We all know the truism that failing to plan is planning to fail. While the Benjamin Franklin-inspired quote is accurate, what happens when your plan hits a snag? Every business or project manager knows adequate risk assessment and management through a contingency plan puts them in the driving seat when external or internal factors impede the progress of a business.
A contingency plan is nifty tool businesses and project managers employ to determine how future events will affect their operation and how to manage the situation proactively. The recent pandemic resurfaced the importance of an excellent actionable contingency plan. In this post, you will learn the qualities of a good plan and follow through with our easy-to-do plans for developing an effective contingency plan.
What Is A Contingency Plan?
A contingency plan is a roadmap that outlines how a business or corporation will respond to future events outside their routine occurrences that may interfere with operations or the initial plan. At the minimum, a contingency plan is a plan “B” if things go south.
Think of an e-commerce business that has been hacked. Without a contingency plan in place, the business will have to build the database from scratch and rely on their memory which is a tall task. The organization would incur high costs for restoring their website and ensuring the hack will not happen. The business would have a contingency plan for such events to prevent all this.
Note: A contingency plan details the potential risks and eventualities that will impact the business to the best of the risk manager’s expertise. Even the best managers cannot prepare for Black Swan events.
What Is The Main Purpose of Contingency Planning?
The primary purpose of a contingency plan is to enable organizations to react swiftly and decisively to unfortunate events when they occur. When adverse events happen, businesses stall. When your business is not running, you suffer losses and still have to pay your employees. The prudent remedy to inoperability is a contingency plan. Having one in place would get your business back on its feet rapidly.
Contingency Plan Examples & Templates
How to Write a Contingency Plan
An effective contingency plan determines how fast your business will resume normal operations after unfortunate events. Follow the following steps to creating a reliable contingency plan:
1. Conduct a business impact analysis
Identify the essential processes to your business and prioritize them. Identify what your business can’t do without. Technical and human resources that are key to the delivery of day-to-day operations of the business are crucial.
2. Identify potential risks
Identify the potential adverse events that could compromise each resource’s productivity. Use predictive models to identify the risks or have an expert risk manager conduct the assessment.
After Identifying the potential events, prioritize them according to severity and likelihood of occurrence. High severity, high likelihood risks should receive the most attention.
Tip: It is best to incorporate a worst-case scenario. Companies that prepared for the pandemic weathered it with minimal distress while the unprepared ones went into receivership.
3. Draft a contingency plan
Identify preventive and recovery strategies for each risk. Brainstorm with your team and consider everyone’s input to gain a holistic view of risks and solutions. Choose your probable solutions based on feasibility and rapidness. The plan should include the immediate response and the course of action to adapt to new conditions or revert to normal operations promptly.
In your contingency plan, detail the timeline up to recovery and the cost during the mitigation process. Also, remember to state the company’s losses and how you plan to recoup the money. Set aside the budget for the plan. Assign relevant stakeholders who will oversee the plan and seek approval from the managerial cadre. Once approved, you can finalize the draft into a conclusive plan.
Tip: Use planning software to draft your contingency plan. New developments occur each day, and savvy managers know the need to update a contingency plan continuously. Planning software enables you to incorporate the changes and redesign your plan.
4. Distribute your plan
Share your plan with relevant stakeholders or the entire organization if you deem fit. Use official communication channels and seek feedback.
5. Review your plan
A contingency plan is not set in stone. Review your contingency plan as you get hold of new information and potential risks.
The senior management cadre is responsible for contingency planning. However, it is prudent to appoint a contingency manager to create a plan and delegate roles.
A good contingency plan should outline what each individual should do, a contact person, and a timeline. You should also set aside a budget for implementing the plan.
The initial step in contingency planning is identifying the essential resources of your business. What can’t your business do without?
Walk-through and tabletop tests are standard contingency plans evaluation techniques. However, develop a straightforward testing plan depending on contingencies to accurately pinpoint inefficiencies and ameliorate them.
The key benefit of a contingency plan is resuming normal activities rapidly. Also, you can determine the essential operations and gear efforts towards them to improve profitability.
Contingency plan testing is an assessment of the contingency plan to identify the preparedness, practicability of the plan, and any weak points in the plan. The test involves matching the plan against preset success criteria.
Contingency plans prepare you to handle unfortunate events better. Without a plan, your business would suffer considerable loss and, in severe cases, forceful liquidation.
Evaluate your plan as new employees, resources, and world events enter the picture. Alternatively, evaluate your contingency plan quarterly.
An emergency plan is a course of action to respond to immediate risk. Emergency plans take effect after an unfortunate event has occurred. In contrast, a contingency plan prepares for potential risks’ handling them and adapting to the changes.
Business continuity plan. The name is derived from the intention of the contingency plan.
While it’s good to have confidence in one’s project, black swan events and disasters are always lurking and can derail your project. It is prudent to proactively manage the unfortunate, unforeseen events through a contingency plan. Use this guide to prepare your contingency plan and mitigate future risks. In the words of Warren Buffett,” It is only when the tide goes out that you discover who has been swimming naked.” Do not swim naked, have a contingency plan in place.