What Is a Contingency Plan for a Business?
A business contingency plan is a strategy for responding to unforeseen circumstances that may or may not affect a firm in the future. Typically, a contingency plan is developed in response to a negative incident that might jeopardize a company's reputation or possibly its ability to continue operations. There are, however, good contingency plans in place, such as what to do if the organization receives an unexpected windfall of cash or other resources.
Contrary to a risk response plan, which is more of a reaction to a risk incident, a contingency plan is a proactive strategy. A company contingency plan is established to account for such disruptive situations, ensuring that you are prepared should they occur.
While any firm would prepare for its product or service to succeed in the market, the market is far from steady. That is why every organization should have a business contingency plan in place to address both positive and negative risks.
In Project Management, Contingency Planning
Contingency planning is frequently a component of risk management in project management. Any project manager is well aware that a project plan is only a sketch. Occasionally, unanticipated developments and hazards force programs to cross certain boundaries. The more prepared a manager is for those dangers, the more successful his project will be.
However, risk management is not synonymous with contingency planning. Risk management is a subfield of project management that consists of a collection of tools and strategies that project managers use to develop a risk management strategy.
A risk management plan is a comprehensive document that addresses all aspects of risk identification, assessment, avoidance, and mitigation.
A contingency plan, on the other hand, is concerned with generating risk management methods to implement in the event of a real incident, comparable to a risk response plan. Developing a contingency plan in project management may be as easy as asking, "What if...?" and then describing your plan's actions in response to that question.
How to Create an Emergency Preparedness Plan
A contingency plan is an action plan, and just like any other plan, it takes much study and brainstorming. And, like with any excellent strategy, there are procedures to follow to ensure that you're doing it correctly.
- Recognize and Prioritize Available Resources
Conduct research on your firm and create a list of critical resources, such as teams, tools, and facilities, then prioritize the list from most to least important.
2. What Are the Significant Risks?
Determine your vulnerabilities by meeting with teams, executives, and stakeholders to gain a complete picture of the events that might jeopardize your resources; if required, contact an independent consultant.
3. Create an Emergency Plan
If possible, create a contingency plan for each risk identified in the preceding phases, beginning with the most significant risk to your organization. As time allows, you may develop a plan for each item on your list. Whatever the strategy, the overarching consideration should be the measures necessary to restore regular business operations, including communication, individual duties, and timetables.
4. Communicate the Plan
After you've prepared and approved the contingency plan, the following step is to ensure that everyone in the company has a copy. No matter how good a contingency plan is, it will be ineffective if it is not adequately communicated.
5. Conduct a Plan Revision
A contingency plan does not have to be carved in stone. It must be examined, amended, and maintained in order to reflect organizational changes. As new personnel, technology, and resources become available, the contingency plan must be revised to account for them.
For contingency planning, there are 8 phases
Organizations of all sizes can benefit from having a disaster recovery strategy in place. It's possible to build a contingency plan for your team or department, for example. Organizational leaders should instead develop business continuity strategies in the event of unforeseen events with broad implications.
Be sure to assess the likelihood and severity of each danger when you design your backup plan. Once you've developed your strategy—or strategies—ask your boss or department head for approval. So, in the case of a bad incident, your team will be able to take immediate action and eliminate the risk without waiting for approvals.
Consider the dangers.
First, you need to assess the dangers you face. To begin, make a comprehensive inventory of all potential threats to your business. There are several levels of contingency planning, so keep in mind that your organization, department, or program may be the focus of your efforts. Your contingency plans should be tailored to the extent and severity of the threats you face.
Creating a contingency plan requires extensive preparation, so gather key stakeholders to participate in a brainstorming session to identify and discuss potential threats. Create a stakeholder analysis map if you aren't sure who should participate in your brainstorming session.
Analyze dangers in terms of their seriousness and likelihood
A contingency plan doesn't need to be drawn out for every possible scenario. With the help of your stakeholders, determine the probable consequences of each risk you've identified.
Consider the effect and possibility of each potential risk to determine the risk's severity and importance. Assign a severity and likelihood to each danger during the risk assessment phase; we suggest using the terms "high," "medium," and "low."
Recognize significant threats.
Following a thorough assessment of each danger, it's your decision whether or not to prioritize the most pressing issues. There's no question you need a contingency plan for a risk with a high possibility and severity, but you probably don't need one for a low probability and severity danger.
Where the boundary is drawn should be decided by you and your stakeholders. What are your plans, for example, for risks with a low impact but a high probability? What about high-severity but low-probability risks?
The following is an example of how certain hazards can play out, as well as a possible contingency plan your team might adopt:
A combination of severe consequences and high probability. Develop a comprehensive plan for dealing with these threats. Keep a strategy in place in the event of these threats, so you can go back to business as fast as possible.
High impact with a medium chance of occurrence. These dangers should be addressed as well. Despite the fact that they are unlikely to occur, they might have a significant influence on the way your firm operates. Preparing for the worst-case situation in advance can help you react more rapidly to unforeseen occurrences.
The severity is high, but the chance is minimal. These dangers necessitate contingency preparations, as well. The sole difference between these two types of backup plans is who should be informed of their completion. Consider limiting the number of persons who know about these plans.
Either moderately severe and rather likely, or mildly severe and very likely. Create contingency preparations in the event of these threats. These contingency plans may necessitate a smaller stakeholder gathering or a less thorough approach to preparation. When it comes to dealing with potential dangers, having a generic Plan B is a solid proactive method.
There are three options: low severity and medium likely, medium severity and medium likelihood, and low severity and low likelihood. There is no need to make a backup plan in case of these occurrences. These hazards are unlikely to occur, and if they do, they won't have a significant influence on your business operations. However, you should revisit these risks on a regular basis to see whether the severity and likelihood have altered.
Assume the worst-case scenario and plan for it.
Make a backup plan for each of the critical risks you've identified. A contingency plan should include a description of the risk and a plan for what your team will do if it occurs. All of the measures you need to take to get your business back on track should be included in each strategy.
The following information should be included in your contingency plan:
The events that will set this strategy into motion are as follows:
The speedy reaction
Who should be informed and involved in the decision-making process?
If necessary, a list of duties, including a RACI diagram if appropriate.
How long it took you to respond (i.e. immediate things to do vs. longer-term things to do)
Imagine you've detected a significant and likely personnel shortage as an example. The regular course of business would be seriously disrupted, therefore you need a backup plan in place. Everyone on your team brings something unique to the table, thus losing more than one member would make it impossible to carry out the team's duties. Having a contingency plan in place might include a list of people who can step in while you look for a new employee, or how to strengthen team documentation to avoid siloed skillsets.
Your contingency plan must be approved by your boss.
It is imperative that you inform and gain the support of key decision-makers at your firm before moving forward with any of your ideas. In the case of team or department-level planning, this is extremely important. To ensure that your team is prepared in case of an emergency, you should develop a backup plan that allows them to act fast if necessary. You'll be able to begin the project with a sense of certainty—and without needing to ask for prior approvals—if you have pre-approval.
6. Disseminate your backup plans
Sharing your contingency plans with the relevant individuals is essential when you've done so. Make sure everyone understands what you're going to do, so that when the time comes, you'll be able to act as fast and smoothly as possible. Make sure everyone has access to your contingency plans by storing them in a single location.
Distributing your strategy and including a detailed implementation plan in a work management platform is a terrific approach to make sure that everyone is on the same page.
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7. Keep an eye on your contingencies
Keep an eye on your contingency plan and make sure it's up to date at all times. Think about the possibility of a new recruit or a shift in the corporate environment. It's important to keep the contingency plan in mind when a new senior leader comes on board.
Put in place new emergency plans if needed
Even if you have a strategy in place to deal with all of the risks you've identified, keep an eye out for new ones. Create a new contingency plan if you uncover a new danger with a high enough severity or likelihood. Similarly, you may learn that some of the situations you originally worried about aren't likely to materialize or, if they do, they won't have as big an impact on your team.
Asana is a great place to organize a project
How to avoid common errors in contingency planning
With a well-thought-out contingency plan in place, you can get your business back on track fast. Watch out for these typical hazards in your contingency planning process to make it go as smoothly as possible:
Failure to get buy-in
Creating a contingency plan is time consuming, so gain the backing of executive stakeholders before you begin. Maintain regular contact with your sponsors to verify that you've addressed all of the most important risks and that your action plan is rock-solid. In this way, you can be confident that your stakeholders will support your contingency plan.
Intolerance for "Plan B" thinking
They prefer to focus on Plan A and hope it succeeds, rather than contemplating a Plan B. But this might actually put your team at greater danger than if you have a Plan B ready to go at all times.
Think of it like doing a weather check before setting out on the open seas to avoid getting caught in a storm. Even though it's unlikely that a bright day would suddenly turn rainy nine times out of ten, it's better to be safe than sorry. It is important to have a contingency plan in place to guarantee that your organization is ready to handle any unfavorable events that may arise.
Contingency preparations that are done and dusted
Creating a backup plan necessitates a significant amount of time and effort. When you're done, it's easy to declare the project a success and move on. To ensure that your contingency plan is always current, schedule regular reminders (maybe once or twice a year) to review and update it as needed. Keeping your contingency plan up-to-date helps guarantee that you have the greatest possible reaction in the case of a crisis.
What do you do now that you've made a contingency plan?
If you ever find yourself in a situation where you need a contingency plan, you'll be pleased you developed one. However,
in addition to putting together a solid backup strategy, be certain that your backup strategy is kept up to date.
You can reduce risks by being proactive, so make sure you share your contingency plan with the team members who will be in charge of implementing it in the event of an emergency. If you've made a contingency plan, don't put it away in a file and forget about it.
A job management software is an excellent choice for storing your strategy once you've completed it. If you ever need to employ one of your backup plans, keeping them in a convenient area will make it easier for your team to get things done.
