Risk and chance play a significant role in any business. No industry is immune to the whims of fortune, but that doesn’t mean your organization can’t prepare.
While no business leader wants to imagine a worst-case scenario, successful ones plan for them — just in case. That way, should something go wrong, the team isn’t scrambling to find a solution. They already know what to do.
Establishing a contingency plan for potential roadblocks safeguards your company from sudden changes in circumstances that may threaten its operations. Don’t neglect this essential step in business planning — set your organization up to withstand adversity and capitalize on the opportunity to bounce back stronger.
What’s a contingency plan?
Natural disasters, supply-chain issues, data breaches, human error — no matter your niche, your business is vulnerable to the unexpected. That’s why Edward A. Murphy’s words, “Anything that can go wrong will go wrong,” are a common philosophy in the business world and why businesses aiming to thrive in uncertain times need to prepare contingency plans.
Contingency plans are “Plan B” — a series of actions to take when “Plan A” is no longer viable. Working with your stakeholders, you should establish an action plan for various adverse scenarios as part of your organization’s risk management strategy. These contingencies ensure business continuity in case of emergency and ensure you're prepared to pivot operations in response to changes in the marketplace.
Business contingency plans shouldn’t only focus on threats — you should also ruminate on potential success. How will your organization respond to a highly successful product launch that creates greater-than-expected demand? Planning for events like these is just as important as organizing a response to a catastrophe.
Some contingencies may never be put into place. Most of the time, that’s a good thing. But if they do become necessary, the proactive steps you’ve taken will empower your staff to begin recovery efforts and get operations back on track ASAP instead of wasting time and energy developing a solution.
In a crisis, you only have one chance to get your response right. Studies show that 32% of customers will walk away from a beloved brand after a single negative experience. Unless your business can survive losing one-third of its clientele while recovering from a disruption, you need a plan to turn a worst-case scenario into a positive change.
Contingency versus project risk management plans
If contingency planning sounds similar to project risk management, that’s because it involves several of the same processes. Both require that you identify, monitor, and address risks — but the difference between the two lies in scope.
Project risk management plans minimize factors that may affect the successful completion of a single undertaking. As you work, you identify potential threats while developing the project plan. Then, you add them to the risk register and develop project contingency responses to mitigate the threats quickly so your team’s work can continue.
Contingency planning, on the other hand, follows a similar process but at the organizational level. Planning might consider multiple projects, departments, or the full extent of business operations to keep the company functional.
How to make a business contingency plan
Contingency planning can happen at any level of an organization. It’s a systemic process that begins with the question, “What if?” — then evaluates possible outcomes and recovery methods.
Follow these eight steps to create a contingency plan of your own:
1. Identify risks
Start by bringing together stakeholders for a brainstorming session to identify potential threats to your business, department, or program. Consider everything that can affect day-to-day operations and discuss the scope and magnitude of the necessary responses.
Make sure you answer the following questions:
- What are the business’s vulnerabilities?
- What roadblocks and disruptions could result in disaster?
- What potential successes could spark widespread change?
- How could each circumstance impact your business, for better or worse?
- What resources do you have to dedicate to crisis preparedness and intervention?
2. Determine severity and likelihood
Once you have a list of everything that could go wrong (or right), work with stakeholders and relevant team members to conduct a risk assessment. Evaluate the impact of each risk based on the probability and severity of impact to assign a value: high, medium, or low.
Here’s an example:
| Scenario | Probability | Severity |
|---|---|---|
| Materials lost in the distribution center | Low | Low |
| Materials delivered to the wrong address | Low | Medium |
| Driver involved in an accident | High | High |
3. Prioritize risks
Not every risk requires a contingency plan. Focus on the largest threats that require preparedness. Anything threatening viability, particularly risks with high likelihood and high severity — such as a data breach or a flood — requires planning. For everything else, review each risk with stakeholders to decide which incidents need a full-blown plan and which you can tackle in the moment.
If you prefer a quantitative approach, prioritize your planning based on a cost analysis of each risk considering:
- The potential cost of the worst-case scenario
- The expected loss from the incident
- The cost of your response
- The cost of mitigation
4. Analyze impact
Dive into your organization’s operations and conduct a business impact analysis (BIA) to determine what systems keep your company afloat. For example, a retailer could operate without the HR department for a few days, but it would be disastrous if its point-of-sale system went offline.
Use the BIA to predict the impact of each risk on your business and identify how your team can solve it.
5. Develop contingency plans
Once you’ve assessed potential risks and their impacts, it’s time to outline a contingency plan to return your business operations to normal should disaster strike.
Contingency plans include:
- The triggering scenario that will set the plan into action
- Your team’s immediate response
- Which staff to notify
- Team members responsible for executing the contingency plan
- A breakdown of responsibilities and accountabilities
- A timeline of immediate, short-term, and long-term actions
6. Secure stakeholder buy-in
After you develop contingencies, upper management must approve your plans — particularly if they address team and departmental risks. Securing stakeholder buy-in confirms your response as the correct course of action, and if the risk comes to pass, your team can get to work without waiting for approvals from above.
7. Communicate plans
Review the planned responses with your team, ensuring everyone understands their roles and responsibilities. Depending on the risk, plan a few practice simulations to ensure everyone is on the same page.
Don’t forget to store all crisis management plans in a central, accessible location so they can be studied by new hires and reviewed periodically by existing employees.
8. Monitor and review
Contingency plans aren’t one-and-done projects. Make sure you're always prepared by scheduling regular reviews to consider new risks and changes in the business landscape. Regular assessments may conclude some risks have increased in likelihood or severity while others have become irrelevant. Either way, adjust contingencies accordingly.
What to avoid when implementing a contingency plan
You rely on your contingency plans as part of your disaster recovery strategy. Avoid these common pitfalls to ensure they’ll be effective should the worst occur:
Plan B bias
Some companies put all their resources into Plan A, which means no reserves are available if they need to call up Plan B. Being proactive and preparing the necessary resources to support a contingency plan ensures you have what you need to bounce back from a crisis quickly.
Lack of support
Stakeholder buy-in is essential to effective contingency planning. Through regular consultation and reviews with plan sponsors and participants, you can ensure you’ve addressed key risks and created a solid plan that upper management can back.
Out-of-date planning
As your business changes, so will the risks it faces. Ongoing contingency management guarantees an up-to-date response to crises based on your company’s current state. Perhaps your business is lacking resources after a tough quarter or a recent string of successes opened up a new vulnerability — whatever the case may be, your team needs to be on top of the evolving threats with careful and continuous planning.
Contingency plan example
Preparedness looks different depending on your industry, business, and circumstances. Still, it’s often easiest to understand how a strong contingency plan looks by reading through an example.
This example considers what to do should a server malfunction delete your website and expose your data to a potential security breach:
- Bring in extra employees to provide additional customer service support.
- Notify upper management and contact relevant law enforcement should technicians identify malicious intent.
- Restore the website and data to a backup server until the cause of the disruption is determined.
- Evaluate the server equipment to determine the cause of failure.
- Contact clients per your privacy policy to notify them of a potential security issue.
- Produce a timeline for repairs and define steps to prevent future outages.
- Conduct a post-mortem review of the cause of the problem and how to avoid future outages.
Contingency plans and project roadblocks
Contingency planning’s impact isn’t strictly limited to your organization's preparedness. It’s possible to leverage this process as a part of your project management practices and get ahead of potential issues before they rear their heads.
Contingency and mitigation remove unexpected roadblocks from the equation through similar processes: identify potential risks, determine the likelihood they will occur, and assess their potential impact. Projects rarely go off without a hitch — both types of planning are essential to the successful delivery of your work. But where a risk register describes how to prevent a threat from manifesting, a contingency plan establishes the steps to take if that risk becomes a reality.
Take your preparedness to the next level
Establishing contingency and business continuity plans are necessary but rigorous undertakings. Let Roadmunk by Tempo take care of some of the heavy lifting.
Roadmunk can create visual roadmaps for each of your business’ contingency plans. With a high-level overview of each plan and its timeline, you can easily see what needs to be done by when and by whom.
Don’t be caught off-guard. Prepare for the unexpected now, when you have the time and space to do it right.
