Does Your 2021 Budget Reflect the Possible Cost of a Crisis?


The Financial Cost of a Crisis

It is financial planning season  and next year is more fraught with unknowns than the usual process of piling guesses on top of each other that constitutes long-range budgeting.

Once again you are facing a crucial decision. 

Is this the year to invest in a platform to identify risks and help document, track and resolve threats with less damage to reputation or business? 

The unexpected and damaging onset of the global pandemic is sharpening 2021 priorities. We talk to a lot of organizations who felt they were not ready, were not organized and did not have the most effective resources in place when COVID rocked everyone’s world in March.

For evidence that a relatively modest investment in issue and crisis planning will pay dividends, leading global public relations agency, Fleishman Hillard, looked at the cost of crisis communications and concluded that, “Many CEOs and CFOs don’t want to invest the necessary time and money in preparedness, hoping this year will be another in which they are rewarded for being frugal. As a strategy it works… until it doesn’t.” FH noted the millions it costs a company when that crisis strikes and the company is not prepared.  

Buyers Guide for Issue and Crisis Management Platforms

Several studies have looked closely at the real cost of a crisis. And the conclusions are always the same. When you look at the impact on the stock price – a badly handled crisis will cost you millions, if not more.

Here are highlights from a selection of the research findings from the past two years:

  • The Economist looks at the impact on corporate value.
    This study began with the authors wondering if crises had a lingering impact after the initial loss of face and terrible media coverage. The answer was a resounding, ‘Yes’! Looking at eight firms who had undergone major corporate scandals, including our case history favorites Wells Fargo, Volkswagen, Equifax and United Airlines, it concluded that the median firm was worth 30% less today than it would have been if it had not suffered the crisis, compared to a basket of its peers. 
  • ‘Crisis Response Index’ monetizes the value of crisis management.
    Created by the New York brand consultancy, Hot Paper Lantern, the Index features data from 80 companies that had experienced a significant crisis, with analysis from 450,000 media articles and 85,000 social media mentions. The analysis is undertaken against two key criteria – how quickly did the company respond and how effective was its response? Among its findings was that a company with an ineffective response had average stock price decreases of 14% in the next two years – compared with no change in those that responded effectively. The report accompanying the publication of the Index suggested that investors demand that companies stress test their crisis preparedness. 
  • The cost of disastrous customer interactions.
    Business software advisor, Saaslist, looked at the stock prices of ten companies for a period of two years following a high-profile crisis based on a complete breakdown in customer service. For example, Chipotle's food poisoning issues led to a severe impact – two years later, its stock price was down 40%, representing a loss in value of $8.3m. 

All this is worth bearing in mind as you budget for the uncertain world of 2021 and its proliferating risks. This is not the year to cut corners on investments in issue and crisis preparedness.


Learn how hundreds of organizations large and small are using our award-winning issue and crisis management platform, In Case of Crisis, to better prepare for and respond faster to emerging threats.