veryard projects - innovation for demanding change

On this page, we discuss capabilities and patterns for managing crisis.


newThe appalling events in Manhatten and elsewhere - sensemaking in crisis.

The foot and mouth crisis illustrates some important distinctions - between primary and secondary and between real, perceived and formal.

[our approach - consultancy services]

[routes into crisis: the scale of failure] [no crisis on January 1st?] [failure becoming visible] [management overloaded by events] [when to declare a crisis] [recommendations]


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crisis management: containing failure

from understanding  ...
" It's not the large things that 
send a man to the 
madhouse,  
No, it's the continuing series of small tragedies 
that send a man to the madhouse  
not the death of his love but a shoelace that snaps 
with no time left " 
[Charles Bukowski, The Shoelace] 
... to action
Plan for contingency - and a well-managed response.
Defence is important - but don't just play defensive.
Develop capability to respond to unforeseen events.
 
Crisis management is important in business, social policy, international politics, public health and various other domains. 
Individuals can suffer crisis in their physical health, psychological well-being and family relationships.
People sometimes provoke crisis as a way of forcing change.  Is that crazy or what?
fire
NATURE
NOTE
Today I disturbed an ants' nest in my garden. In secords, ants were hurrying everywhere, carrying eggs to safety.
MAXIM Never hand over a fire in the heat of the day.

veryard projects - innovation for demanding change

Crisis and Sensemaking

veryard projects > programme management > crisis management > sensemaking


After a sudden and appalling event, one of the most important tasks is sensemaking. There is always pressure to impose particular interpretations of the events, which usually involve stressing certain aspects of the events and omitting others -- indeed, drawing the boundaries of the event to include some "facts" and omit others.

Simple polarization appears to help us cope -- but ultimately reduces our ability to engage adequately with the world.

Against the background of the appalling events in Manhattan and Washington, there is a predictable narrowing of vision and sense-making.  Someone posted a message to the Complex-M list (supposedly a forum for complexity thinking) in starkly political language. He spoke of "terrible resolve", "coalescing of people", "focus sharply defined", and "we can unite in that objective".  At the same time, there have been some real surprises - for those whose receptiveness to surprise has not already been overwhelmed.

Simple Complex
Instant categories and divisions
  • Good and Evil
  • Christian and Moslem
  • Free and Democratic
  • World Trade and Global Capitalism
  • Friend and Foe
Realignment of Friend and Foe
Grasping at simple explanations Reflection of repeated patterns
Grasping at simple solutions Reflection of interconnected outcomes

Most people have difficulty tolerating complexity at the best of times.  In times of great crisis, even this level of tolerance is reduced. There is a vital role for wise counsel, and we have a duty to foster this if we can.

... contingency
... continuity
... capability

Foot and Mouth

veryard projects > crisis management > foot and mouth

Two stages of crisis - primary and secondary

European agriculture is currently undergoing a crisis - an outbreak of foot and mouth disease. In the first instance, people are demanding action to control and eliminate the disease - the crisis will last until this is achieved, however long this takes. But even when the disease itself has been eliminated, a secondary crisis will remain - farmers and slaughterhouses, as well as otehr rural industries such as tourism, will be left in deep financial difficulties. Some of them may be able to recoup some of their losses through insurance or compensation, some of them may quit altogether - it may takes years before the situation returns to "normal".

Three orders of crisis - real, perceived and formal

Another important distinction is between the real crisis, the perceived crisis and the formal crisis.  The real crisis starts when the animals are infected by the disease; the perceived crisis starts when the outbreak is detected, or perhaps when the mass media start reporting it; and the formal crisis starts when the Government declares that there is a crisis (or a State of National Emergency).  The real crisis ends when the animals are free of infection; the perceived crisis ends (perhaps) when the mass media lose interest in the story; and the formal crisis ends when the Government declares that the crisis is over.

Sometimes people deny that there is a crisis.  A company on the verge of bankruptcy may claim to be perfectly solvent, a company facing allegations or threats of product contamination may claim that there is no real risk.  Or the crisis remains undetected - like an undiagnosed cancer.

Sometimes people are too quick to claim that there is a crisis.  They perceive one or two incidents, and imagine the worst.  Or they predict a crisis, as a motivator for action.  (When the crisis doesn't materialize - consider for example the widely predicted Year 2000 meltdown - then this might be thought to justify all the effort that went into avoiding the crisis - or then again it might not.)

Sometimes a perceived crisis can cause a real crisis - like a run on a bank, or a stock price adjustment.

Sometimes Goverments or companies are much too quick to declare that the situation is back to normal.  This is because policies and rules, or expectations of proper conduct, on which normal governance depends, may be suspended during a crisis.  Junior officials can get away with all sorts of things that wouldn't normally be authorized - and use the crisis as an excuse.

At the other extreme, a formal crisis can continue for years, in a kind of stalemate, while people get on with their lives.  Think of the Lebanon, Cyprus, Northern Ireland, the Balkans, ... the list is far too long.

... contingency
... continuity
... capability

Crisis:  The Scale of Failure

Simply speaking, there are three routes into crisis:
 
Disaster A major accident or other event, preventing normal business and demanding an immediate response.
Slide A gradually worsening situation, in which normal business is becoming increasingly difficult.
Swarm A large number of small failures occurring at the same time, causing normal defences and responses to be overloaded.

Failure.  Crisis and catastrophe are examples of the dialectical principle of quantity becoming quality.  In other words, when something reaches a certain size, it become different in kind.  Crisis refers to some scale of failure.  Failure represents a mismatch between intention and (perceived) outcome.

The threshold of crisis.  This is the point at which normal operations and capabilities are overloaded - will vary according to the resilience of the organization. Resilience is a particular kind of capability, dependent upon resources and resourcefulness, and is closely related to resistance.

... contingency
... continuity
... capability

Might there have been a crisis on January 1st 2000?

Even beforehand, many business managers looked at the supposed business risks associated with the Millennium bug with justifiable confidence, or even impatience. And afterwards, lots of people asked what the fuss was all about.  Although the Millennium bug might have caused some systems and equipment to fail, and might even have caused serious problems for some suppliers or third parties, most managers already had plenty of experience of coping with such failures. And in any case, most of the systems and equipment are pretty unreliable anyway - so what's new?

One reason for justifiable concern was in the possible aggregate effect of lots of multiple failures - the swarm effect. Let's look at an example.

Local failures are handled within normal operations

A normally effective organization is able to handle operational disruptions of various kinds. For example, a retail organization can handle many different modes of failure and fluctuations within normal operations.
 
Supply chain failures including temporary or permanent loss of a supplier
Transport failures. Goods or customers cannot reach stores. 
  • Transport network
  • Extreme weather conditions
Equipment failures e.g. refrigerators
Infrastructure failures e.g. power cuts
Product recalls
Demand fluctuations e.g. Christmas
Staff shortages e.g. flu epidemic
Strikes and protests affecting supplies e.g. agricultural imports

In a typical organization, we can identify a number of existing mechanisms, mostly informal and undocumented, that cope with such disruptions. Many of these disruptions are typically handled locally and ad hoc.

Any unusual event (such as Year 2000) may cause multiple occurrences of local failures

There were several possible scenarios for the impact of the millennium bug on the retail business. If a small failure is repeated throughout a large system, it is possible that there will be exceptionally high levels of disruption, both before and after the date change.
 
Widespread or systemic supply chain failures
National disruption in transport network
Global equipment failures e.g. all fridges in all stores
National infrastructure failures e.g. power cuts
Floods of product recalls
Exceptionally high demand fluctuations 
  • millennium mega-party
  • customer hoarding 

and in an extreme scenario, possibly leading to
 
Customer panic

Massive staff absence

In other words, although systems may fail at any time, Year 2000 could have caused a swarm of failures, overwhelming normal operational responses and management capability.

If more than one of these events occurs simultaneously, the existing crisis management capability will be seriously overloaded.  But it's not just Year 2000 that can trigger a swarm of failures.

An important part of general planning is to check that you have the management capability to cope with a swarm of failures.

Scaleability of response.  If one fridge breaks down, then the store manager phones the support hotline. If a thousand fridges break down at the same time, then it is neither necessary nor sufficient for a thousand store managers to phone the support hotline. In other words, you cannot just multiply the response by a thousand.   This raises the question: how to define the threshold for a coordinated response. How many fridges makes a crisis: ten fridges, fifty fridges? When does fridge repair become a responsibility of the crisis management team? When an organization is under pressure, it may become more vulnerable to crisis. Just as people are more prone to disease when they are tired, stressed or miserable, so the resilience of organizations may be reduced by various temporary factors as well as by permanent weakness.

... contingency
... continuity
... capability

When does failure become visible?

There are various dates regarded by software engineers as particularly vulnerable to the Millennium bug. Computer systems may fail on January 1st, or on the first time that a particular program is run - perhaps at the end of the first week, month, quarter or annual accounting period of the dreaded Year 2000.

It is also expected that some systems will fail on February 29th 2000, because many software engineers seem to have misunderstood the rules about leap years.

However, unless a computer system fails spectacularly, we don't always detect it straightaway. If software failure results in data being lost or corrupted, or in normal security controls being bypassed, this may not be detected for some time.
 

Your computer system failure
Supplier computer system failure
Third party system failure
arrow left to right
Process errors increase
Fraud increase
Loss of control

... contingency
... continuity
... capability

Could your management be overloaded by crisis?

Existing management capability seriously overloaded. 
Crisis events also affect major competitors. Competitors race for restoration of normal business. 
Urgent demands on the same scarce resources (such as equipment suppliers or backup power supplies). 
Local ad hoc responses insufficient. A coordinated and planned response will be required. 
Considerable media attention. For a large organization, broadcast media may provide the most effective way to communicate rapidly with customers and staff. Integrated PR response required.

... contingency
... continuity
... capability

How do you know when to declare a crisis?

and when can you declare the crisis over?
normal operations
Isolated or intermittent failures. Under normal management control.
Majority of customer and shareholder expectations are still achievable.
arrow left to right
crisis
Widespread and increasing failures.
Local management losing control of situation.
Normal business rules, budgets and incentive schemes suspended.
Public relations goes into overdrive.

... contingency
... continuity
... capability

Recommendations

combine 
contingency
planning
with
crisis mgt
Do we concentrate on contingency planning - analysing the risks and identifying responsibilities and responses? 

Or do we concentrate on creating the management capability to handle unforeseen events and combinations of events?

There needs to be an appropriate balance between these two activities. The same people should be involved in both, but in different roles.

replace
defensive
planning
with
managed
response
Risk and crisis often provokes defensive activity within large organizations. There are several patterns of response to risk that could be called defensive. 
Denial

"There is no risk."
"The risk is trivial."

Omnipotence

"We can cope with any eventuality. 
We don't need any help."

Excessive Caution

"We plan every possible eventuality in great detail."

One-Sided

"There is only one aspect of risk that matters in our business. Other risks don't matter."

These defensive patterns may be contrasted with a properly managed response.

... contingency
... continuity
... capability

Our Approach

veryard projects > crisis management > our approach
what we're looking for
Firstly, we're looking for a good match between the shape of the Risk Landscape and the spread of resources devoted to anticipating various categories of risk, contingency, crisis and disaster.
Second, there is a proper balance between insurance costs (which you spend whether something bad happens or not) and contingent costs (which you spend only if something bad happens).  This itself represents a risk-choice for the enterprise, which modifies the Risk Landscape.
Thirdly, there is the question of the capability of the enterprise to enact its contingency, crisis or disaster plans.  Are the management skills and information systems and other prerequisites in place?  Does this capability need to be tested and regularly exercised?
Fourth, how do exercises or real emergencies provide learning and feedback?
Fifthly, there is the question of managing contingency, crisis and disaster across the enterprise boundaries - where we get into issues of the component-based business and trust.
Finally, we expect that the overall Risk landscape with all contingency, crisis and disaster plans in place represents a real improvement over the risk landscape with none of these.  If this is not the case, then the plans are worthless.
pitfalls include ...
Dumping costs and risks into an uncontrolled bucket called "contingency".  Treating contingency plans as a backstop for inadequate management.
Producing fancy documents with no substance behind them.  (Contingency plans that have never been exercised, and probably won't work when they're needed.)
Contingency plans that introduce more risk than they address.
Contingency plans that fail to reflect the actual relationships between multiple businesses, with conflicting stakeholders and objectives.
our consultancy offerings include ...
Assessment and evaluation of your current situation and plans.
Roadmap for developing more robust systems and capabilities.
Templates for risk assessment and contingency plans.
Project management


Acknowledgements

Thanks to Steve Gale and Aidan Ward.  Thanks also to "Sonia", a student from New York who asked some interesting questions about crisis timescales.


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This page last updated on September 15th, 2001
Copyright © 1999-2001 Veryard Projects Ltd 
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