Sylabus for Crisis Mgmnt and Recovery

Session No. 5

Course Title: Business and Industry Crisis Management, Disaster Recovery, and Organizational Continuity

Session 5: Vulnerability Analysis and Risk Assessment, Risk Management, and Risk Communications

Time: 1 hr

Objectives:

5.1. Discuss selected business crisis case studies as they relate to the crisis management and business continuity model presented in session 4.

5.2. Define the basic terms associated with risk concepts.

5.3. Explain the interrelationships of risk assessment, risk management, impact assessment, and risk communications within the model of risk-based decision making.

Scope:

The session should start with a discussion of the case studies (Pinto, Tylenol, and Perrier) as they relate to the model presented in session 4. Additional information concerning the Pinto and Tylenol crises is included for the instructor to consider and present as a guide for the discussions. The Perrier case study is presented in the text in sufficient depth to provide a framework for discussion. The remainder of the session will provide an overview of basic concepts and inter-relationships of risk assessment, risk management, risk communications, and impact assessment within the model of risk-based decision making.

Readings:

Student Reading:

Barton, Laurence. 1993. Crisis in Organizations: Managing and Communicating in the Heat of Chaos. Cincinnati, OH: South-Western Publishing Co. Pages 72-92.

Boniface, Duane. 1996. "Risk-Based Decision Making Guidelines." Unpublished. Introduction. Copy attached.

Federal Emergency Management Agency. 1996. Emergency Management Guide for Business and Industry. Washington, DC: Federal Emergency Management Agency. "Section 1: 4 Steps in the Planning Process," pages 9-24. Available on the FEMA Web site at http://www.fema.gov/library/bizindex.htm or in published form from FEMA, Publications, P.O. Box 70274, Washington, DC 20024.

Instructor Reading:

Boniface, Duane. 1996. "Risk Based Decision Making Guidelines." Unpublished. Copy attached. Introduction.

Federal Emergency Management Agency. 1996. Emergency Management Guide for Business and Industry. Washington, DC: Federal Emergency Management Agency. "Section 1: 4 Steps in the Planning Process," pages 9-24. Available on the FEMA Web site at http://www.fema.gov/library/bizindex.htm or in published form from FEMA, Publications, P.O. Box 70274, Washington, DC 20024.

Gioia, Dennis A. 1992. "Pinto Fires and Personal Ethics: A Script Analysis of Missed Opportunities." Journal of Business Ethics. Vol. 11. Pages 379-389.

Murray, Eileen, and Shoen, Saundra. 1992. "Lessons from the Tylenol Tragedy on Surviving a Corporate Crisis." Medical Marketing and Media. Vol. 27, No. 2. Pages 14-19.

General Requirements:

None.

Objective 5.1 Discuss selected business crisis case studies as they relate to the crisis

management and business continuity model presented in session 4.

Requirements:

Lead a class discussion of the Pinto, Tylenol, and Perrier case studies as they relate to ineffective or effective strategic crisis management.

Complete the modified experiential learning cycle for this objective. Include the question, how does the use of case studies contribute to the students' learning?

Remarks:

I. Pinto case study (factual information extracted from the article by Gioia).

A. Background.

1. Pinto was introduced in 1970 as the 2000:2000 concept - a car that weighed 2,000 pounds and would sell for $2,000. These upper limits of weight and cost were reflected in design decisions contributing to the construction of an inherently unsafe automobile.

2. The design and production time was cut from an industry average of 43 months to 25 months in order to get the product in the market as soon as possible.

3. Design defects, upheld in court decisions, included a gas tank of very thin metal that in a rear end collision could sandwich between the rear bumper and axle and rupture, making the vehicle susceptible to fires.

4. More than 50 deaths of drivers and/or passengers due to fires were attributed to the design defects and over 100 lawsuits were filed against Ford.

5. From the court cases, it was discovered that Ford was aware of the design problems before the Pinto was introduced to the market. (Ford was in compliance with the pre-1976 Federal Motor Vehicle Safety Standards for gas tanks. New standards which the Pinto did not comply with were proposed in 1968, but were not adopted until 1976 due to automotive manufacturers' opposition.) But the company had made an economic decision not to correct the defect during production or through voluntary product recall.

a. An internal Ford memorandum, revealed in subsequent court cases, contained the economic calculations (cost/benefit) used by Ford in their decision making.

b. The calculations as presented by Gioia were: The cost to repair the 12.5 million vehicles with Pinto-like gas tanks was projected at $137 million ($11 per vehicle) while it was estimated that court cases would cost about $50 million ((180 deaths x $200,000/per death) + (180 burn injuries x $67,000/burn injury) + (2,100 burned cars x $700/car) = $49.53 million).

c. The figure of $200,000 per death was the commonly accepted automotive industry figure in the early 1970s. Gioia attributes the economic calculations and the $200,000 figure to a 1997 article by M. Dowie.1 Dowie states in his article, "A 1972 report of the National Highway Traffic Safety Association (NHTSA) decided that a human life was worth $200,725 (the cost to society every time someone is