Crisis planning in the nonprofit sector: Should we plan for something bad if it may not occur?

Southern Business Review, Spring 2002 by Spillan, John E, Crandall, William

Crisis management seeks to help organizations deal with unfortunate and catastrophic events. This timely topic is of special interest to academics and practitioners because of the volatile environment that organizations face today. Indeed, just mention "September 11" and most managers will recognize it as the ultimate crisis. Unfortunately, crisis management is a topic that many managers do not want to think about or discuss. Some decisionmakers have the mistaken idea that they do not need to worry about a crisis because they have insurance to cover any losses or work interruption. However, insurance does not always cover the entire cost of an unexpected crisis event. Moreover, insurance does not cover such intangible items as company reputation and customer goodwill.

Crisis management, the process of planning for and mitigating the impact of a crisis, is an important strategic concern that should be incorporated into the overall planning process in any organization. Consequently, crisis management planning is a prudent way to minimize or eliminate the impact of a disaster on an organization. Much of the crisis management literature has addressed the forprofit sector. However, nonprofit organizations (NPOs) must also plan for the unthinkable.

The essence of crisis management is to plan for worstcase scenarios and then seek to manage the crisis in the best manner should it occur. But, why have a plan to begin with? Even the crisis management literature acknowledges that, by their nature, crisis events have a small chance of occurring (Barton, 1993; Pearson Fd Clair, 1998; Shrivastava, Mitroff, Miller, & Miglani, 1988). Yet, a recent survey of Fortune 500 industrial companies revealed that 78 percent of these organizations had a crisis management plan in place (Penrose, 2000). What motivates decisionmakers to plan for events that are not likely to happen?

This study sought to address this question by surveying organizational decisionmakers at nonprofit organizations and asking what potential crisis events are of the biggest concern to them as well as which events have actually occurred in their organizations. This paper begins with a review of organizational crisis events. Next, the rationale for the study and its methodology are presented and, finally, the results and implications for managers of NPOs are offered.

Overview

Vulnerability

At some time in an organizations life, it may be confronted with a crisis. The ability to manage the crisis can mean the difference between survival and disaster. One assessment of crisis readiness indicates that 50 percent of all businesses hit by a crisis will not survive if they do not have an adequate recovery plan in place (Offer, 1998). An even more pessimistic study indicates that 90 percent of businesses without a disaster recovery plan will fail within two years of a disaster (Pedone, 1997). Subsequently, the operative question in crisis management and crisisreadiness planning is not whether a crisis will occur but when and what type of crisis it will be (Caponigro, 1998; Kruse, 1993).

Crisis Management

Crisis management seeks to mitigate the impact of a crisis (Barton, 1993; Hickman & Crandall, 1997). The whole area of crisis management was launched after Johnson & Johnson experienced product sabotage when its Tylenol Extra Strength pain reliever was laced with deadly cyanide (Mitroff & Anagnos, 2001; Pines, 2000). Gorski's (1998) research states that a crisis can run the gamut from a natural disaster, such as a flood or hurricane, to a form of human tragedy. A crisis can cause an operational production failure and/or it can lead to a public relations fiasco. Crisis events can also lead to legal problems that can disrupt the normal functioning of business activity. Gorski (1998) further states that a crisis can test the capability of an organizations staff and its leaders. The demands of daily operations and crisis management are so important that organizations need to have crisis-management plans and teams in place to maintain continuity (Barton, 1993; Caponigro, 1998; Hickman & Crandall, 1997).

Crisis Management Teams

The arguments supporting the formation of crisis management teams are very convincing (Barton, 1993; Caponigro, 1998; Hickman & Crandall, 1997; Pearson & Clair, 1998). The purpose of the team is to take charge of planning for a crisis before it occurs as well as to manage the problems that emerge during the crisis. Fink (1986) states that it is necessary to establish a crisis management team before a crisis plan can be developed. As such, Pearson and Clair (1998) report that those organizational managers with crisis management teams show a greater concern for, and attention to, potential crises than organizations without crisis management teams. Moreover, Fink (1986) states that those organizations that did not have a plan reported that the crisis lasted two-and-one-half times longer than those organizations that had a crisis plan in place. The understanding of the importance of crisis management teams stems from two major factors. First, the development of a culture created by top management stressing the importance of crisis management practices is necessary (Pauchant EJ Mitroff, 1992; Pearson & Clair, 1998). Caponigro (1998) states that the best way to help insulate a business from the damaging effects of a crisis is to establish a crisis-management culture in the organization. The awareness in the organization that a crisis could happen will lead to planning for that event and such preparations involve the formation, at least formally, of a crisis management team. Secondly, according to Penrose (2000), experience from actions or activities that preceded the creation of the crisis management team will teach important lessons.