“What does a crisis cost?”
I’ve been asked that question a few times. Disappointingly, my answer invariably is, “It depends.” Part of the answer depends on the specific aspects of the crisis and the company going through it, but much more rests on the definition of “cost.”
If we’re talking about financial cost, then all we need to do is add together lost sales, lost productivity, fines, consultant contracts, legal fees, jury verdicts, property damage, insurance costs, etc. In my experience, that sum ranges from hundreds of thousands to tens of billions of dollars.
But there are other costs, some more quantifiable than others, some longer term than others, some more unrecoverable than others. So, it depends on what “costs” we are calculating. If we’re including the cost of winning back all the customers you just lost, then add double your total marketing budget over the next three to five years to the sum above. If we’re including damage to reputation, then multiply the sum above by a factor of three to 10.
Like a crisis itself, the cost can escalate quickly. But it can be reduced.
An Ounce of Prevention
If I have any definite answer to the question, it’s this: a crisis costs many orders of magnitude more than an investment into preparing your team and your company for it.
Put another way, the cost to repair a damaged reputation is many, many times more than the cost of preventing or quickly mitigating that damage. And then there’s this: infinitely more CEOs have lost their jobs because of a crisis than from budgeting for crisis preparedness.
What do I mean by crisis preparedness? You have a well-defined, automatically executable process for responding to the crisis (Note: not a plan, a process). You have clarity on what your company’s values are, what risks you face, who is most important to you, how decisions are made and how information flows during a crisis. You have trust that the people and processes you have in place will perform during a crisis. And you can respond with speed.
Preparedness means you have given thought to crisis response before it happens. You have a process in place to see warning signs and prevent the crisis from happening. You have pre-approved messages ready to go for things that are highly likely to happen and/or highly damaging if they did. You have not only identified gaps in your processes, people and capabilities, but also you have addressed them. You are confident that you can handle anything that happens, and you can bolster your capability with outside expert help at any time. Preparedness means you are focused on reputation – how to protect it, how to mitigate damage to it and how to repair it.
A Ton of Cure
If you’re not absolutely confident that all of those elements of preparedness are already covered, then you already know where potential failures can occur when a crisis hits. Those failures lead directly to increasing the cost of the crisis. Investing in preparedness lowers the cost of a crisis.
The alternative to investing in preparedness is just hope you’re ready or, better yet, hope a crisis doesn’t happen. Hope isn’t a strategy, of course, but it also isn’t a budget line item that someone has to defend from the beancounters. That said, hope alone will never produce a low-cost outcome. Inevitably, the cost of a crisis will far exceed whatever budget you have for it.
If your requests for a budget to invest in crisis preparedness fall on deaf ears, then maybe we need to reframe the discussion. Maybe we need to think about a crisis not as a random event but instead as a cost to the business – a line item in the budget. A big line item.
It’s good business to reduce costs, right? Wouldn’t any CEO or CFO jump at the chance to reduce millions of dollars in costs by spending tens of thousands of dollars? That’s exactly what budgeting for crisis preparedness does. It reduces that line item for crisis costs.
No Stitch in Time
If hope is your strategy, you may need to take the advice of Douglas Adams, author of Hitchhiker’s Guide to the Galaxy: “Consider how lucky you are that life has been good to you so far. Alternatively, if life hasn’t been good to you so far, which given your current circumstances seems more likely, consider how lucky you are that it won’t be troubling you much longer.”
Strike out “life” and insert “your job” or “your CEO,” and it applies perfectly to a crisis.
So what does a crisis cost? Lots of money. Reputation. Jobs. Confidence. More money. Time. Energy. Effort. Strategy. Vacations. Even more money. Counting money only once, that’s a good list of nine “a stitch in time” might save.
That time is now. If you have any unused budget for risk and crisis for 2023, invest in preparedness now. As you prepare budgets for 2024, include crisis preparedness as a critical need. When you present it, show the line item you didn’t include in the budget: the cost of a crisis.
Need help? Kith facilitates crisis preparedness workshops that will help your company attain the clarity, trust and speed necessary to reduce the cost of any crisis. We’d be happy to have a conversation about how we can get your company prepared for a crisis.