What is contingency planning?
Contingency planning is part of risk management. This practice ensures business continuity and recovery from unexpected events. But what exactly is a contingency plan? Why should your business have one? And when should you use it? These are all questions answered in the section below. Read on to master contingency planning.
What is a contingency plan?
A contingency plan is, as its name states, a plan with actionable insights. However, the plan is created as a safety net in the event of the anticipated risks becoming a reality. This means that it may or may not be implemented. To put it simply, a contingency plan is a ‘plan B’, a backup in case of significant roadblock. It tackles the unexpected and should be an integral part of the risk management strategy of the organisation. When a company creates such a plan, it takes the first step towards continuity by identifying risks to their business. Doing so is essential for developing strategies that will mitigate risks.
Contingency plans can be at business scale but can also apply to specific projects. They reduce project delays, scope creep, negative outcomes and risks of budget overruns.
Why should you have a contingency plan?
We tend to associate contingency planning with negative events. This does not have to be the case. Contingency plans are in place as an alternative solution to the preferred path chosen. For example, organisations may prepare contingency plans in the event of a surge in business. As such, contingency planning differs from crisis management.
Nonetheless, having a contingency plan is essential to ensure business continuity through adverse events or more simply changes in the market. It will allow the organisation to continue its activity and minimise the impact of the event. Have a look at some benefits of contingency planning below.
Contingency planning minimises any negative impact
With a contingency plan in place, the potential damage that the event might have caused is anticipated and thus reduced or cancelled all together.
Contingency planning ensures that the business bounces back
Planning for the unexpected means that the business is able to bounce back quicker and to recover promptly.
Contingency planning limits financial losses
Incidents often have a costly impact for organisations. By having a ‘plan B’, organisations are able to refocus their efforts, continue to generate profit while minimising their losses.
Contingency planning saves time through a proactive approach
If a plan is already in place, leadership teams do not need to be reactive to the event. They can assess the situation quicker and use the plan to be proactive and thus save valuable time.
Contingency planning is key to ensuring that your business continues to function and survives the unexpected such as natural disasters, leadership departure or, more simply, a power cut. It provides agility that will lead the business to thrive despite changing conditions.
Seven steps to creating a contingency plan for your business
Creating an effective contingency plan requires thoroughness and is not a single person’s job. To ensure that all events are covered, research and brainstorming are essential. Below are some key steps and tips to follow when creating your contingency plan.
Key steps to creating your contingency plan
Creating a contingency plan is a project management exercise. The following steps can help to ensure effective outcomes.
Step 1: Map out your business processes and your resources
The first step to take when creating a contingency plan is to assess the state of play and to work at gaining a full understanding of the current processes, resources and market conditions. At this stage, the project managers in charge of the contingency plan should also ask themselves which factors allow the business to achieve its goals. By gaining this holistic visibility, the project team can spot what is critical to the business and therefore lead to the identification of potential risks.
Step 2: Conduct a granular risk assessment
This step goes deeper in the identification of risks or unexpected events. The project team should brainstorm on the business’ strength and weaknesses based on the existing resources and processes. A SWOT analysis might be a good way to move forwards. The goal is to understand what events may compromise the business and to what level.
Step 3: Use a risk matrix to gain full visibility of the landscape
Step 3 is not mandatory to the contingency planning process. However, creating a matrix can shed some light on the priorities for the organisation. The risk assessment matrix should place the threats to the business on a scale of likelihood of occurring versus level of impact to the business.
Step 4: Elaborate the contingency strategies
After you have thoroughly identified the risks, reflect on the strategies and actions that could counter them. For each risk, develop a solution. Make sure that you target the risks that have the highest impact on the business first.
Step 5: Create the contingency plan
Use the data collected in the initial steps to create your contingency plan. Keep it simple and to the point. Anyone picking up the plan should clearly understand what needs to be done. At this stage, ensure that senior stakeholders agree with the content of the plan and assign a senior sponsor to the plan.
Step 6: Communicate the plan to all stakeholders involved
Having a contingency plan is great. However, like with any other plan, it will be ineffective if it is not communicated to the appropriate audience. Once the plan is approved by leadership teams, launch a communication campaign. Make sure that you address the audience that will be involved in your ‘plan B’.
Step 7: Revisit the plan and review it on an ongoing basis
Market conditions may change at fast pace. For your plan to be effective, make sure that you review it on a regular basis. Doing so will make it relevant to the context and therefore more effective.
More tips for your contingency plan
Now that we know the steps to creating a contingency plan, let’s have a look at further tips that will make the process easier for project managers. Consider the recommendations below:
Ascertain that you have gathered the right resources
Key personnel should be listed in the contingency plan. For this reason, businesses with high turnover should review and update their plan on a regular basis.
Create a contingency policy
By having a policy in place, you make the plan official. Doing so puts more weight to it and will lead to quicker adoption by the audience.
Brainstorm the possible scenarios
Brainstorming brings different ideas to the table. It is essential to ensure that all risks are identified when creating your contingency plan. Make sure that you get a varied team to conduct your brainstorm.
Test the plan you have created
A lot can go wrong with a new plan. Testing it using simulations can shed light on some process inefficiencies or roadblocks that would need to be addressed or result in an adaptation of the plan.
Not everything can be anticipated. However, regardless of the unknown, having a contingency plan will drastically reduce the risks for businesses. It ensures they reflect on the threats to their organisation as well as the opportunities and that they prepare to adapt to them. For more tips on how to manage your business, have a look at the following content:
