Avoiding Knee-Jerk Reactions to a Crisis

Resource
Nonprofit Stewardship

Contents
Start by Asking a Few Questions
Take the Long View First
   • Strategic tasks
   • Tactical tasks
Don't Put Off Making Decisions
Summary

From Becky Andrews, Marketing Manager, Fieldstone Alliance:

IMAGINE THIS SCENARIO: Your key funder calls you three months before the end of the fiscal year. Their message: The grant that makes up 40 percent of your overall income and 100 percent of any net you may retain has been cut by 30 percent as of the beginning of the fiscal year, and worse, you have to cut 10 percent from the remaining three months of this year’s grant. If you thought life was stress-filled before, welcome to hypertension land.

When confronted with a crisis, it’s not uncommon for people to have knee-jerk reactions that may do more damage than the initial crisis. This issue of Tools You Can Use—excerpted (with minor changes) from chapter 9 of Nonprofit Stewardship by Peter Brinckerhoff—provides some checklists of things to do and questions to ask when times suddenly get very bad.

Start by Asking a Few Questions
You can use a “stop, step back, and check the long view” process to help avoid responses that use up a lot of energy but don’t really advance your cause. For the funding crisis described above, you may ask:

• How bad is the shortfall, really? Is the news from our funder fact, or is it rumor based on rumor? Is it real and, if not, when will we know the real number? Is there any room for negotiation?

• What is the cause of the shortfall? Is the shortfall (as in the example above) a result of one funder’s change of priority, or is this a wider, systemic issue such as an economic downturn?

• Is the shortfall long-term or short-term? Will we get through this in one fiscal year, or is this our new reality?

• Are individual services at risk? Are the cuts deep enough so that we can’t do a particular service or set of services well and may have to cut them completely?

• Is the organization’s viability at risk? Is the cutback deep enough and important enough that the organization might not survive? (The example above results in the loss of any profits.) Conversely, if the services being cut are central to the image of the organization, or the flow of services in the organization, its viability might also be at risk.

• Are legal responsibilities or contractual obligations at risk? In some cases, you can’t just cut services pell-mell; you are required to keep services in place by contract. Review copies of all contracts and grant awards. Note unavoidable obligations and mark the potential controversies for a possible review by your attorney.

FOR EXAMPLE: You have a transportation contract to provide routes in all parts of your community. You take a 20 percent hit in funder income and decide to cut four of your least-used routes. The problem? Those are the only four routes that serve a particular socioeconomic group in your community. You’ve just violated your contract.

Take the Long View First
Once you get through your starting questions, you need to focus your thoughts on both long-term and short-term reactions to the crisis. The most common response from managers is to deal with tactical, or short-term actions. This is a mistake. You need to first look at strategic or long-term actions. Taking the long view first is a better stewardship response.

FOR EXAMPLE: The best lesson about long view and short view comes from canoeists. If you’ve canoed, you know that when the water is calm, you can meander across the lake enjoying the scenery. When the wind and waves pick up, the only way to get to the far side is to pick a place on the far shore and focus on it. If you just watch the bow of the canoe (the short view) you’ll go off course, and can even wind up going around in circles. You need to take the long view (the far shore) to accomplish your goal.

The following two lists are actions you should consider and questions you should ask as you work your way through your crisis. Strategic first, then tactical.

Strategic tasks

• Review your mission and values statement—what does it say about priorities?
• Review your strategic plan—what does it say about priority services?
  
• Review your marketing plan—what markets are most important?
  
• Talk to peer organizations—are there appropriate group responses to the cuts?
  
• Talk to state trade associations—what are other organizations doing?
  
• Is there a need for long-term strategic restructuring such as merger or partnering?

Tactical tasks

• Run weekly cash flow projections—remember, cash is oxygen, and you are already in thin air.
• Inform staff and board early and often—but only tell them what you know, not what you think may happen, or what you are considering, or what might/could/should/ought to happen. The rumor curve is deadly.
• Review contractual obligations.
• Check state labor laws and union contracts for layoff and cutback limitations.
• Inform vendors of possible late bill payments.
• Inform creditors; this is simplified if your banker is on your crisis team.
• Develop best-case, middle-case, worst-case scenarios. Be conservative about all three.
• If layoffs are necessary, do them carefully, in complete accord with state regulations, union contracts, and best HR practices. Sooner is nearly always better with layoffs.
• Communicate, communicate, and communicate—with staff, volunteers, service recipients, community members, funders, vendors, and creditors.
• Prepare for media inquiry.

Don't Put Off Making Decisions
One of the toughest parts of crisis management is making crucial decisions. Do I lay these people off now, or wait? Do we cut back this program or that program? This is hard stuff, no doubt. But making a decision and being accountable for it is part of the job.

The biggest danger in decision making is delay. None of us likes making hard decisions, and we may wait as long as possible, optimistic that things may get better. We don’t want to have knee-jerk reactions, but we do want to take care of our organization and our staff. And much as we want to get all the information before we decide, the reality is we can’t get that information.

Good managers always want more information in hand before making a difficult, particularly a crucial, decision. In a crisis, there will always be another date approaching, another memo in the mail, another meeting coming up to help you delay decisions. Get used to the idea that you, as a leader, have to pick a point and decide.

Summary
Shrinking programs, staff, and mission is not fun. Good times and expansion years are almost always balanced out by some lean times. Ideally,  “lean” will merely mean “not growing,” and you will avoid the kind of drastic cutbacks discussed here.

Being a steward of your organization forces you to keep your organization's mission foremost—and helps you make decisions that are best for the people your organization serves.

Additional Resources
Corporate Alternatives (Peter Brinckerhoff’s web site)
www.missionbased.com
Find information about Peter’s services as well as ideas, free tools, including a self assessment, and other resources.

Fieldstone Alliance
Article: Advice for Leading an Organization through a Major Change

Article: Does Your Organization Have What It Takes to Start a Business Venture?
11 questions you should answer before embarking on a social venture.

Service: Financial Strategy Consulting
Fieldstone Alliance’s consulting team has extensive experience in working to restructure nonprofits’ revenue streams and developing effective business plans. We know how to add strength, diversity, and resilience to the income side of a nonprofit’s finances.  For more information, contact Tom Triplett at 651.556.4504 or ttriplett@FieldstoneAlliance.org.  

Free Management Library
www.managementhelp.org
This link takes you to the “Crisis Management” section of their massive library.

NonprofitExpert.com
www.fundraisingexpert.com
This link will take you to a list of web sites and articles related to crisis management.

Top 5 Tips for Effective Nonprofit Crisis Planning
http://nonprofit.about.com

All the Best,

Becky Andrews
Fieldstone Alliance

September 5, 2007

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