Difference Between Crisis Management and Risk Management

Key Difference – Crisis Management vs Risk Management
 

The key difference between crisis management and risk management exists in several factors such as nature, engagement, etc. Crisis management and Risk management branches out from the best practicing essentials for a sound corporate governance structure. These terms are interconnected and would provide strong support to a better governance within a business entity ensuring the stability of the business in a competitive environment. Crisis management deals with major events that harm or threatens the organization, its stakeholders, or the generic public. Risk management involves with determining the impacts of threats, the nature of threats, and finding the best ways to control risk by either accepting, transferring, avoiding or mitigating to ensure the smooth running of the business. Good risk management process would highlight identification and acceptance of risks, and a process of crisis management would respond to an event that would threaten the operations. Relationship lies between these two as a risk management turns into a crisis management if not handled wisely in the early stages of a threat.

CONTENTS

1. Overview and Key Difference
2. What is Crisis Management
3. What is Risk management
4. Side by Side Comparison – Crisis Management vs Risk Management in Tabular Form
5. Summary

What is Crisis Management?

Crisis management is the term that would describe a specific process or a collection of processes that are put in place to deal with an unexpected event or harm that threatens an organization’s business operations or an individual or public in general. Here, the crisis is a sudden and unexpected situation that causes unrest among people at the workplace. Crisis is an event caused by a risk. Crisis management is a reactive process. A crisis occurs without a prior warning. These emergency situations can arise due to reasons such as,

• Technical failure and breakdown
• Employee disagreements
• Violence and threats from terrorism
• Neglecting minor issues in the beginning – should be dealt at risk management stage
• Illegal behaviours
• Organization failures on paying to creditors

Crisis management deals with ensuring how to face above tense situations if they arise any time without a prior notifying. The process includes activities and steps that help management and all employees to analyse and understand the events that led to uncertainty within the organization.

What is Risk management?

Risk is identified as a part of anyone’s life and that is applicable to an organization or a business process too. Risk management refers to the activity that identifies potential risks in advance or early stages and takes precautionary actions to reduce or curb risks through analyzing. This has to be a systematic process of understanding, evaluating, and addressing probable risks to maximize the chances to achieve objectives of individuals as well as organizations. Risk management is a proactive process. Effective risk management forms the backbone of the business ensuring steady and rigid availability to face any unexpected threat with ample contingency resources. Risk management would cover risks arising in a business due to natural disasters or a sophisticated system failure.

What is the Difference Between Crisis Management and Risk Management?

Summary – Crisis Management vs Risk Management

Both crisis management and risk management support better governance within a business entity ensuring the stability of the business in a competitive environment. Both are essential factors of a sound corporate governance structure. The key difference between crisis management and risk management lies within the boundaries of their nature and engagement procedures.

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Images Courtesy:

1. Roundtable on “Managing the State’s Budget – Hard Choices in an Economic Crisis” by  DickClarkMises (CC BY 2.0)
2. The Risk Management Framework (NIST Special Publication 800-37) by Zagaberoo (CC BY-SA 3.0)