Every single crisis begins as a risk. The key is to recognize risks and invest in preparing a robust and effective response.
Written by: Jeffrey Sallet, Partner, Investigations & Compliance, Forensic & Integrity Services, Ernst & Young LLP
- Crises appear unknowable because organizations do not always invest in preparing adequately for them.
- Instead of mapping crisis risks by likelihood and impact, organizations should identify all risks, and make clear choices about how much and where to invest.
- A robust crisis management program based on four elements: recognition, readiness, response and recovery — enables leaders to navigate a crisis with confidence.
The COVID-19 pandemic served as a wake-up call. It recognized the havoc that can be wrought when the entire global economy is unprepared for a crisis. Why did the
global pandemic create this great, collective “Aha!” moment about the least recognized risks? Why have companies suffered more during this crisis than just about any other crisis in recent history?
The answer to these questions lies in two apparent contradictions. Several people predicted the pandemic. Bill Gates, in a 2015 TED Talk,1 famously said, “If anything kills over 10 million people in the next few decades, it’s more likely to be a … virus than a war.” It was not that a global pandemic was unimagined, but rather that few made any plans for dealing with it.
The second answer lies in the inherent complexity of businesses today and more broadly, the interconnectedness of the modern world through trade, financial, supply and information systems. This interconnectedness has led to something of a butterfly effect,2 derived from chaos theory. In a complex, dynamic system that demonstrates unpredictable behavior, one small change in the initial conditions can have a profound effect on the ultimate outcome.
The sensitivity of these systems means that outcomes are difficult to predict. Massachusetts Institute of Technology (MIT) Meteorology Professor Edward Lorenz encapsulated his butterfly effect concept in one question — “Does the flap of a butterfly’s wings in Brazil set off a tornado in Texas?”3 We are experiencing this butterfly effect, not only in business and financial markets, but also in geopolitics, the erosion of the global social contract, and in our natural environment in the form of climate change and the global pandemic. This butterfly effect means that organizations are now more at risk — and more aware of the risks — from both threats and crises.
Organizations can’t always predict the timing of a crisis, but they can put themselves in a position to get ahead of it.
Jeffrey S Sallet, Partner, Investigations & Compliance, Forensic & Integrity Services, Ernst & Young LLP
The key for organizations to get ahead of the next crisis is to recognize the potential threats that lie out on the horizon and how they may play out. Then, they must make conscious decisions to differentially invest to mitigate the risks that the organization deems most relevant.
“When we think of crises, we think of them as being unknowable. The reality is that there is almost no such thing as an unknowable risk or crisis. Nearly every crisis an organization has faced, including the global pandemic, has been on someone’s risk radar. They have only felt unknowable because organizations do not always make the proper levels of investment to prepare for them,” says Dr. Paul Robertson, EY UK Cyber Resilience, Preparedness and Response Partner, Ernst & Young LLP.
C-suite executives, who find themselves front and center in responding to a crisis, know that their organization’s crisis preparedness and response needs improvement. However, despite the rise in the volume, velocity and impact of crises over the last few years, many executives are still unwilling to face and map potential threats. Risks can become crises at lightning speed. Organizations that choose not to invest adequately in preparing for a crisis can find themselves fighting for their existence. Read the full article here.