Crunching the Numbers

 Step 1: Assess the Possible Impact

Look at your list of possible events. For each, answer these five questions, ranking each potential crisis on a scale from 1 (Least Impact) to 10 (Most Impact). Don’t worry about the chance of it occurring. We’ll get to that in a minute.

  1. If the crisis runs the risk of escalating in intensity, how intense might it get and how quickly?
  2. To what extent will your crisis fall under someone else’s watchful eye, such as the news media, the FBI or a government regulatory agency?
  3. To what extent will the crisis interfere with the normal operations of your business?
  4. Is your internal/external public image at risk?
  5. To what extent would your company’s bottom line be damaged?

Here’s an example of how this ranking process works.

Let’s say that you run a convenience store. Rank each answer on a scale from 1 to 10 on your Crisis Impact Value Rating Sheet (a sample follows).

A possible response could look like this:

Event                                                                    1              2              3              4              5              Average
1. Robbery                                                           8               9              8              2              3              6.0

Here’s how we got these answers.

  1. Obviously, a robbery will escalate very quickly, so let’s say an 8 for question #1.
  2. Whether it occurs during the attempt or after a successful robbery, the police or another law enforcement agency will almost assuredly get involved, so #2 is a 9.
  3. It will shut your business down for part of the day, even longer if there is damage, an injury or a fatality, so an 8 for question #3.
  4. Will your image be hurt? Probably not since you’re the victim. So #4 would rate a 2.
  5. Any financial impact would be negligible, especially if you’re insured or the money or items are recovered. So let’s rate #5 a 3.

Divide the total by five (the total number of questions) and you’ll end up with a 6.0 Crisis Impact Value for this particular scenario.

Now, let’s look at the second part of the equation, the probability this scenario will occur. If you do some statistical research, you’ll find that there is a 6% chance that any convenience store will be robbed at any particular point. That is the nationwide average.

But let’s say that you already know that your store has been robbed twice in the last five years and it’s in a tough neighborhood that has a high crime rate overall. While the statistical chance is only 6% nationally, experience tells you it will be higher in your locale. You choose to give it a 20% chance. This means that while a robbery would have a medium impact on your business, there is only a one in five chance that it will happen at any particular point in time.

The final ranking for this scenario then would be 6.0/20 – a 6.0 average for the impact it would have on your business and a 20% chance of it occurring.

Though the chance of it happening is low, you can still do something to reduce the impact of a robbery if you wish. For instance, you could install another security camera or two, keep less cash on hand, add more lighting in the parking lot – the list goes on.

But before you call a security company or electrician, think more about the crisis itself. Is the potential impact worth the cost? How much will it cost you to add these extra security features? Is it substantially more than it would cost to do nothing? Conversely, how would the numbers change if you arm your employees and encourage them to be proactive rather than reactive? Is that worth the money you’d lose?

As you run the numbers, remember that there are usually two levels of cost. There are hard costs and soft costs. Hard costs are the actual dollars a crisis costs you, which can include preventative measures or losses in income caused by the situation. In contrast, soft costs are the things you can’t always readily see: decreased productivity, increased absenteeism, workers’ compensation claims, increased turnover, erosion of community support, bad publicity, etc.

Depending on the crisis at hand, the cost of intervention may appear to equal the hard costs of a possible loss. But the soft dollar losses can create a draining effect on your business as you continue to lose revenue long after the initial crisis has passed, often without noticing it until it’s too late.

Typically, the more attention your crisis receives in the news, the more likely you will experience a cost in soft dollars. This soft dollar loss can occur over weeks, months or even years. You want to go through this process and analyze hard and soft dollar costs for each crisis you have identified.

Here’s a sample worksheet so you can see how a completed analysis looks. The identified crises are those of a midsized retailer, but you’ll get the idea of how it all works.

Sample of a Crisis Impact Value Rating Sheet