An organization is bound to encounter different issues during its operations. Some of these issues can be foreseen and organizations are able to account for them during their planning stages. However, a few of the events that occur are not predictable and may be experienced by the organizations without any prior warning. Risk management and crisis management are the two processes used by organizations to deal with such threats.
Definitions and explanations
A crisis refers to an unforeseen event that organizations face at any time. Such an event may be capable of causing a significant degree of damage to the organization in terms of profits, market position, public image, employee turnover, etc. An organization may face crisis that arise due to factors related to the external environment, or it may emerge from within the organization. Some of the examples of crisis faced by organizations are:
- Sudden resignation or demise of the CEO or board members of an organization
- Fraudulent activity within the organization
- Fire incident
- Reports of sexual abuse within the organization
- Acts of terrorism
- Natural calamities
- Technical problems like failure of equipment or machinery
The impact of such unexpected events is determined by the ways in which they are dealt with by the organization, which is what crisis management is all about. When organizations show a rapid response to such events and immediately start taking actions to restore the operations of the organization, the impact of such events is decreased. However, when an organization is slow in reacting and is confused about what actions to take, then it may incur a significant amount of damage.
Crisis management includes all the processes that an organization has in place to face any unforeseen event that takes place which may have an adverse impact on the operations and outcomes of an organization. It comprises of different steps and actions that are in place within the organization that enable the management and the employees to assess and comprehend all the factors that gave rise to this uncertain situation within the organization.
A risk refers to a potential event or activity that may take place in organization, which would cause a detrimental effect on the outcomes, market status, revenues, etc. of the firm. Organizations face two kinds of risks:
- not being sufficiently prepared to adopt the latest trends in the market
- not adhering to the strategic objectives of the organization
- Not handling a business unit properly
- Exceeding budget on development projects
Risk management is an important area of every organization as it is involved in the identification of potential risks for the organization and the development of measures in advance to deal with these risks. It is involved in assessing the possibility of the threats actually materializing and the magnitude of their impact (if they do take place). This would enable the organizations to face minimal damage when the event actually takes place. This approach is proactive in nature as the contingency measures are already in place to face the potential threats that the organization may encounter and how they can be addressed.
Difference between crisis management and risk management
The difference between crisis management and risk management is explained below:
Crisis management refers to the processes carried out by an organization to deal with any unforeseen event that may have a negative impact on the operations of that organization. In contrast, risk management involves all those processes that are carried out to identify any potential risks that the organization may encounter in the future and the steps that could be taken to mitigate those risks and minimize the impact of those events on the organization.
2. Type of process
Crisis management is a reactive process, that is, it is carried out as a reaction to an adverse event that has already occurred within the organization. On the other hand, risk management is a proactive approach that is carried out to handle any events that may occur within the organization in the future.
The objective of crisis management is to alleviate the tensions that may arise within an organization because of the crisis that it is facing. On the other hand, the goal of risk management is to identify, understand and plan for dealing with the risks that an organization faces.
4. Kinds of events
Crisis management pertains to those events that are not known and unforeseen. The organization is not aware of when and how they will surface. On the hand, risk management is carried out on potential events that the organization may face in the future.
Crisis management vs risk management – tabular comparison
A tabular comparison of crisis management and risk management is given below:
|Dealing with any negative events that may have the potential to harm the organization||Identifying risks that are involved in the operations of an organization and planning for managing those risks|
|Type of process|
|Decrease tensions that arise during a crisis||Identify and prepare for any potential threat for the organization|
|Kinds of events|
Conclusion – crisis management vs risk management
Crisis management and risk management are part of a robust corporate governance structure and are very important for ensuring the stability of an organization. Crisis management is related to the management of unanticipated events that may cause harm to an organization and its stakeholders. Risk management is the process of determining how the threats would affect an organization, and how the risks can be regulated so as to minimize the damage to the organization.
Despite sound risk management practices, some situations are unavoidable, and the organization may, at any point, face some situation that may call for crisis management. Hence, when both processes are in place, an organization is able to act rapidly in times of crisis and face the least possible losses. In addition, they are able to recover from this loss quickly by ensuring that operations normalize as soon as possible.