IB Docs (2) Team
Difference between crisis management & contingency planning
Fire drills are part of contingency planning
A crisis can be defined as any unpredicted event that has widespread negative consequences. In a business management context, this means a crisis causes major disruptions to the normal operations of an organization. An example was the "Ever Given", a 400-metre long container ship that was carrying 18,300 containers before it got wedged sideways across the waterway in the Suez Canal.
Generic examples of crises include power failures, workers going on strike, an economic recession, liquidity problems (a financial crisis), technological failures (e.g., security breaches, machinery breakdowns, and problems with Internet technologies), severe weather conditions (e.g., major flooding, hurricanes, droughts, snowstorms, and forest fires), and natural disasters (e.g., earthquakes, volcanic eruptions, landslides, and tsunamis).
The risks of crises mean that businesses need effective crisis management and contingency planning.
- Crisis management is about the response a business takes in the event of an actual threat, disaster or crisis. It is about the way in which a business reacts during a real crisis. This is particularly important if the crisis is major enough to threaten the survival of the business.
- Contingency planning is about devising and developing pre-arranged plans to deal with a crisis, in case it actually occurs. It involves the use of risk assessments in order to be better prepared for a crisis, such as a fire, should it ever happen.
Case Study - Real world examples of crises
Political turmoil in Turkey (2016)
The outbreak of highly infectious diseases, such as SARS (2003) the norovirus (2016), and the coronavirus (COVID-19)
Toyota's widespread product recall of 5.8 million cars worldwide
KFC running out of chicken products due to major supply chain delays
The Suez Canal blockage of 2021.
Contingency planning involves pre-emptive and preventative actions, whereas crisis management is reactive and being responsive in a crisis situation. Contingency planning is about scenario planning (also known as ‘what if’ scenarios) in order to have plans to minimise the impact of a real crisis, should it ever occur. A detailed but succinct contingency plan allows people to know what to do in an emergency situation.
For example, most countries require businesses to have fire drills so employees can practice these and take immediate actions in the event of an actual fire in the workplace. Some schools have a lockdown procedure in place, in case there is a threat to the safety of students and staff on campus from an intruder. Theatre operators and concert organisers have contingency (backup) plans, just in case their lead actors or artists become ill before a performance. Governments have contingency plans too, just in case there is a threat to national security. The Japanese government, for example, has contingency plans for tsunamis and earthquake disasters.
A business has to plan for crises such as fires
Case study 1 - Apple & Beats
In June 2015, Apple had a worldwide product recall of 230,000 units of its Beats speakers due to fire risks. The $335 loud speaker system was prone to overheating of its battery. There were reports of a burn to a consumer’s finger and damage to a consumer’s desk. Apple had bought Beats Electronics for $3 billion just a year earlier in 2014.
Case Study 2 - Camiko London
Out of every crisis lies business opportunities. Camiko London is one of many businesses around the world that entered the market to produce face masks due to the global coronavirus pandemic. Camiko London was established in July 2020 in London, UK. It is a family-run business that specialises in handmade non-surgical face masks for men, women, teenagers and young children. The business uses a range of unique designs to cater for different consumer tastes. Camiko London relies on social media marketing and e-commerce for sales.
Source: adapted from Camiko London
Common mistake
Avoid writing circular definitions ...
Too often, candidate write circular answer (or circular definitions) in the exams. What this means it that they repeat the question in the answer/definition, which cannot be rewarded. For example, consider the exam question and responses below.
Define the term crisis management. [2 marks]
A poor response is one that repeats the question, such as:
"Crisis management means managing a crisis."
Whilst this is not entirely wrong(!) it doesn't show any real understanding of the term.
A better response would be something like this:
"Crisis management is the process by which an organization handles an unexpected event that is highly disruptive to to its operations or even threatens the organization or its stakeholder groups."
Try not to use or repeat the key term ("crisis management" in this case) in your definitions.
Exam Practice Question - ToyCo
ToyCo is a large multinational manufacturer to toys. In 2021, the company faced more than 28 separate product recalls, upsetting consumers and retailers alike. A public relations team was set up to call reporters, alongside press releases and teleconference calls. ToyCo’s CEO, Blake Nalivaka, also conducted television interviews and telephone calls with individual news reporters. By the summer of 2022, the product recall crises seemed to have been forgotten. The company's contingency plans seemed to have worked, at least for now.
| (a) | Define the term crisis. | [2 marks] |
| (b) | Define the term contingency planning. | [2 marks] |
| (c) | Identify two stakeholder groups from the case study. | [2 marks] |
| (d) | Describe what is meant by a product recall. | [2 marks] |
| (e) | Suggest one reason why crisis management and contingency planning are important to ToyCo. | [2 marks] |
Teacher only boxAnswers
(a) Define the term crisis. [2 marks]
A crisis is any major event that has negative implications on the operations and continuity of an organization. Crises are usually unexpected and unpredictable events, e.g., the outbreak of a highly infectious illness, a severe fire, natural disasters (such as or tsunamis), or a global financial crash.
Award [1 mark] for a limited response that shows some understanding.
Award [2 marks] for an accurate response that shows good understanding, similar to the example above.
(b) Define the term contingency planning. [2 marks]
Contingency planning is a documented plan outlining the procedures, processes and policies to help an organization manage and minimise the potential damage caused by a crisis, should one ever occur. The plan is used to anticipate possible threats to the continuity of the business in order to devise appropriate strategies for the stability of the organization.
Award [1 mark] for a limited response that shows some understanding.
Award [2 marks] for an accurate response that shows good understanding, similar to the example above.
(c) Identify two stakeholder groups from the case study. [2 marks]
Possible stakeholders include: consumers, retailers (that sell the toys produced by ToyCo), pressure groups (news media reporters), senior management team (CEO and board of directors), PR team, employees.
Mark as a 1+1
(d) Describe what is meant by a product recall. [2 marks]
A product recall happens when a product is faulty or substandard. In this case, ToyCo had to recall (take back) 28 products that were defective. Product recalls can irrevocably damage the reputation of the business, e.g., ToyCo could be associated with producing unsafe and harmful toys.
Award [1 mark] for a limited response that shows some understanding.
Award [2 marks] for an accurate description that shows good understanding, similar to the example above.
(e) Suggest one reason why crisis management and contingency planning are important to ToyCo. [2 marks]
Possible reasons could include:
Crisis management and contingency planning can better prepare ToyCo to deal with unforeseen emergencies and incidents such as the need to recall dangerous or substandard products. This would improve the multinational company’s chances of surviving any future crises.
Secondly, multinational companies such as ToyCo are more vulnerable to media exposure and pressure groups. Again, effective crisis management and contingency planning helps to minimize the damage caused by such negative publicity and to ensure ToyCo's global operations remain intact.
Accept any other relevant reason.
Award [1 mark] for a limited response that shows some understanding of the demands of the question.
Award [2 marks] for a relevant reason that shows good understanding, similar to the example above.
Return to the Unit 5.7 - Crisis management and contingency planning (HL only) homepage
Return to the Unit 5 - Operations Management homepage
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