CRISIS MANAGEMENT
Every significant problem, caused by internal or external factors, that remains unresolved, can lead to a crisis in a company. The magnitude of the problem and the scale of the crisis are determined by the ability to react quickly.
It is well-known: “For the incompetent, every problem is a crisis, and for the competent, every crisis is a challenge.”
The Argus Group can provide appropriate assistance in the areas of:
- Crisis Management (typically for a duration of 6-12 months during a crisis),
- Management of overall business cost reduction and revenue enhancement,
- Assistance in finding a new, more favorable financing system to overcome financial difficulties (usually a short-term solution),
- Assistance in settlements with creditors – to prevent the company from reaching the pre-bankruptcy or bankruptcy stage.
Risk Management
Crisis management is not always about “changing everything in the company”. Implementing crisis management does not mean that there will be complete tectonic shifts or that these changes will be enforced in the shortest possible time.
The essence of transformation during crisis management is “change for the better”, not “change everything”. Therefore, transformation appears in various forms and at various levels.
The Argus Group can provide appropriate assistance in the areas of:
- Crisis Management (typically for a duration of 6-12 months during a crisis),
- Management of overall business cost reduction and revenue enhancement,
- Assistance in finding a new, more favorable financing system to overcome financial difficulties (usually a short-term solution),
- Assistance in settlements with creditors – to prevent the company from reaching the pre-bankruptcy or bankruptcy stage.
Uncertainty is part of life, so every company’s business is under uncertainty. It arises due to unpredictable market events, politics, economics, and numerous other reasons.
Risk management refers to preventive action and forecasting future events with the aim of minimizing the possibility of a crisis. Increasing attention is being paid to risk management.
Globalization itself, increasing market competition, and the strengthening of entrepreneurial activities are incentives for the development of this area.
Crisis Management
In business, a crisis is anything that can cause sudden and severe damage to the operations, employees, reputation, and financial results of a company. Crises can be of various types, sizes, and shapes. Crises can be interconnected, with one triggering another or several others.
A crisis in small and medium enterprises can be defined as: “A sudden or gradual negative change or some sudden shock in the company, brought on by a serious external (or internal) problem that needs to be resolved immediately.”
The activities that crisis management needs to undertake in planning communication in a crisis situation are:
- Pre-crisis communication plan,
- Communication plan during the crisis,
- Post-crisis communication plan.
Successful crisis management requires an understanding of how to deal with a crisis.
There are three stages in any crisis management:
- Diagnosis – analysis of potential signals and problems,
- Strategy selection – management and activity planning necessary to alleviate the symptoms of the crisis,
- Implementation – managing the change process and continuously monitoring its execution.
To avoid problems, we must be aware and recognize the first signs that can appear in the form of market loss (causing a drop in revenue, loss of existing customers, and inability to acquire new customers), production problems through defective products or delivery delays, insufficient raw materials and production materials, reflecting on the end product. The most obvious problems are of a financial nature – excessive borrowing for growth or the inability to refinance existing, expensive obligations, loans that cannot be repaid, or a reduction in revenue that prevents payment of obligations.
A cash flow problem indicates that something is wrong. If there is a disruption in cash flow, the crisis has knocked on the door of the company, and the company’s management is not aware of it.
There is no correct and unified advice on how to react before a crisis/recession occurs. However, for all companies in crisis, general rules of quick action may apply:
- Act quickly and focused,
- Motivate people to endure difficult moments (take on the role of a leader, motivator, and psychologist),
- Behave responsibly (towards customers, suppliers, employees, banks, government),
- Consult with those who have gone through the crisis and emerged from it even stronger,
- Think long-term, the crisis will pass.
Whether signs are appearing or not, management should always improve business processes and be prepared for a sudden and rapid crisis hit, because the crisis carries far-reaching consequences.
Continuous change and improvement management is necessary. The focus is on continuity. Even when things are good, changes are necessary. Because once it “hits”, from the outside or inside, it will be too late.
Cost Management
What all participants in small and medium-sized enterprises have in common is a reduction in revenue and an increase in costs (for the same product or service placement, more had to be spent). Market reputation is quickly lost, and we know it’s hard to regain it in a short time.
For urgent reduction of company costs, management should use the following activities:
- Prolonging the repayment of loans and obligations (refinancing if possible, with lower fees and cost of capital),
- Reduction of unnecessary cash outflows (tightening the belt to the end),
- Stopping projects that are not essential (the so-called ‘conservation’ of existing projects),
- Selling parts of the business that are not “core business”, selling properties that do not contribute to creating additional value for the company,
- Reduction in the number of employees (the worst measure, but necessary),
- Stopping unnecessary errors in the production cycle.
Financial Management
Financial management is one of the areas of finance that deals with the finances of business entities. The term financial management can be equated with the concepts of corporate finance, business finance, enterprise finance. Financial management is concerned with acquiring, managing, and distributing the resources of a company.
Three types of financial management decisions can be defined:
- Investment decisions – capital budgeting activities,
- Financing decisions – portfolio arrangement and finding the most favorable ways of financing,
- Asset management/liquidity maintenance decisions.
Business Finance
One of the essential features of business finance is its multidisciplinary nature. Making business decisions requires the involvement of accounting, law, mathematics, behavioral sciences, and other disciplines as needed.
Business finance can also be vividly referred to as the backbone of a company because the decisions about financing, investing, expansion, and mergers are made within the financial area of the company. These decisions delve into the very depth of the company and affect its success or failure.
In times of crises, both economic and health-related, alongside the company’s main manager (director, CEO), the chief financial officer (CFO, finance director) takes an increasingly important role. He does not manage, as is still often thought (especially in the SME segment), “only financial flows” or “accounting.” His role increasingly goes beyond merely managing the company’s finances. His role is becoming more strategic, visionary, and crisis-related.
As the saying goes: “in a crisis, heroes are recognized.” Well, these heroes are CFOs, finance directors, corporate experts for managing the organization’s finances (in a broader sense).
Business finance is gaining another dimension, the strategic one (in addition to the already operational one) which anticipates future cash flows and analyzes all elements so that when a crisis occurs, the company/organization is as least affected and distressed as possible.
Controlling
In companies facing difficulties, it’s quite common to encounter restless and impatient managers who are less interested in the background of the crisis in the company and more interested in quick and simple solutions.
One should not ignore the fact that crisis situations require a swift and efficient response. Of course, quality comes first, even though there is little or no time.
A business crisis is an unplanned and unwanted period in a company’s operations of limited duration with various outcomes. Controlling is professional support for management which can discover the company’s readiness for a crisis by researching tasks, instruments, and the flow of controlling information.
In the crisis the company is facing, controlling is professional support for management. By researching tasks, instruments, and the flow of controlling information, it is possible to determine the company’s preparedness for a crisis. It assumes that the business process within the business organization is arranged in a way that monitors the current state but also estimates the future business of the company.
The controlling process consists of four steps:
- determining the way events in the company are identified,
- it is a control unit comparing information with industry standards,
- determining standards of desired results,
- determining the execution of change actions and sending the order to the person who needs to carry it out within the organization.
Controlling is a management philosophy based on the economic logic of rationality, a set of knowledge necessary to collect an optimal number of pieces of information from countless data within and outside the company. This information is essential for managers to make quality decisions.
One of the key questions (from establishment, through organization, to the actual functioning of the controlling function in the company) is the question of understanding the purpose and role of controlling by management. Management needs to decide whether it wants to use all the tools that serve for the best possible management. Controlling is and will increasingly be the “right hand” to directors, CEOs, and also owners.