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

Insurance Coverage and Crisis Management

While the argument that insurance will resolve crisis-induced problems has some merit, its value is far from complete. Simbo's (1993) analysis of this argument indicates that insurance can provide a cushion for extensive cost implications but, by itself, is inadequate in terms of assuring a firm's survival and recovery. Insurance does not protect against the loss of goodwill that a business interruption can have on customers, suppliers, distributors, and employees. Additionally, insurance does not address the public relations and social responsibility problems that may stem from the crisis. For example, insurance is available and used by companies that experience oil spills, but it does not protect them from the public relations problems that occur. The Exxon Valdez oil disaster illustrates this point vividly (Hartley, 1993).

Crisis Identification

According to Simbo (1993), one of the main reasons that businesses do not have effective crisismanagement plans is because they have not identified the crisis events that could affect their organizations. Subsequently, they have not developed the critical tools for developing comprehensive crisis plans.

Warwick's (1993) research indicates that one of the important aspects to a crisis-management plan is an assessment of risks. The probabilities of a crisis vary among businesses. Many organizations identify worst-case scenarios or crisis events that could occur. For example, chemical companies prepare for chemical spills, while airlines prepare for an air disaster. The organization must anticipate events unique to its industry.

A number of classifications of crisis events exist in the literature. Crisis management researchers have classified crises by 2 x 2 matrices (Marcus E4 Goodman, 1991; Meyers & Holusha, 1986), by cluster analysis (Pearson & Mitroff, 1993), and by categories (Coombs, 1995; Irvine & Miller, 1997; Richardson, 1995). One thing seems certain-no one can agree exactly on how to classify crisis events in a universal manner. However, what is important to managers is the ability to identify the worst-case scenarios or "vulnerabilities" (Caponigro, 1998) unique to their organizations.

Nonprofits and Crisis Management

In general, nonprofit organizations have a central role in providing services that are considered important for the society. The nonprofit sector in the United States is significant and diverse. While the nonprofit literature regarding crisis management is relatively scant, some discussion regarding crisis management in healthcare organizations and the existence of negative publicity in various other types of nonprofit agencies has occurred. In the healthcare industry, medication errors, hospital shutdowns, and Health Maintenance Organization horror stories have caused interruptions of normal service delivery, jeopardized the positive image of organizations, and affected the bottom line in various ways (Healthcare PR & Marketing News, 2000). A study by Nakra (2000) discovered major weaknesses in preparedness for dealing with negative publicity of youth-oriented NPOs. Only 17.6 percent of these NPOs had a crisis management team and even fewer, 11.8 percent, had guidelines and training to handle negative publicity. The scant literature on the topic of crisis management in NPOs is an indication that many managers are either unaware of, or ignore, the risks and vulnerabilities that exist in their organizations. Because they provide such vital services to our society, every effort must be made to demonstrate the need to assess crisis preparedness on a variety of fronts.