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Crisis management

How to use a crisis situation to improve risk management?

Kai Paalberg Kai Paalberg

Life has changed drastically in recent months - preventing the spread of the coronavirus has forced us to maintain social distance, and this affects both our private and professional lives. Many companies are operating in a new reality, where they need to react quickly and make important decisions based on limited information in order to survive.

In a crisis, companies need to be able to respond quickly to change and to meet the needs of their employees, customers and partners, while managing the company's financial and operational challenges.

A risk materialized that was not present in many risk analysis

Due to the fact that many companies did not consider such a risk of such nature and extent to be realistic and did not consider possible mitigating measures, many companies are in a situation where they are engaged in putting out fires. There are certainly companies that had defined the risk of a pandemic, but likely only a few who were able to predict such a large-scale impact of the virus on the company's operations, were able to react skillfully in the event of an unexpected crisis, or had a definite action plan.

The potential impacts of such a risk - business sustainability, supply chain disruptions, changing customer behavior and expectations, lack of critical resources and business continuity gaps - can be identified and discussed during the brainstorming exercise, but this exercise is certainly not easy and it will not be possible to identify all the implications.

Five topics that are essential to analyze

Nevertheless, each company could analyze how the following objectives have been achieved in a crisis situation.

  1. Safety and well-being of employees, ensuring the exchange of information and primary crisis management

In a crisis situation, the first steps should be taken to ensure the safety and well-being of their employees, ie to enable people to work in a safe working environment (including teleworking) and to communicate through secure channels. Did your company manage the teleworking well? If not, what should be changed to make the transition smooth next time? How to keep the emplyees working from home motivated? Was all the necessary information about solutions, codes of conduct, etc. easily accessible to employees from one channel?

It should also be assessed how to manage the crisis - were you able to quickly assemble as diverse a crisis management team as possible to ensure the widest possible view of the company's activities in a difficult situation?

  1. Durability of information systems and their support for management

Information systems include applications, architecture, data, cloud, infrastructure and network - their operation, adequacy and security. In a situation where more and more activities moved from the physical environment to information systems, was the company able to continue working smoothly? Are the information systems suitable for teleworking and allow for electronic meetings and efficient file exchange? Is all this possible as the volume of electronic transactions grows? Is data and information for decision-making easily and real-time available to make quick and well-informed decisions? Is the information stored securely, even in a crisis situation?

  1. Operation of priority processes, including ensuring the stability of supply chains and production, restoring confidence

In a situation of limited possibilities, priorities and critical processes, the supply chain (for the movement of goods and services), stakeholders should be identified, and how to maintain or restore stakeholder confidence in the company's services or products should be assessed.

Was the company prepared for obstacles in the supply of products / services and could the company continue to operate? Are the risks sufficiently diversified to stabilize the supply chain? For example, did the company have adequate security stocks and alternative sources of supply, was cooperation with suppliers ensured, were there temporary solutions or alternative (unusual) production options and, if necessary, the possibility to use contract or temporary staff? Did you succeed in restoring trust in your products / services and were the channels defined through which this was done and how?

  1. Customer focus

When we find ourselves in a difficult, unprecedented situation where many things have changed for a company, it is tempting to think that the rules for building a successful company have also changed. While the world may be upside down right now, customer retention is more important than ever. This means communicating with customers, you need to be creative and think carefully about what they need in this ever-changing world.

Were we able to remember, keep in touch and identify their needs in difficult times? This virus makes us think about how we run our businesses, society and lives. Keeping your customer at the center of all your decisions, even in a crisis like this, will lay the foundation for a successful business even when we return to normal.

  1. Willingness to change the company's current practices

The changed world may require a change in the company's business practices, whether it is the need to move some of its activities to e-channels or to expand the range of current products or services. If your company needs highly integrated systems to operate, you could consider using modular systems, where the units or sources of supply associated with your business can be combined in different ways. This can provide greater resilience to unexpected situations.

I also recommend talking about your crisis response plans with business partners and companies in the supply chain in order to step up joint efforts to deal with crisis situations.

Every company can learn from the current situation and analyze what are the critical processes in the operation of the company and which activities help or would have helped to best manage the negative effects of the crisis. Therefore, the response to the situation and its impact could be recorded now, in times of crisis, so that best practices (success stories) can be identified.

Now that the restrictions and government measures have eased, we could start thinking about what will happen after the crisis - will we return to our normal routines or should we change something in our actions? What can we learn from the current situation, what we have already learned? After all, every crisis and mistake is a valuable learning opportunity that cannot be wasted. Do not allow the current crisis to prevent you from moving on to the next one.

Contact us to discuss your company and our business risk and internal audit services!