What Is A Contingency Plan? Here Is Why Your Company Needs One!

contingency plan

What Is A Contingency Plan?

Contingency planning is the process of preparing ahead of time in the event that a disaster or an unpleasant event occurs.

The scale and nature of random events are unknown, this is true.  However, because bad events are a part of life, organisations and leaders often have contingency plans created in order to limit the severity of unknown events. Businesses engage in contingency planning by using analytics to predict what will happen and implement preventative measures. 

Contingency planning consists of asking questions about what is likely to happen and what will be done if the forecast is right. It also entails judgments regarding how to best allocate financial and human resources. It requires the coordination of internal and external activities in advance of the occurrence of the event. 

Key Takeaways

  • A contingency plan is implemented when a hazard or threat to an organisation occurs. 
  • Having a contingency plan or a backup plan is a necessity especially in today’s volatile economic climate and competitive marketplace. 
  • The process of contingency planning involves determining potential threats or occurrences that could disrupt business operations, and prioritising them based on their severity and likelihood, developing an action plan and outlining what should be done if they occur. The plan also needs to be reviewed and updated on a regular basis.

Why Your Company Needs A Contingency Plan Or a Backup Plan

When things seem to be going well, you may not recognize the value of having a contingency plan. But you’ll be glad you have one when something unexpected happens. 

The recent Tornadoes in Kentucky as well as the COVID19 pandemic, are examples of unexpected events that have harmed people and organisations. The pandemic instigated a lot of disruptions. For example, at the onset of the pandemic, several businesses switched from working in offices to allowing employees to work from home. Strict safety precautions were put in place to protect employees and management in those organisations where physical meetings were unavoidable.

The Professional Leadership Institute provides training on How to Create a Business Plan and offers a free preview.


A Contingency Plan is Not Only For Major Disasters 

While huge disasters like tornadoes, fires, and pandemics are frequently assumed to necessitate contingency planning, there are other events that are specific to organisations and may not be as large as the aforementioned disasters. However, they will have an impact on the operations of the organisation. Examples of such events could be a logistics plan that went awry, the untimely death or sudden illness of a key employee or individual within the organisation. 

Organisations leaders frequently use predictive models to identify and plan for possible eventualities that they feel may occur. To reduce risk, they tend to be conservative, assuming somewhat worse-than-expected results. 

A contingency plan entails organising an organisation’s activities in such a way that negative results are minimized. 


How To Set Up A Contingency Plan


1. Determine Potential Risks

Consider the potential of company activities being disrupted by extreme weather events, unexpected changes to revenue or security threats. Identifying potential risks or threats to your company or organisation is the first step in developing a contingency plan. As a result, you must be aware of the risks you aim to mitigate against before proceeding. Involve other people in the organisation as well so that the plan can be produced from a holistic perspective. Different heads of department would be more conversant with potential threats to their units.

2. Prioritise risks that are likely to occur 

Use a risk impact scale to assess which dangers are more likely to occur.  If earthquakes are not a potential threat, you wouldn’t want to spend your time preparing for it. You should rather concentrate your resources on wildfire for example if it is more likely to occur where your business is situated. A business impact analysis scale can assist you in estimating the likelihood of an event occurring and determining where to concentrate your efforts.


3. Identity What You Have And Those That Needs To Be Acquired 

Make a list of critical resources at the disposal of the organisation in the event of the disaster. An assessment of the organisation’s resources, both those it possesses and those it can acquire, should be compiled ahead of time. This makes it easy to identify the things that are needed in the event that a disaster occurs. The resources can be used to minimise the impact of a disaster or other undesirable event.

4. Create The Contingency Plan

Different plans are required due to the existence of various dangers that affect the organisation. Therefore, you will need to create a different plan of action for each risk after you’ve prioritised them. Start with the most important hazards and work your way down to the less important ones. Each contingency plan you make should detail how you’ll prepare for the risk and how you’ll minimise threats.


5. Develop an Official Policy

To guarantee a prompt and effective response in a time of crisis, it is important to create a contingency policy statement or document. Doing so ensures that both management and employees are on the same page and thus elicit similar responses for the required actions.


6. Review The Plan On A Consistent Basis

As things change, the contingency plan will need to be evaluated and modified on a regular basis. If the contingency plan isn’t updated to reflect changes in the business and the environment in which it operates, it risks becoming obsolete or useless.


In summary, you need a business contingency plan if you want to preserve the health and safety of your staff and customers, reduce downtime and financial loss, and promptly resume operations after the occurrence of a disaster or unpleasant event that affected business activities. 

Contingency planning is a systematic methodology for preparing for unexpected events. It requires cooperation from all members of an organisation. In the event of a catastrophe or other unfavourable event, disaster relief can reach those in need quickly and effectively, provided a contingency plan is in place.


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