"We are acting in the logic of risk management and not just the disaster (...) because we understand that the cost of prevention is always lower than that of the remedy,"[1] said the Minister of Environment and Climate Change, Marina Silva, in June, after the federal government installed a preventive situation room to deal with drought and firefighting in the country.
Similar to a disease that is only treated after the expression of severe symptoms, many issues are lately addressed, when the crisis is already ongoing. Early intervention, however, could have mitigated or even avoided the problem.
In this moment of reflection, considering the context of corporate business, we can refer to risk analysis among the preventive measures normally used for strategic decision-making.
It is unlikely that an oil company, for example, will not carry out a risk assessment before deciding how much it will invest in biofuels each year. Likewise, it is expected that a hospital network will assess the risks involved before deciding to close emergency care in one of its units.
So far, we are dealing with standardized actions. The real innovation, when it comes to prevention in crisis tenure, occurs when this risk analysis is accompanied by a damage mitigation plan.
The decision to take risks is a day-to-day business constant, but the difference is that not everyone invests in effectively preparing to mitigate the losses that will result from the materialization of these risks. Let's think of two distinct examples:
- a company carried out a risk analysis led by its best engineers and reviewed by a prestigious consultancy, but did not prepare a damage mitigation plan or invested in crisis preparedness actions beyond those required by the business's regulator;
- Another company also did the due risk analysis with external review but went further and was concerned with engaging its internal business legal team in the evaluation process. In addition to complying with all the actions required by the laws and regulations, it drew up a plan to mitigate possible damage and carried out periodic training and simulated exercises with different sectors, which, up to that point, were not so used to interact among each other.
Both companies complied with the laws and regulations and assessed business risks, but which would be better prepared to deal with a crisis?
We know how difficult it is to bring awareness to a company about the importance of investments in preventive measures, the results of which are not usually immediately noticed. We can imagine that it is more difficult for a manager to obtain funds to prepare for hypothetical crisis’ scenarios than to invest in what has chances of having positive financial impact for the business.
Fortunately, there are a few low-cost actions and efforts that can be adopted in aid of building preventive crisis management awareness and still generate results. Some examples:
- Leadership awareness – The effort to raise leadership awareness is of paramount importance so that executives and managers are prepared to face a crisis and mitigate its damage. With good prior awareness, a lot of wear and tear will be avoided when responding to and managing a crisis, as the team will be better able to deal jointly with the situation.
- Training of foreign stakeholders – If a company has a foreign shareholder, the prior training of this stakeholder on Brazilian customs can also be adjudged as an action to prevent crisis. After all, it is not simple to explain the modus operandi of the Brazilian Judiciary, the litigant culture, the profile of the Public Ministry and the Brazilian procedural rules, especially the possible injunctions that may be granted and all the consequences of a bad procedural management. Try doing this amid chaos…
- Training, workshops and guided simulations – Another relevant tool is the realization of various exercises with the teams to understand the consequences of any crises. From the identification of operational bottlenecks and the visualization of the developments that may occur if the previously mapped risks materialize – which reinforces the need for the damage mitigation plan mentioned at the beginning of this article – it is possible to continue with training and workshops. These initiatives are important to better train people, to facilitate engagement between areas, or to unlock failures that may have been identified along the way.
Through these examples, we see that investments do not need to be high so that companies can go beyond strict compliance with laws and regulations to better prepare for crises.
Although it may not be the custom, we increasingly realize how positive it can be to dedicate efforts in preparing for responses to emergencies, catastrophes, accidents or crises. Although these actions led by the business legal team do not propose to prevent a crisis from occurring, they greatly influence the ability of companies to react. This, undeniably, has enormous power, since every decision made by a company has consequences of legal repercussions and can reflect, positively or negatively, on the continuity of the business dealings, the rebound time, etc.
Preventive measures can not only guide a more organized, faster and effective reply, but, above all, to decrease the damage caused by crises.
The recently established crisis in Rio Grande do Sul and the drought and fires in the Pantanal and the Amazon (two opposite sides of climatic problems) have put a spotlight on the sum of prevention and preparedness actions, in addition to drawing attention to the issue.
We know that the challenge is great, and the topic is very difficult. However, in a world where the impacts resulting from climate change are increasingly frequent and critical, it is worth to make the best efforts to neutralize these impacts, mitigate them or, at least, better prepare to provide effective responses – specially knowing that measures of easy implementation and high impact, with low efforts and investments, can have a striking impact on crisis management.
These preventive actions are beneficial for all companies, especially those located in sectors that are naturally more exposed to various types of risks.
[1] Agência Brasil: Government installs crisis room for fires and drought in the country