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The Management Puzzle: Some Assembly Required
ATTRACT AND RETAIN VALUABLE EMPLOYEES Employees ready, willing, and able to exceed the expectations of your customers are critical. Attracting and retaining them can make the difference between success and failure. In most cases, the problem is a cultural, not a personal or personnel one. Many businesses today are transitioning from a yesterday of autocratic leadership with a command and control structure to a team-driven model “flattened” for efficiency and speed. Here's the reality, as I see it: People in a command-and-control environment are told what to do. People in teams must think and risk. These are different skills that require different motivations. Although most organizations have good (and potentially great) employees, the system fails to prepare them properly for the new world. If your employees need to improve their skills, offer them development programs. If they aren't willing to pursue the new that is tomorrow, work on their motivation. The best thing an employer can do today is create a safe haven for employees to take reasoned risks and learn from the mistakes that they make in the process. REINVENT STRATEGIC PLANNING Planning is like a jigsaw puzzle. The finished picture is the mission and vision of the organization. The border (the shape and the size) is determined by the situation analysis , your current reality (the capability of your employees, commitment of the leadership, budget, marketplace served, competitors, history, etc.). The pieces of the puzzle are the people in your organization and the functions they perform to obtain the results you need. The most important first step in puzzle making is finding the surface needed to build the puzzle; it must be stable and conducive to the work at hand, with organizational values as the foundation. My experience indicates that all too often planning focuses on tactics (pieces); in effect, building the puzzle one piece at a time from the center out. This can't work. You must start on a solid surface (values) and fully communicate the finished picture (vision and mission) to everyone involved. CREATE A CUSTOMER-FOCUSED OPERATION In my mind this is a potent ingredient. It's like garlic or tabasco; you want just enough to spice it up, but not too much to make the dish inedible. Read the classic poem, “The Blind Men and the Elephant.” With all due respect, your customers are the blind men and your organization is the elephant. You will be customer defined and customer driven, if you're not already. In a global economy, with the most sophisticated consumers in history, equipped with full information through the Internet, and shopping from any source anywhere, you're no longer in charge — the customer is! PROVIDE TOUGH POSITIVE MANAGEMENT Command and control leadership in most organizations is dead! The future belongs to conductors who can blend the diverse workforce and skills needed into a beautiful symphony performance. In such a system, diversity is essential and consensus is good. Unfortunately, too many people confuse the application of these issues. “Consensus is the absence of leadership,” said Margaret Thatcher, the former prime minister of Great Britain . She was right. The final vision, mission, and organizational values must be set and embraced by all involved (those who can't accept them must leave or be left). The process to achieve these goals can consider the diversity of the workforce and the consensus that will evolve through the process. Leadership should invite dialogue, debate, discussions, dissent, etc. during the planning process; but once a decision is made, the only option available to the team is commitment. IMPROVE LEADERSHIP PERFORMANCE There's a lot of confusion these days between leadership and management. You must lead people and manage things. Leaders must be effective and managers need efficiency. A few roles of today's leader include: Dream Catcher — captures the vision Environmental Engineer — removes the toxins from the workplace Security Guard — protects the vision, values, and mission Organizational Architect — designs the foundation/infrastructure Coach — recruits develops, plans, scouts, and wins Cheerleader — motivates the team DESIGN EFFECTIVE SURVEYS I believe the biggest need in business today is to know customers. All too often managers knowabout customers, but they don't know customers. My advice is to “get out more.” Mass markets are the past; mass customization is the future. Surveys are important in learning more about your customers, but I urge you first to know them — build relationships ! My daddy (as many of we southerners refer to our fathers) did mosaics. He'd place the glass tiles in the picture, and once the process was complete, he'd add grout to finish the picture and fill in the spaces between the pieces. Individual relationships (niche of one) are the “tiles,” and the “grout” (surveys/market research) can complete the picture. The message within: Never confuse numbers with people!
Crisis Management Plan - Crisis Impact Considerations
SECTION 4.0 CRISIS EXPOSURE ASSESSMENT 4.1 Crisis Assessment Overview Frequently, the risk management planning and formulation process is myopic in defining the magnitude of probable maximum loss exposures. A significant task in crisis management plan strategy formulation is broadly to identify and measure the various potential crises and loss exposures. The crisis and loss exposure assessment must remain broad in nature and not become inhibited by the traditionally narrow considerations of only those perils addressed by standard commercial insurance policies. There are three primary categories to consider in the comprehensive crisis exposure analysis. The following are the categories identified for crisis assessment considerations: Business impact analysis Crisis loss exposure and vulnerability Insurance and risk funding adequacy To accomplish this comprehensive assessment task, the extent of specific losses must be determined through a review of probable loss frequency and severity. Severity can be categorized in one of three levels of loss magnitude which range from an accidental event that is effectively funded under the risk management program to a major unfunded or underfunded catastrophe that could threaten the ultimate financial survival of the organization. For additional information concerning magnitude ranking, refer to subsection 4.4, 'Loss Magnitude Category Rankings' for details concerning the three proposed levels of assessed severity. In the true sense of business impact analysis such items as competition, product failure, hostile stock takeover, hostile competition via patent infringement and adverse labor relations are factors to be considered but they are not necessarily applicable to the risk management spectrum. Other items such as regulatory activity have an impact on the business analysis including, but not limited to the Environmental Protection Act (EPA) and the Occupational Safety and Health Act (OSHA) and American Disability Act (ADA). 4.2 Comprehensive Analysis In projecting the probable maximum foreseeable event, it is important to combine several exposures in order to achieve a realistic impact on the corporate operating and financial abilities. A hypothetical loss situation in a manufacturing facility could entail these conditions: a boiler explosion with an ensuing fire, injury to both employees and third party guests; fire damage occurring in the immediate exterior perimeter as well as structural collapse affecting self-insured fleet vehicles. In analyzing a major crisis situation such as natural hazards, it is important to extend the impact on finances to assess the effects of major losses against either self-insured or experience rated group medical benefit plans. Consideration should be given to other specific adverse exposures such as hostile takeover, product extortion, product contamination, product recall, pollution, limited resource interdependency, government regulatory problems, destructive union and strike activities as well as hostile media situations. 4.3 Evaluating Crises Exposures In the process of evaluating crises exposures, a determination concerning estimated probability of crises loss should be developed concerning the following factors: Frequency Measurement of how often a particular type of loss may occur Severity Relates to magnitude of loss, including: life, assets, ability to maintain operations, asset conservation or image enhancement thus ultimately focusing on financial survival Variation Identification of various 'trending' factors which are applicable in determining total crises loss considerations and include such factors as inflation, changes in laws, increased seasonal or business cyclical activity, technological advances, market fluctuations and socio-economic considerations Impact Identifies the risk bearing capability of a particular entity A key impact consideration is proper loss vulnerability identification of unusual exposures such as unique resource material, limited supply of custom built parts, extended duration of supply time, single distribution center susceptibility to loss situations, critical timing due to seasonal operations and/or political risk problems Impact loss magnitude may be determined by: Whether or not a loss is easily handled within the risk and insurance management program Whether or not there is a serious financial inadequacy in the overall insurance funding arrangement Whether or not the loss actually threatens financial survival 4.4 Loss Magnitude Category Severity Rankings An on-going responsibility of Crisis Management Committee is to identify and measure potential loss situations on a continuing basis in order to categorize them as to the degree of seriousness. Loss magnitude categories can be established by defining probable maximum loss exposure and the relationship to frequency, severity, variation and impact. The financial measurement of loss magnitude should concern certain key factors including, but not limited to market position, financial impact (cash flow and earnings), disruption of operations and/or duration of business interruption as a result of the event. Levels of loss magnitude which face the organization may be defined and categorized as to severity as follows: Magnitude I (Minimum Severity) Magnitude I loss is one that is easily manageable within the risk-bearing capacity of the organization. For example: fire at a production location that does not result in significant asset loss or business interruption. Other examples include an accident involving a company vehicle resulting in injuries and establishment of disability reserves or adverse legal judgement in a product liability case. Magnitude II A Magnitude II loss can be defined as one with a significant impact of life safety, revenue and existing assets, but without the major threat to the financial stability Of the organization. For example: a major fire resulting in significant damage to the contents and structure of a manufacturing facility. A Magnitude II loss would affect no more than 50% of the revenues. Such a loss could cause a partial relocation or a significant change in manufacturing operations and would certainly be identified in the annual report to stockholders. It would affect annual forecast results and profit, but would not pose an on-going financial burden. Magnitude III (Maximum severity) The Magnitude III loss is one in which the actual survival of the organization is at stake. For example: major earthquake or catastrophic accident affecting the facilities, operation or staff. Such disasters could result in casualties, destruction of property as well as the loss of computer and communications facilities and critically important records. Magnitude III losses would be beyond the point of recovery for the typical organization. Fortunately, the chances of a Magnitude III loss occurring are remote. 4.5 Magnitude Assessment Schedule In a simplistic approach it is important to rank the major exposures with respect to their magnitude category. This may be simply accomplished with a schedule identifying the various exposures in a method of evaluating the categories. The classifications may then be modified due to unique protection features and/or serious complications. In utilizing a schedule approach for crisis exposure assessment, the preceding chart provides the desired magnitude ranking system. The initial column identifies the various exposures such as earthquake, fire, structural collapse, products liability, completed operations or a stockholders' class action suit. The magnitude ranking is based on the severity of the exposure, the impact on business operations and the extent of insurance for the exposure. The magnitude could be modified if there is insurance coverage with very high limits or extensive contingency plans with many options in the event of a crisis. The modification might be of an adverse nature due to a very cyclical business operation in a short season, the impact of a fire would be substantially increased. The last column is simply for remarks in order to maintain a record of any situation that is unique and should be noted regarding the magnitude assessment process. SECTION 5.0 CRISIS VULNERABILITY IDENTIFICATION 5.1 Crisis Vulnerability Analysis Overview Crisis vulnerability analysis should be comprehensive in scope and not become inhibited by the traditionally narrow considerations of only those perils addressed by standard commercial insurance policies. Significant crisis perils to be considered include, but are not limited to the following: fire, flood, earthquake, severe windstorm, building collapse, workplace violence, product contamination, death and torts. Less traditional, but potentially severe exposures, include kidnap, embezzlement, theft, disability, appropriation of assets (foreign or domestic), product extortion or product recall. Some organizations have not survived the adverse publicity following a serious product liability loss and/or recall situation. 5.2 Unique Loss Vulnerability Identification Even more important than the mere potential of crises is the unique exposure vulnerability susceptibility which adversely impacts and influences loss magnitude. Frequently the quickest and most simple way to identify a critical vulnerability exposure is by using a flow analysis. Utilizing a simple flow analysis (single line work-process schematic), for a typical manufacturing and distribution operation with retail outlets could identify a critical distribution link. A hypothetical example would be four manufacturing facilities supplying ten retail outlets utilizing a single distribution center. The vulnerability point would be that all completed manufactured items are accumulated, stored and shipped from the single distribution center. Furthermore, the retail outlets become inoperative as they loose their single distribution center resource for merchandise. The consequences of loss of a distribution center in this hypothetical scenario would prove to be serious and represent a unique loss vulnerability exposure problem. The loss of the distribution center could be as a result of earthquake, fire, flood or even an organized labor strike lockout. The loss vulnerability exposure problems due to the total dependence on the distribution center include, but are not limited to: Distribution Center Loss Vulnerability Impact manufacturing since completed product cannot be shipped without the operational distribution center Manufacturing curtailed due to lack of storage space in the various manufacturing facilities Retail outlets inventory is adversely affected by lack of supply Impact retail sales since there no longer is an resource inventory supply without the operational distribution center Retail outlets fail to remain competitive due to decreasing volume of stock on hand Operational impact results in cash flow and credit 'crunch' due to decrease in sales revenue generation Due to curtailed operations in manufacturing facilities and retail outlets, skilled labor cannot be retained Public image is changing to that of inability to supply goods and meet customers' needs Following restoration, major hurdle is to regain market share and to restore competent staff which existed at time of crisis occurrence Exhibit 5.1, 'Schematic Vulnerability Flow Analysis', has been developed to identify clearly the hypothetical situation involving a single distribution center with four manufacturing facilities supplying ten retail outlets. The legend of the following exhibit plainly identifies the retail outlets and manufacturing facilities. Note that the unique loss vulnerability is that all activities are dependent upon the operational integrity of the distribution center. DISTRIBUTION CENTER 1 location A flow analysis readily identifies the unique loss vulnerability situation involving the development of the manufacturing 'just-in-time' assembly process, there are many complications with respect to production interruption. Frequently, the scheduling for 'just-in-time' assembly is relatively tight and any failure to receive product results in a temporary assembly line shut down. In the tradition assembly process, there is normally a warehousing operation in the flow process which allows for accumulation of product that could, to some extent, offset the time loss deficiency. The interruption of product flow to a 'just-in-time' assembly process involving unique or special order components represents a significant loss vulnerability situation thus resulting in a serious business interruption exposure. A sampling of hypothetical loss vulnerability situations includes, but is not limited to the following: Vulnerability Situation Samples Unique limited resources used in processing or manufacturing Limited quantity of custom built parts available in product assembly Extended delivery duration of raw material sourcing supply time Labor strike exposures concerning manufacturing and shipping Political risk problems affecting vital foreign source materials One-of-a-kind single manufacturing machines subject to long-term replacement time and acquisition delays Annual seasonal operations developing cyclical business peaks and valleys involving short term high revenue generation Loss of communications capability over an extended period of time Loss of MIS processing capability Loss or unavailability of MIS backup software Processing single item failure, disruption, shutdown exposure 5.3 Insurance and Risk Funding Adequacy A continuous review of the risk and insurance management funding program should be maintained. Key items such as breadth of insurance coverage, significant exclusions, deductible exposures, self-insured retentions, limits of coverage including total available annual aggregate considerations should be continuously assessed. Other factors include the financial integrity of the insurance market utilized as well as the competency of the responsible insurance brokerage firms and assigned account service and executive teams. The process of establishing adequate insurance limits and values should involve planning and analyzing for the maximum foreseeable crises events. Consideration must be given to the accumulation of deductibles, self-insurance financial loss exposure and ultimate modification of experience rated insurance policies. An effective vehicle for determining adequate limits of coverage and realistic recovery time is the utilization of a risk management 'Think Tank' analysis session involving concerned senior management. For example, in determining the limits for a manufacturing facility, including recovery time and possible contingent business interruption exposures, the formal meeting would involve the Chief Financial Officer, Director of Operations, Director of Taxation and other warranted financial and operating management. The 'Think Tank' mission would pursue a hypothetical worst case loss scenario and develop vital information such as replacement cost values, alternate temporary manufacturing capabilities, extra expense exposure, business interruption time period as well as any problems associated with contingent business interruption or inability to meet customer contractual obligations. 5.4 Facility Location Considerations The physical location of a major facility complex has a significant bearing on the potential loss magnitude. A rural setting generally increases the desirability from a crime and exterior fire exposure standpoint but complicates the situation from the viewpoint of service availability. The rural area frequently does not have medical facilities which interface with the needs of a major commercial operation. Further-more, there is a vast difference between the protection services and suppression capability of a major metropolitan fire department and a rural volunteer group. A metropolitan location will normally have a substantial water supply with adequate fire hydrant distribution. A rural setting may be void of any water distribution system acceptable for fire suppression purposes. The rural location may have limited fire response with only volunteer fire fighters. The metropolitan fire response in a larger city for a commercial location would normally be three engine companies, two truck companies, rescue squad and a battalion chief. This type of assistance will obviously have a positive effect on potential loss magnitude and life safety considerations. Furthermore, the complex metropolitan fire department will have many services including, but not limited to: a hazardous materials team, marine fire fighting team, as warranted as well as special rescue teams for high angle, confined space and heavy rescue. SECTION 6.0 CRISES EXPOSURE AWARENESS 6.1 Crises Exposure Awareness Overview In a comprehensive crisis exposure analysis, it is important to identify with at least two primary exposure groupings as follows: Natural catastrophic events Traditional identified insurance perils The natural catastrophic crises include, but are not limited to earthquake, flood, severe weather, fire and volcano. Other considerations include, but are not limited to sinkholes, volcanic eruption, mudslide, landslide, avalanche and subsidence. Earthquake and volcanic activity may be identified to a limited extent with respect to likelihood of occurrence. Flooding is a similar situation where there are 100 and 500 year flood table histories readily available. In addition, the general topography either contributes or eliminates a flood exposure. Severe weather, as far as extreme cold, tornado, hurricane and hail storm are readily identifiable with respect to existing and anticipated crisis exposures. The perils readily identified through traditional insurance coverages are essential in comprehensive crisis exposure analysis of an operating entity. Insured perils may be utilized in identifying various exposures by grouping similar insurance coverages, as follows: Liability Exposures Automobile Aircraft Water craft Premises Products Completed operations Contractual Professional - errors and omissions Directors and Officers legal liability Property and All Risk Coverage Exposures Real property Personal property Time element exposures Business interruption Extra expense Cargo - Inland Marine and Ocean Marine Valuables on display and in transit Computer - software and hardware Off-site record storage Accounts receivable Retroactive building codes compliance Automatic sprinkler leakage Debris removal Crime Exposures Burglary and robbery Cash - on and off premises Checks and securities Employee fidelity Forgery and embezzlement Workers Compensation Exposures Applicable state regulations States operating via monopolistic fund Agriculture and domestic workers activities Marine activities Longshoremens' and Harbor Workers Act 6.2 Legal Compliance Considerations Federal, state and local governments are continually increasing the number of requirements and prohibitions under which businesses must operate. Failure to comply with them can lead to fines, enforcement proceedings and lawsuits by the regulators that can severely impair a company's ability to conduct its business. It is essential for ever business operating in a regulated field to have a system in place to assess the business's on-going exposure to such regulations and to assure compliance where required.