Unexpected problems can arise for your business, both major and minor. Being able to cope with any issues can be crucial and can help you avoid having to make negative decisions such as redundancies or scaling back production. A contingency plan in business will help your business survive, and grow, from unexpected problems.
Unexpected crises, such as the Covid pandemic, the global financial crisis, natural disasters or other unexpected events, can have a major impact on your business. In cases like this, not only do you have the impact itself, but uncertainty around when things will return to some sort of normalcy.
Can you cope with a crisis without affecting factors such as team velocity? Do you have a backup plan? What plans can you make that will soften any blow and allow your organization to operate as normal (or as close to normal as possible)?
It’s good to have a business contingency plan, one that takes into account how serious a problem may be and what effects it could have on your business. You want to avoid closure or selling your business at all costs and a contingency plan can help you do this. But what is a contingency plan in business going to look like for you? We look at how to build a contingency plan that fits your business model.
What is a contingency plan in business?
A contingency plan is a strategy put together to outline what steps you would take if a negative event or unexpected disaster happened. It identifies the potential problems and risks that may arise and how your organization would cope with them in terms of strategic and operational decisions, and outlines what needs to be done to return the business to normal operations. It is essential for new business management and existing businesses alike.
A business contingency plan seeks to mitigate any negative effects from the problem and to minimize the risks you may encounter, including any further damage from the event. Having a good Plan B in place can be the difference between continuing operations (even at reduced capacity) and facing going out of business altogether. A good example would be a physical store that has an online store starter plan in place in case they are unable to operate the physical store as normal.
By formulating a contingency plan, you can more easily weather any potential storm even if you need to seek funding. Asking yourself, “What is a contingency plan in business?” Can help you build a plan that not only addresses the matter of surviving any crisis, it also looks at how you emerge from that crisis, and how your business recovers.
A 7-step guide to building a contingency plan
It makes good sense to consider what a contingency plan is but how do you actually go about putting one together. What is a contingency plan in business going to look like? What steps should you follow?
1. Put together a planning team
A good contingency is best addressed by a team from as many departments as possible. The first person to consider is the team leader who will manage and oversee all aspects of putting your plan together. They have responsibility for:
- Overall management of contingency planning
- Building communication channels between team members
- Collating input from relevant people
- Overseeing the development of planned responses and measures
- Identifying and evaluating different risks
- Updating any plan on a regular basis
- Communicating details of any plans to relevant key staff
Your leader should have some experience in project management and should be an efficient communicator. They should put together a team that can give good ideas and input. That team will ideally consist of members from all departments across your business.
2. Identify and evaluate risks
Risks may vary from business to business. Once formed, your planning team should look at what particular risks may affect your company and evaluate what impacts they may have. Some of the common risks include:
- Significant drop in revenue and cash flow.
- Inability of staff to attend work in person
- Problems in the logistics chain
- Issues with IT systems
- Legal issues such as lawsuits against your business
- Product issues that require a recall and positive PR
You should identify any and all risks that may arise, think about how likely each risk is, and what impact each could have on daily operations.
3. Prioritize identified risks
No-one could have predicted the global impacts of Covid. However, with more ‘common’ risks (for example, hurricane damage in an area that sees yearly hurricanes), it is important that you prioritize both the risks and how you will respond to them.
The main reason for prioritizing risks and responses is that you are investing time and money in your contingency planning so want to focus efforts efficiently. If you tried to cover every potential risk fully, then you may stretch resources so far that any planned response would fall short of full efficiency.
By using a scoring system to separate high from medium and low risk events, you can then make a list that shows the order in which they should be dealt with. Planned responses should also reflect organizational needs. For example, if you operate a call center, how easy would it be to move to remote working and adopt different workforce management tools?
4. Formulate appropriate responses
You should now have a list of potential risks to your business, how likely they are to occur, and what effects they may have. You should also have that list graded in terms or priorities. Your next step is to formulate possible responses to these scenarios. Think about the following questions:
- Are there any steps you can take to prevent the scenario from happening?
- If the scenario does happen, what responses can we put in place to reduce or negate the effects?
Returning to the call center scenario, a business may choose to invest in the base tech needed in order to shift to remote or hybrid working so that any transition would be smooth and efficient. For a drop in revenue, you may look at ways to increase average order value.
Your contingency planning team should formulate responses to each of your prioritized risks. They should also collaborate closely with each relevant team. So, if you are looking to mitigate a drop in revenue, then you would work closely with the finance and accounting teams in order to see what plans you can make, such as assigning some of your net profit to contingency funds.
Any preventative measures you identify should be easily accessible to all relevant staff. They could be shared on the company intranet or stored in a central database. This means that relevant stakeholders know what is expected should said crisis happen. It is also important that you revisit any plans regularly to see if they need to be updated.
5. Distribution
Once you have established the first version of your contingency plan, it is important that it is shared with all staff who will have responsibilities if the plan needs to be executed. This not only means that they know what to do but also means they can give you feedback.
If feedback identifies flaws and weaknesses, then you can take the plan back to the contingency team and tweak it before asking for further feedback. Eventually, you will have a final draft of your plan that you can then sign off on.
Once you have a final and agreed plan, you need to distribute it to all key personnel and management. Ideally, you will store the plan on your intranet or central database so it can be accessed as needed. It also helps to store backups of your plan, both physical and cloud-based, in case any crisis includes a loss of IT services or an inability to access your premises.
6. Test your plan
While simulations can never replicate a real event, running tests on your plan can still show how well it may work and can highlight any flaws. Test runs can be actual events or simulated where possible.
For example, contingency plans related to revenue and finances are easily simulated on a computer and can let you test out various different scenarios and responses. For a real life test, you could choose a test group to temporarily work remotely in order to test out any tech you have chosen to invest in.
Running tests is not only about testing out the feasibility of your contingency plan, it can also serve as a training exercise to enhance the skills and knowledge of those employees who would play key roles in the likelihood of a real crisis.
7. Maintenance
Things change, and they can change quickly. Your finished contingency plan should not be something shut away in a virtual drawer; it should be reviewed regularly and you should update any aspects of your plan that have seen significant change.
For example, if part of your contingency plan involves a shift to a partial or fully remote working model, then there may have been tech updates since your last review that make that shift easier. You may also have undergone the process of scaling your business which may affect some of the parameters in your plan.
Of course, the best test of any plan is under the conditions you designed it for. While you may want to avoid these scenarios, if they do happen, then they can show how well your planning has worked and how well it has been implemented. This can allow you to tweak it in case the crisis occurs again.
The takeaway
You can’t predict when a crisis may happen. But you can prepare for the eventuality. Identifying the particular risks your business may experience, and then constructing a plan to deal with them, is not only sound business sense, it may be crucial to the survival of your business. If you don’t have contingency planning in place, now is the time to seriously consider it.
