6} Edward S. Devlin "Crisis Management Planning and Execution" Auerbach Publications ;2007.
4. ↑ ^{4.0 4.1} Mark Price Perry "PMO Tips: Ten Project Rescue Tips for PMO Managers", https://www.projectmanagement.com/blog-post/718/PMO-Tips--Ten-Project-Rescue-Tips-for-PMO-Managers, 2008.
5. ↑ Kerzner, Harold R. "Project Recovery" Case Studies and Techniques for Overcoming Project Failure, John Wiley & Sons; 2014.
6. ↑ Boris Hornjak "The Project Surgeon - A Troubleshooter's Guide to Business Crisis Management", Project Management Institute; 2018.
7. ↑ Bożena Zwolińska "Use of the method VSM to identify MUDA", Research paper of the Department of Mechanical Engineering and Robotics, AGH University, Krakau; 2016.
8. ↑ Personal creation
9. ↑ ^{9.0 9.1 9.2 9.3 9.4 9.5} Steven Fink, "Crisis Management: Planning for the Inevitable", American Management Assocation; 2002.
10. ↑ Steven Fink "Crisis Management: Planning for the Inevitable", American Management Assocation; 2002.
11. ↑ ^{11.0 11.1 11.2} PMI "A Guide to the Project Management Body of Knowledge", Project Management Institute, sixth edition; 2017.
12. ↑ S. Roeser, R. Hillebrand, M. Peterson "Handbook of Risk Theory. Epistemology, Decision Theory, Ethics, and Social Implications of Risk" Springer; 2012.
13. ↑ The Stationery Office "Managing Successful Project with Prince2", Axelos Global Best Practice, 2017.
14. ↑ Personal creation
15. ↑ Norman Augustine "Managing the Crisis You Tried to Prevent", Risk Management Magazine; 1996.
16. ↑ Alaskar, A. H. "Managing troubled projects" paper presented at PMI® Global Congress, North America, New Orleans, PA: Project Management Institute; 2013.
17. ↑ ^{17.0 17.1} S. Carver, "lecture: crisis management in project management 3R", https://www.youtube.com/watch?v=NskMQLDdv0o, Cranfield University; 2013.
18. ↑ Barry, J. "The loss of the Sleipner A Platform", Journal of Undergraduate Engineering Resarch, Memorial University of Newfoundland, Canada; 2013.
19. ↑ ^{19.0 19.1} Carver S. "Making projects fly", FT Handbook of Management, Pearson; 2004.
20. ↑ Moura, H. "How to deal with troubled projects" Paper presented at PMI® Global Congress, Marsailles, France. PA: Project Management Institute; 2012.