During the Crisis
There are three Phases to Risk Management,
- Crisis Management and
- Picking up the pieces
During the Crisis, the most important thing is that you are able to assess the situation, choose the appropriate action and finally and most importantly ACT.
Many people are prone to freeze during a crisis. They go into a daze because some main steady thing in their life is no longer there and working.
On the anniversary of 911, it is interesting to notice that an article A Survival Guide to Catastrophe from 2008 is the most popular article today at Time.com.
It tells the story of how several people escaped several famous catastrophes. In each case, some of the people who died in those situations were frozen.
The human brain goes through three stages during a crisis: disbelief, deliberation and action. The frozen people have stuck on the disbelief or deliberation stages.
That is where the Preparation phase is important. With proper preparation, people can be taught to quickly identify the reality of the crisis and to know in advance their best options. The purpose of the preparation is then to shorten the time to get to the third stage. ACTION. And to make sure that when you get there, you take the right action.
During the World Trade Center crisis, some people did act quickly, and climbed the stairs right up to the roof. Others made the right choice and went down the stairs.
This Crisis Management thinking does not just refer to physical crises. Financial firms are faced with financial crises. In those situations, managers of the firm go through the exact same stages: disbelief, deliberation and action. They can get stuck in either of the first two stages until it is too late. They can also choose the wrong action.
Much of risk management literature seems to be about the risk management things that are needed during the moderately risky, normal times. But risk management is also needed in the midst of the crisis. The risk mitigation tactics that work best in moderately risky, normal times may not even be available in a crisis. There needs to be preparation for a possible crisis so that managers will promptly identify the crisis and know in advance the types of options that they may have and also know how to go about choosing the best options.
Firms that provide property insurance to disaster prone areas have learned that it is much more than good customer service to have claims people on the ground to start writing checks as soon as possible after the disaster. Firms that trade in financial markets have learned, if they did not know already, that trading is not always continuous.
Whatever your firm does, the risk manager should be developing and training managers about crisis plans.