What is a business contingency plan?

A business contingency plan outlines actionable steps to address specific operational threats. It serves as a safety net designed to deploy if anticipated risks become reality. Because it is a reactive tool, the plan is only activated if a specific risk materialises.

To put it simply, it is a ‘plan B’, a backup in case of a significant roadblock.

Contingency planning involves organisation development by creating backup plans to address potential disruptions and ensure continuity. It deals with the unexpected and is an integral part of the risk management strategy of the organisation.

When a company creates such a strategy, it takes the first step towards continuity by identifying risks to its business. Doing so is part of developing measures that will mitigate risks. Creating this plan is a proactive strategy to prepare for possible risks.

Contingency plans can be at a business scale but can also apply to specific projects. They help reduce project delays, scope creep, negative outcomes and risks of budget overruns.

Why have a business contingency plan?

We tend to associate contingency planning with negative events. This does not have to be the case. Plans are in place as an alternative solution to the preferred path chosen. For example, organisations may prepare contingency measures in the event of a surge in business.

These plans also help organisations prepare for unforeseen circumstances that could disrupt operations, such as natural disasters, cybersecurity breaches or technological failures. As such, contingency planning differs from crisis management.

The key difference is that contingency planning focuses on proactive preparation for potential scenarios, while crisis management deals with responding to events after they occur.

Nonetheless, having a plan helps to ensure business continuity through adverse events or, more simply, changes in the market. It allows the organisation to continue its activity and minimise the impact of the event. Explore some benefits of contingency planning.

It may also be relevant to have succession planning in place for small and medium businesses.

Contingency planning minimises any negative impact

A solid plan anticipates disruptive events. It helps you reduce or eliminate potential damage.

Contingency planning ensures that the business bounces back

Planning for the unexpected means that the business can respond and recover promptly. This helps organisations resume normal business operations more quickly after disruptions.

Contingency planning limits financial losses

Incidents often have a costly impact on organisations. By having a ‘plan B’, organisations can refocus their efforts and 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 an event. They can assess the situation quickly and use the strategy to be proactive, saving 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 can lead the business to thrive despite changing conditions.

Creating an effective plan requires thoroughness and is not a single person’s job. Research and brainstorming help to ensure that all events are covered. Discover 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. It is important to create plans that address a variety of potential risks by outlining specific actions, responsibilities and response timelines. The following steps can help to ensure effective outcomes.

Step 1: map out your business processes and your resources

The first step is to assess your current processes, resources and market conditions. At this stage, the project managers in charge also ask themselves which factors allow the business to achieve its goals.

Understanding how the business operates is important for identifying the essential systems and processes that keep everything running smoothly. By gaining this holistic visibility, the project team can spot what is critical to the business and therefore identify potential risks.

Step 2: conduct a granular risk assessment

Conducting a risk analysis is an important part of this step. This phase goes deeper into the identification of risks or unexpected events. The project team identifies business risks and prioritises important risks by assessing their severity and likelihood.

It is important to focus on key risks that could have the most significant impact on business operations.

Assessing each specific risk helps inform the contingency planning process. The project team brainstorms on the business’s strengths and weaknesses based on the existing resources and processes. A SWOT analysis can be a good way to move forward.

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

While optional, a risk matrix provides essential clarity on which threats require the most immediate attention. However, creating a matrix can shed some light on the priorities for the organisation. The risk assessment matrix places the threats to the business on a scale of likelihood of occurrence versus the level of impact on the business.

Step 4: develop specific contingency responses

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

Begin by creating a detailed plan using the data collected in the initial steps. Keep it simple and to the point, but make it comprehensive enough for anyone picking up the plan to clearly understand what needs to be done.

Tailor the plan to each business unit as needed, addressing the specific risks and requirements of each segment. Store it in a central location that is easily accessible to all relevant teams to facilitate quick implementation during disruptions.

Step 6: communicate the plan to all project participants

Creating a plan is only the first half of the process. 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 quickly. For your plan to be effective, review it regularly. Doing so will make it relevant to the context and therefore more effective.

It is important to develop a backup strategy for critical business functions to ensure continuity during unforeseen disruptions. Additionally, consider supply chain issues when developing contingency strategies, as disruptions in the supply chain can significantly impact ongoing operations.

Plan components: what to include in your contingency plan?

A strong plan is more than just a list of possible risks. It’s a comprehensive document that prepares your business to respond quickly and effectively to unforeseen events. To ensure your contingency plan is actionable and effective, include several components:

• Risk assessment: begin with a detailed risk assessment to identify potential risks that could disrupt normal operations. This includes both internal and external factors, such as natural disasters, supply chain disruptions or cyber threats. Don’t forget to look into existing documentation you may have, such as a workplace stress risk assessment or a lone worker risk assessment, as they may have useful content.
• Business impact analysis: conduct a business impact analysis to determine how these risks could affect your core business functions. This step helps you prioritise which areas require the most attention and resources.
• Identification of critical business functions: clearly outline which business operations are essential for maintaining continuity. In the event of a disruption, this helps your team know which functions to restore first.
• Actionable response plans: develop step-by-step instructions for responding to each identified risk. These response plans are clear, concise and easy to follow. They enable your team to act quickly when unexpected events occur.
• Emergency response and crisis management procedures: include detailed procedures for emergency response and crisis management. This guarantees that everyone knows their role during a major incident.
• Disaster recovery strategies: outline your disaster recovery approach, including how you will restore normal operations and recover lost data or assets.
• Supply chain contingency plan: address potential supply chain disruptions by identifying key suppliers, alternative sources and backup strategies to keep your business running smoothly.
• Regular reviews and updates: your plan is a living document. Schedule regular reviews to keep it up to date and relevant as your business evolves and new risks emerge.

By including these key elements, your contingency plan will provide a solid foundation for managing potential risks and maintaining business continuity.

Backup and recovery: safeguarding your data and operations

Protecting your business’s data and ensuring the rapid recovery of operations are important aspects of an effective contingency plan. Backup and recovery strategies are designed to minimise downtime and financial losses when unexpected events, such as a data breach or system failure, occur.

• Regular data backups: implement a schedule for regular data backups. Have all critical information securely stored and easily accessible. This includes customer records, financial data and operational documents.
• Comprehensive backup plan: develop a backup plan that specifies what data is backed up, how often and where backups are stored. Consider using both on-site and off-site solutions, such as cloud storage, to protect against natural disasters or physical damage.
• Recovery procedures: clearly outline the steps required to recover data and restore business operations. This typically includes procedures for recovering IT systems, applications and infrastructure, as well as restoring access for key personnel.
• Emergency response plans: integrate your backup and recovery processes with your broader emergency response plans and crisis management strategies. This guarantees a coordinated approach when responding to incidents that threaten your business operations.
• Testing and validation: regularly test your backup and recovery procedures to confirm they work as intended. Simulations and drills can help identify gaps and ensure your team is prepared to respond quickly.
• Minimising financial losses: by having a robust backup and recovery plan in place, your business can reduce the risk of lost revenue, reputational damage and prolonged operational disruptions.

With these measures, your contingency plan will help safeguard your business against data loss and ensure you can resume normal operations swiftly after any negative event.

More tips for your contingency plan

Now that we know the steps to creating a contingency plan, let’s explore further tips that will make the process easier for project managers. Reviewing contingency plan examples can also help project managers understand best practices for handling various risks and disruptions. Consider the following recommendations.

Ensure you have gathered the right resources

Clearly define the roles and contact information for key personnel responsible for executing the plan. For this reason, businesses with high turnover may review and update their plan regularly. Adopting an agile team approach can be particularly helpful, as it allows teams to respond quickly to changing circumstances.

Create a contingency policy

Establishing a formal contingency policy ensures company-wide buy-in and official authorisation. Doing so gives it more weight and may lead to quicker adoption by the audience.

Brainstorm the possible scenarios

Brainstorming brings different ideas to the table and helps ensure that all the risks are identified and considered. It is important to identify all risks holistically when creating your 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 prompts leaders to evaluate threats and opportunities, helping the organisation adapt to changing conditions. For more tips on how to manage your business you can use a PESTLE analysis.

Regulatory compliance: meeting legal and industry standards

Ensuring your contingency planning aligns with regulatory compliance and industry standards is important for protecting your business from legal and financial risks. A well-developed plan addresses all relevant legal requirements and best practices for business continuity and disaster recovery.

• Legal and regulatory requirements: identify the specific laws and regulations that apply to your industry and location. This may include data protection laws, health and safety regulations or sector-specific standards for business continuity.
• Consultation with key contributors: work closely with legal advisors, compliance officers and associated teams to align your plan with all the necessary requirements. Their expertise will help you navigate complex regulations and avoid costly penalties.
• Business continuity plan integration: your business continuity plan may be designed to maintain critical operations during unforeseen events, ensuring compliance with both internal policies and external regulations.
• Disaster recovery plan: include a disaster recovery plan that outlines how you will restore normal operations in compliance with legal and industry standards. This covers data recovery, communication protocols and reporting obligations.
• Ongoing review and updates: regulatory requirements can change over time. Regularly review and update your plan to ensure ongoing compliance and relevance.
• Documentation and record-keeping: maintain thorough documentation of your contingency planning process, including risk assessments, response strategies and testing results. This not only supports compliance but also demonstrates your commitment to best practices in risk management.

By prioritising regulatory compliance in your contingency planning, your business can confidently navigate unforeseen events, maintain normal operations and protect its reputation and bottom line.