Contingency plan calls for deployment of floating booms across the width of the creek downstream from the spill, but access points to the creek are not periodically inspected.
A business continuity plan and a business contingency plan share some similarities, but a business continuity plan primarily focuses on how an organization can continue operations during an emergency, whereas a contingency plan addresses a broader range of risks.
Business contingency plans and project risk management plans both identify potential risks and determine ways to respond to them. The former focuses on risks to the entire organization, while the latter focuses on risks to a particular project.
In a project risk management plan , teams identify and assess possible risks to a specific project. It then determines how project leaders can respond to, eliminate, or mitigate those risks.
A business contingency plan identifies potential threats to an organization's ability to continue operating. It assesses risks that could temporarily or permanently halt operations, and then outlines plans to mitigate or eliminate those risks.
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Businesses need a plan to get back on track when a disaster interrupts daily operations. Contingency plans, also known as “business continuity plans,” “emergency response plans” and “disaster recovery plans” help organizations recover after a disruption.
Whether they’re preparing for a global outbreak of a deadly virus, crisis management around a data breach or the loss of an important client, contingency plans help organizations bounce back after a negative event.
Companies create many kinds of recovery strategies for everything, from the merger of key competitors to the insolvency of the bank that processes its employee payroll. In India, the government was busy designing a contingency plan as a drier-than-expected monsoon season approached.¹ Meanwhile, in Hong Kong, a large bank was preparing a plan b in case a host of new sanctions were levied as the result of a recent geopolitical development.²
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Here are five steps companies use to create effective business contingency plans.
The contingency planning process begins with a risk assessment to gauge the potential impact of each risk. Typically, business leaders and employees conduct risk analysis.
Team members begin with a brainstorming session where they discuss potential risks, courses of action and the company’s overall preparedness. During this stage, it’s important to be clear about the scope of the project and invite all relevant stakeholders to give input. Companies don’t need to create a risk management plan for every threat they face, just the ones deemed highly likely and with the potential to interrupt business operations.
Effective business impact analysis (BIA) is critical to understanding different business functions and how they will react to unexpected events. For example, while a shortage in micro-processors might be devastating to a part of a business that deals with the manufacture of gaming consoles, it likely has little to no impact on the same company’s HR department.
To assess the urgency of creating an action plan for this specific threat, the company would need to know how much of its revenue was being generated from the part of the business threatened by the microprocessor shortage. If gaming consoles are a high percentage of their revenue, they will put a strong plan in place soon.
A well-developed BIA helps stakeholders assess risk and better understand which parts of their business are most critical to daily operations.
After identifying the risks their company faces, determining the likelihood and severity of each risk and conducting a BIA, business leaders can follow a simple, three-step process to build their backup plan.
Identify the triggers that set their plan into action: For example, if a hurricane is approaching, at what point does the approaching storm trigger the contingency plan? When it’s 50 miles away or a 100? They must make clear decisions so the teams they put in charge of execution know when to start their work.
Design an appropriate response: The threat the business prepared for arrives. Teams must know exactly what’s expected of them so the company can recover quickly. Compile clear, accessible instructions, protocols that are easy to follow and a way for everyone to communicate with each other.
Delegate responsibility clearly and fairly: Like any other initiative, contingency planning requires effective project management to succeed. In the case of an existential threat such as a natural disaster, everyone involved in helping the company recover must know their role and be properly trained to perform it.
For example, in the case of a fire, it wouldn’t be fair to expect employees untrained in firefighting to pick up a hose. However, with the right training, they might conduct headcounts or go floor-to-floor to ensure that other employees have evacuated.
One way to improve workflow among teams when designing a plan is to create a RACI chart . RACI stands for responsible, accountable, consulted and informed and is a widely used process to help teams and individuals delegate responsibility and react to crises in real time.
While it can be hard to justify the importance of putting financial resources into something that might never happen, these past few years have taught us the value of good contingency planning. Think of all the supply chain problems, critical shortages of personal protective equipment and financial havoc wreaked by the pandemic. What would have been different if organizations had had effective contingency plans in place?
Cost and uncertainty are significant barriers when convincing business leaders of the importance of making an investment in contingency planning. Since all costs for contingency plans are estimated—there’s no way of knowing precisely how events will disrupt a business—decision-makers are understandably hesitant.
Different industries have different ways of approaching this problem. In the construction industry, it’s common to set aside 10% of the overall budget of a project for contingencies. Other industries use different methods.
One popular method estimates risks according to a percentage of how likely they are to occur. By this method, if there’s a 25% risk of an event occurring that will result in USD 200,000 in recovery costs, the company must set aside 25%—or USD 50,000—to be in compliance with their contingency plan.
Markets and industries are constantly shifting, so the reality that a contingency plan faces when it is triggered might be different than the one it was created for. For example, after the 9/11 terror attacks, many of the contingency plans that the US government had in place were suddenly irrelevant because they had been prepared decades before.
To avoid a similar disconnect between plans and threats, businesses need to constantly test and reassess the plans they’ve made. For example, IBM’s guidelines mandate that plans should be tested at least once annually and improved upon as necessary. If new risks are discovered and their severity and likelihood is deemed high enough, the old plans might be scrapped altogether.
When businesses are hit with an unexpected disruption, a strong contingency plan gives much-needed structure to the recovery process. Disruptive events cause chaos and decision-makers and employees are often left scrambling to understand what is happening and how best to respond to it. Having a strong plan to turn to can help restore confidence and show the way forward.
Here are a few benefits business leaders who create strong contingency plans can expect:
Businesses that create strong plans recover faster from a disruptive event than businesses that don’t. When a negative event occurs, the faster the business recovers and gets back to business-as-usual, the lower the risk to the company, its customers and its employees.
A good contingency plan minimizes the damage to a company—both reputational and financial. For example, while a data breach will undoubtedly damage a bank’s reputation, as well as its bottom line, how the bank responds will play a critical role in whether its customers decide to continue doing business with it.
Many organizations use a strong contingency plan to show employees and customers that they take preparation seriously. By planning for a wide range of potentially damaging events, business leaders can show investors, customers and workers that they’ve taken the necessary steps to minimize risk.
Many plans focus on natural disasters such as floods, earthquakes or fires. Others deal with data breaches, unexpected network downtime or the loss of a key employee such as a CEO or founder. Here are a few examples of contingency plan templates that deal with broadly different scenarios across a range of industries.
Severity and likelihood of risk: The manufacturers have been following the news in a region where they source specific airplane parts and have deemed the likelihood of disruption there “high.” They initially conduct a search for another supplier but quickly learn that it takes months—even years—to find one. Since the part is necessary for the construction of all their airplanes, they label the severity of this disruption “high” as well.
Trigger: Suppliers make the manufacturer aware that they will soon run out of the needed part due to a disruptive geo-political event in its country of origin.
Response: The manufacturer begins the search for a new supplier of the much-needed part in a more stable country.
Severity and likelihood of risk: The managers of a bank know of a vulnerability in their app that they are working to fix. If the app is hacked and their information systems are compromised, they are likely to lose vital customer data. They rate the likelihood of this event as “high” since, as a financial institution, they are a desirable target.
They also know from watching their competitors face similar situations that the potential for disruption to their business in an event like this is great. They rate the severity of this risk as “high” as well.
Trigger: IT makes the bank’s managers aware that the bank’s app has been hacked and their customers’ data is no longer secure.
Response: The app is immediately shut down and customers are notified that their data has been compromised. They are made aware of the steps that the bank is taking to ensure that they have access to their money and that their personal information is not available to anyone on the dark web. An on-call team of specially trained security experts come in to restore the bank's systems and secure customer information.
Severity and likelihood of risk: The plant’s managers know that severe flooding might spread un-treated water into the city’s streets and public waterways. Both the severity of this risk and its likelihood given the impending storm are deemed “high. ”
Trigger: The hurricane’s path turns toward the city and approaches to less than 100 miles away with wind speeds higher than the threshold rated “safe.” The plant’s contingency plan is put into action.
Response: All necessary workers are recalled to the plant 24/7 and measures are taken to treat as much of the water as possible before the hurricane arrives. According to their plan, whatever is left over will be pumped into holding tanks that are designed to withstand a hurricane. When windspeeds rise to a certain velocity, the plant itself is shut down and all workers evacuated.
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Learn more about the process of disaster recovery planning and Disaster-Recovery-as-a-Service.
Discover how global supply chains responded to the COVID-19 pandemic and are developing better ways to balance efficiency and resilience.
See how businesses are leveraging AI and other emerging technologies to maintain business continuity amid disruption and uncertainty.
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1 “ El Nino contingency plan being readied for farmers and output ” (link resides outside ibm.com), Elara Securities Pvt Ltd., 27 April 2023.
2 “ HKMA has prepared contingency plans in case of severe sanctions ” (link resides outside ibm.com), UBS Global Research and Evidence Lab, 5 May 2022.
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Natural disasters, data hacking, theft—your organization has likely prepared for major catastrophes.
Less significant events can also be majorly disruptive—say your biggest customer suddenly switching to a competitor or your entire sales staff getting food poisoning at their annual retreat.
Many circumstances have the potential to disrupt, or worse, shut down your business. A business contingency plan can save the day. Follow the steps below to develop a business contingency plan that will help you stay prepared for the worst.
A contingency plan is a roadmap created by management to help an organization respond to an event that may or may not happen in the future—whether it’s a large-scale event like a natural disaster or a small-scale roadblock like employee theft.
The purpose of a business contingency plan is to maintain business continuity during and after a disruptive event. A contingency plan can also help organizations recover from disasters, manage risk, avoid negative publicity, and handle employee injuries.
By developing a contingency plan, your business can react faster to unexpected events. The faster your organization is able to get back up and running, the less impact you'll see on profits and revenue.
There are many factors to consider when building a contingency plan. These four steps are a good place to start preparing for the unexpected.
Before you can prepare for a disaster, you need to understand what types of disasters you’re preparing for. Think about all the possible risks to your organization, including natural disasters, sudden changes to revenue or personnel, or security threats.
Make sure you spend your time and resources preparing for events that have a high chance of occurring as you write and develop your contingency plan. For example, you may have listed earthquakes as a possible risk. However, if your area doesn't experience many earthquakes, you wouldn’t want to spend all your time preparing for this event. If your area is prone to flooding, you should spend more of your resources preparing for floods.
To determine which risks are more likely to occur, use a risk impact scale . This will help you to estimate the likelihood that an event will occur and determine where to focus your efforts.
Once you’ve created a prioritized list, it’s time to put together a plan to mitigate those risks. As you write a contingency plan, it should include visuals or a step-by-step guide that outlines what to do once the event has happened and how to keep your business running. Include a list of everyone, both inside and outside of the organization, who needs to be contacted should the event occur, along with up-to-date contact information.
You can also create a list of ways to minimize the risk of these events now and start acting on it.
Maintenance of your contingency plan is arguably the most important part of the process because it’s where the work happens to ensure you’re always ready.
Review your plan frequently. Personnel, operational, and technological changes can make the plan inefficient, which means you may need to make some changes.
You’ll want to communicate the plan to everyone who could potentially be affected and clearly define what everyone's roles and responsibilities will be during a time of crisis.
To help you prepare for the unexpected, get started with these business contingency plan examples below.
Ready to get started? Business contingency plans help you prepare your organization to handle anything unexpected. Give your employees a realistic plan for how they should handle any problem that arises.
Learn the 5 steps to an effective risk management process.
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What is a contingency plan & how to develop one.
Vivian Tejeda
ClickUp Contributor
July 13, 2023
In business, the only constant is inconsistency.
Whether it’s natural disasters, cybersecurity breaches, or supply chain disruptions, unexpected events can strike at any time. And this isn’t simply alarmist talk—obviously, business risks can pop up anywhere, but you can avoid so much with a general backup plan.
It’s why developing a contingency plan is essential for every organization. However, it takes knowing what to include, how to create proactive measures, and how to have this plan ready at any time so you maintain normal operations.
And that’s where this guide comes in. 💪
Let’s walk through the process of contingency planning to help your team navigate unforeseen challenges with confidence. Here’s how to start safeguarding your business against the unpredictable.
Benefits of having a contingency plan, how to create a business contingency plan: a step-by-step guide, elements of a contingency plan, contingency plan examples, get your team prepared with a contingency plan.
A contingency plan is a proactive strategy designed to help businesses prepare for potential risks and disruptions. It outlines the necessary steps to lower potential damage, ensure your business operations continue, and that an organization can recover from its biggest risks or unexpected adverse situations.
Business contingency plans understand the key risks that could derail an entire project or business continuity. Typically, contingency planning relies on business impact analysis to determine the biggest risks and potential setbacks . This allows companies to proactively create a backup option from an original plan.
From weather-related disasters to data breaches, contingency planning makes all the difference when the unexpected occurs. There are plenty of reasons to create contingency plans—for obvious and not-so-obvious reasons.
Here are some of the benefits of contingency planning you might not realize:
Having a solid contingency plan means you’re ready to tackle whatever curveballs life throws at your business. And the best part? It minimizes the impact these surprises can have on your business. For example, it could be financial, operational, or reputational risk management to keep damage and losses to a minimum.
With detailed contingency plans in place, you set yourself up to stay strong, no matter what.
A lot of businesses operate on the model that everything runs perfectly—minus a few hiccups here and there. But how do organizations plan around unpredictable disasters from weather or other emergencies that could break your supply chain?
You could panic—or have some relief knowing the contingency plans you created have a detailed backup plan to maintain business continuity—so everything remains running smoothly. Contingency planning allows you to adapt to whatever comes your way and keep serving your customers with minimal interruption.
Now that’s what you call stability.
Let’s be real—the faster you recover from an unexpected event, the better. Your contingency planning process helps you identify what you need to do to get back on track ASAP.
The result? You save time and resources and avoid any extra headaches that might come from a prolonged disruption—including losing that customer base you’ve worked so hard to grow.
Here’s the thing—your customers and key stakeholders want to know you’ve got their backs. When you’ve got a business contingency plan at the ready, you show customers you’re serious about maintaining top-notch service and reliability.
It’s a rock-solid way to build trust, foster customer loyalty, and show that your business operates no matter the situation—so you can focus solely on what matters most.
Ready to build your own contingency plans? Follow these seven steps to ensure your business is prepared for the unexpected.
Gather a diverse group of employees and stakeholders who understand your business and provide valuable insights into potential risks and solutions.
This team should include representatives from different departments and levels of responsibility, ensuring a well-rounded perspective. Remember, a diverse team spots potential blind spots better and brings creative problem-solving ideas to the table.
Identify possible disruptions—natural disasters, cybersecurity breaches, personnel issues, or other hazards—and assess their potential impact on your business. Take a deep dive into your operations and consider both internal and external threats.
Consult with your team and external experts if needed, and create a comprehensive list of risks that could affect your business continuity.
Rank the identified risks according to their potential consequences and the likelihood of them actually happening. Focus on high-impact, high-probability events for your contingency plan.
This prioritization process will help you allocate resources effectively and ensure you’re tackling the most critical threats first. Remember, it’s essential to strike a balance between addressing immediate threats and preparing for longer-term risks.
For each risk, create a detailed plan outlining the steps your business will take to mitigate the threat and minimize its impact. These response strategies should be clear, actionable, and tailored to the specific risk at hand .
Better yet, don’t start from scratch. ClickUp provides a done-for-you contingency template that you can fill in and share with your whole team. As you continue to flesh out your contingency plan, consider both short-term and long-term solutions, and make sure your plan is flexible enough to adapt to changing circumstances. The more specific your action plans , the better prepared your team will be.
Determine how the information will be shared and establish guidelines for coordinating response efforts among team members and stakeholders. This might involve setting up dedicated communication channels, designating points of contact, or implementing a centralized reporting system.
It might even be worth adding it to your onboarding process for employees. The goal is to ensure that everyone involved in executing the contingency plan is on the same page.
Educate your employees about the risks you’ve identified and make sure they’re familiar with the contingency plan. Conduct regular training sessions and drills to keep everyone prepared.
Make sure your team understands their role in the plan and is equipped with the skills and knowledge necessary to execute their responsibilities. Who is doing what? What are the expectations?
An informed and well-trained team is your strongest asset in navigating unexpected challenges.
Stay proactive by periodically reviewing your contingency plan and making necessary updates based on changes in your business environment, new risks, or lessons learned from past incidents .
Schedule routine check-ins to reassess potential risks, evaluate the effectiveness of your response strategies, and make any necessary adjustments. A contingency plan is a living document—keep it fresh and relevant to stay prepared for whatever comes your way.
Creating comprehensive contingency plans takes several crucial elements—think of them as the building blocks for a solid foundation of preparedness. Let’s explore each of these components in detail:
First things first, you need to dive deep into your business processes and identify potential threats that could disrupt your operations.
Consider everything from natural occurring disasters and cyberattacks to personnel changes and to issues with supply chains. Once you’ve compiled a list of risks, assess their potential impact on your business to determine the severity of each threat.
Risk management is all about knowing the likelihood of anything and everything that could pause your operations. Here are some common reasons for developing contingency plans :
Try the ClickUp Risk Assessment Whiteboard Template to collaboratively plan around all of the potential issues that could harm your operations. A visual whiteboard allows everyone to participate and clearly see the risks and strategies to address them in one space. Now, your contingency plan will look better than ever.
Not all risks are created equal. To make the most of your contingency planning efforts, prioritize risks based on their likelihood as well as what their consequences could be.
Focus on addressing high-impact, high-probability events first, then work your way down the list to make sure you’re tackling the most critical threats head-on to have a solid Plan B.
The ClickUp Prioritization Matrix Template aids in prioritizing tasks and projects based on their impact on users and the effort required to implement them. It’s a useful tool for assessing operational workflows and improvements, with prioritization made easy using the 3×3 matrix.
For each identified risk, develop a clear and actionable plan outlining the steps your business will take to minimize the threat and its impact.
Remember, it’s essential to be proactive rather than reactive—having well-defined response strategies in place will help you act swiftly and decisively when faced with unexpected challenges.
For IT teams, contingency plans must include how you’ll address any cybersecurity threats. The ClickUp Cybersecurity Action Plan Template helps IT departments add crucial details to a contingency plan.
Here’s an important note to keep in mind: A contingency plan is only effective if everyone involved knows about it and understands their role.
Outline how information will be shared during an emergency, and establish protocols for coordinating efforts among team members and stakeholders. For example, HR software with clear communication and seamless coordination features can be vital for a successful response to any crisis.
If you need help setting up your internal or external communication process during a crisis, the ClickUp Communication Plan Template is a must. This template provides simple steps to build an effective communication plan with easily customizable sections throughout the Doc so your contingency plan is as thorough as possible.
Educate your employees about potential risks and the contingency plan itself.
Run regular training sessions and drills to make sure everyone is familiar with their responsibilities and prepared to act when the time comes. An informed and well-trained team is your strongest asset when navigating unexpected challenges.
Get a head-start with the ClickUp Company Process and Procedures Template to easily document and organize your contingency planning guide for the organization. This template will give you the bones of a solid plan to get employee buy-in and knowledge of what to specifically do if circumstances change.
Lastly, don’t let your contingency plan collect dust. Regularly review and revise it as needed to make sure it remains up-to-date and aligned with your current business environment.
Schedule periodic check-ins to assess potential risks, evaluate the effectiveness of your response strategies, and make any necessary adjustments. A contingency plan is a living document—keep it fresh and relevant to stay prepared for whatever comes your way. 🚀
Don’t make planning any more difficult than it has to—use the ClickUp Business Continuity Plan Template and rest assured you’ve included everything. Add reassessment plans to go back and edit contingency plans based on new threats or risk you could encounter and review each year.
In 2011 a devastating earthquake and tsunami hit Japan, causing widespread destruction and significantly impacting businesses across the country. Toyota, a global leader in the automotive industry, was no exception. Supply chains suffered massive disruptions due to damaged infrastructure and affected suppliers.
However, Toyota’s business contingency plan played a crucial role in minimizing the impact of the disaster on the company. They already discovered the possible risks associated with natural disasters and put measures in place to address them with a solid backup plan.
The company’s business continuity planning played a huge role in quickly bouncing back. Here are some of the best examples of their plan:
Toyota’s “plan B” included an emergency response process to shift production to other facilities. When the tsunami struck, Toyota quickly relocated some manufacturing operations to unaffected plants, both within Japan and overseas.
These types of proactive measures helped maintain production levels and ensured that the company could continue to meet customer demands during the crisis.
The event also affected many suppliers that Toyota relied on for parts and materials. To minimize the impact on supply chains, the company leveraged its extensive network of global suppliers, turning to alternative sources to procure the necessary components.
This diversification strategy allowed Toyota to maintain its production schedules and minimize late deliveries of customer vehicles.
In the aftermath of the crisis, Toyota swiftly mobilized its resources to support recovery efforts. They worked closely with affected suppliers to help them restore their operations, provided financial assistance, and shared their expertise in disaster recovery.
By getting ahead of “what ifs”, Toyota demonstrated the power of effective contingency planning in the event of a major disaster.
Remember, a good offense is the best defense. That’s why contingency planning pushes you to be proactive in managing risks . By identifying potential threats and addressing them before they escalate—and keeping your plan updated—you’ll always be ready to respond effectively. It’s like having a secret weapon in your back pocket.
Whether you use one of ClickUp’s templates or create something from scratch, a contingency plan is about so much more than just preparing for the unexpected. It’s about minimizing damage, ensuring business continuity, bouncing back quickly, building trust, and being proactive.
Use ClickUp as your central space for communication, planning, and organizing essential documents. Additionally, you can rely on Whiteboards to collaboratively organize your response plans.
When you put it all together with ClickUp, you’ve got a recipe for a resilient, agile, and successful organization that takes on anything life throws its way. Give ClickUp a try today for free !
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Learn about business contingency plans and why it makes sense to create one now.
We have probably all been in situations where things have not gone as expected. Although no one wants carefully laid plans to go awry, having a Plan B ensures that you’ll be able to weather most unforeseen events. Being prepared for alternative action is especially crucial in a business context where the unexpected can happen at any time.
A contingency plan is a clearly defined course of action that can help any organization deal with potential business risks, ensure business continuity, and then resume normal business operations as quickly as possible.
An unfavorable event is generally unlikely to take place. However, as a business owner, having a contingency plan for different scenarios can give you peace of mind that an emergency response is set in place if things do go wrong. With this kind of backup plan, disaster recovery will be a much smoother process, and normal operations can quickly resume.
For example, no one can accurately predict when natural disasters will strike or when global events like the Coronavirus pandemic are going to hit. In the case of the latter, nearly every business faced hardship, regardless of its size or industry, but companies that had contingency plans were able to get back on their feet sooner.
Other than providing guidance during external unexpected events, a contingency plan should also extend to possible internal events, such as data breaches, staffing shortages, software downtime, or declining business relationships.
A contingency plan doesn’t just have to cover a negative event. Ideally, you should also have an action plan in place for growth or improvement situations—for example, if there is a sudden surge in customer requests or you identify a special market opportunity.
Business continuity plan.
A business continuity plan is a temporary solution that ensures your business is able to continue functioning even after operations have been disrupted. For example, if you are suddenly unable to access your office space, a business continuity plan would be to invest in software that would allow your employees to work from home until new premises can be secured.
Alternatively, a contingency plan triggers a course of action in response to a specific incident. For example, a contingency plan for the loss of a huge client would be different from one dealing with an information systems crash.
While a contingency plan is a proactive strategy, a disaster recovery plan is a reactive one and should be part of any contingency policy to return your company operations back to normal. It can include recovery strategies, such as continued data access and IT infrastructure, so your company operates near the level it did before the disaster took place.
Disaster recovery and business continuity planning are both narrower in scope than a contingency plan. It deals mainly with operational matters in your organization so that you can recover from a disaster as quickly as possible.
Like disaster recovery, a crisis management plan is more focused on real-time response following a crisis, compared to the preventive planning needed for a contingency plan. A quick note on how to differentiate disasters from crises—a disaster comes about suddenly, whereas a crisis develops over time (be it quickly or slowly).
It is impossible to be prepared for every eventuality despite your best attempts to make the most thorough recovery strategies. The events that occur might not fit neatly into your contingency plan. In these situations, the only way out is to swiftly modify the contingency plan.
When companies need to think on their feet and adapt to unexpected scenarios, this is where crisis management—the overarching management of emergencies—comes into play.
Risks are always present in the business world. A risk management plan is similar to a contingency plan because it is also proactive in nature. However, with risk management, you have an action plan to prevent potential crises from taking place, while also reducing the impact of these crises should they happen.
A contingency plan only kicks in either once a certain negative event becomes inevitable or there are enough warning signs to trigger a contingency response.
Not budgeting for your business contingency plan.
A contingency plan has to include a contingency fund, which sets aside a certain amount of resources (e.g., money, people, time) to cover unanticipated costs. It’s a good idea to decide this amount with your team or other stakeholders beforehand to prevent future disputes.
Resist the temptation to cut these funds even in times of a budget crunch. If something does go wrong, you will need to explain to management what happened to your contingency plan.
Although contingency planning sounds like a good idea, not everyone will agree that it’s necessary. Before you start doing anything, find out how open-minded the stakeholders at your company are. If you cannot identify enough executives who think it’s important, don’t waste your time and effort to create one.
Contingency plans need to be updated regularly to account for new risks, changes in government policies, and shake-ups in organizational structure. In short, they need to remain current and evergreen. Schedule reminders a couple of times each year to review the existing plan and make changes if necessary.
Step 1: create a contingency planning policy statement.
A contingency plan policy statement is a formal document that outlines the contingency objectives for your organization, such as getting back to normal operations by a certain time. A policy statement also expresses the authority and gives the guidance necessary for stakeholders to create a contingency plan.
Essentially, this should answer the questions “what is contingency planning?” “how should I go about doing this?” and “what can stakeholders expect from a contingency plan?”
A business impact analysis (BIA) is used to determine the potential impact, both operational and financial, of a disruptive event in your organization. By doing so, you will be able to recognize the systems, components, and processes that are vital to your business functions, and therefore identify your recovery priorities in the event of an emergency.
Every organization has its unique set of potential risks, which can be identified with a risk assessment. Having implemented a BIA, you will now know what your business-critical operations are. To get even more ideas, schedule a brainstorming session with your executive team and/or other stakeholders.
After this, you then need to identify the threats that could harm each of these operations—for example, a technical glitch or a change in business regulations. Once all this data has been collected, put it in a risk register—a risk chart that enables you to track your risks and any information you need to know about them.
Once you have all your potential risks, it’s time to evaluate how they might impact your organization. Ask yourself the following key questions:
One way to rank risks is to use a qualitative risk assessment , which orders each risk according to its probability of taking place as well as its potential impact. Another common method is the quantitative risk assessment , which estimates how much each risk might cost your business and ranks the results from most to least costly.
You’ll now start to create a contingency plan for the highest priority risks to your organization, namely those that are most likely to occur and cause the most damage. Outline the actual actions needed to confront a disaster and include preventive controls that can reduce the effects of disruptions.
An example of a modern, detrimental event for most companies would be an information systems breach. Preventive controls for this situation would be to invest in a good-quality antivirus software, make sure your software is regularly updated, create strong passwords, and have files backed up on-premises.
As for the actual plan, these contingency strategies and procedures are usually tailored to the system’s security impact level and recovery requirements.
After creating a first draft of your contingency plan, it’s time to get stakeholder approval. Given that contingency plans usually involve employees and management across your company, it will be extremely difficult to implement them without adequate support. Getting approval well in advance also means that plans can be put into action right after an incident occurs.
Contingency plans are usually department-wide or company-wide. By putting them in a shared public folder with a clear document name, you are ensuring that everyone will have easy access to them in case of an emergency.
Having laid all the groundwork, you can move on to the execution stage. It’s essential that the parties who have roles in your contingency plan know what their responsibilities are in each risk scenario. Once everyone has been appropriately trained, each of them will be prepared to act quickly in the event of an emergency.
Training should also be given to new employees so they know what contingency planning is, what it entails, and what they might have to prepare to do in the future.
In the event of a real disaster, would your contingency plans be effective? There is only one way to find out—and that is through plan testing. Set aside time to run through the procedures for each contingency plan as if each emergency scenario were really taking place.
Not only will this validate the recovery capabilities of each plan, but it will also show if there are any deficiencies or gaps, which can then be improved upon.
Smart managers know that it is not enough to just create a contingency plan. Plan maintenance is more difficult, and it takes more effort—but that’s what makes it all the more critical. Risk management is an ongoing process, and you need to keep your plan up-to-date when risks or business requirements change.
Comprehensive contingency planning will make sure that you are prepared to deal with all the risks that come with running a business. Be it natural disasters, workplace accidents, financial instability, malware—these are only the tip of the iceberg of things that can go wrong. But, with a tested contingency plan, you can effectively prepare for whatever may come your way.
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Posted may 4, 2022 by sabrina parsons.
Any business that survived the pandemic had to adjust, readjust, and rethink their business as they dealt with shutdowns, supply chain issues, and ever-changing customer behavior. At the time, it could be seen as crisis or recovery planning . However, intentionally or not, these businesses were proactively creating contingency plans.
A business contingency plan is an established strategy or backup plan designed to help organizations respond to possible future events. This contingency planning process encourages you to consider business and financial strategies for potential risks well in advance. It’s basically a lean business plan that takes into account unexpected scenarios that could affect your business.
Doing so ensures that you aren’t caught off guard. Instead, when a negative event occurs, you can jump right into successfully navigating your business. A contingency plan can even address larger potential issues such as a natural disaster, a global pandemic, or a major security breach.
Your contingency plan will want to address and cover:
Financial “what if” scenarios are based on the contingency you are planning for. The important part is to include your projected Profit and Loss statements as well as your Cash Flow Forecast. Adjust these financial statements around a potential issue to better understand what course of action you’ll need to take.
Are there increased costs of goods and services or do you need to change your pricing? Should you add a fuel surcharge if the contingency involves higher gas prices?
Understanding the financial effects is the first step. Next, you’ll need to address how you will adjust your business and marketing strategy to navigate the contingency, you are planning for. This is when you go from risk management to creating a plan that helps your business thrive rather than recover.
What changes will you need to make to your staffing, advertising, and marketing budgets? Will you need to change how you sell, market, and support your products and services to address the adverse events?
By putting together a contingency plan and addressing risks to your business, you will be prepared and able to best address those risks when and if they happen. The last few years have taught all small business owners that we have no idea what is ahead. That the best possible way to plan for the future is to be ready for anything.
A contingency plan for your business will help you step through the what-if scenarios that you might encounter. To start putting together solid plans that will help you overcome risks, fast-track disaster recovery, and even ensure there’s business continuity in place.
What if gas prices double, and your run a delivery business? A contingency plan could help you model the financial scenario, make sure you have the right access to credit lines to pay for the increased costs, and plan for the right gas surcharge to add to your customer deliveries.
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Writing a contingency plan doesn’t have to be a huge or stressful ordeal. All you are doing is taking your lean business plan, and making some adjustments to the strategy and the strategic forecast to plan for uncertainty. Here’s a step-by-step guide to write your own contingency plan.
In the past few years, all business owners have experienced risks they never saw coming. Trying to account for everything can be overwhelming and time-consuming. Rather than anticipating anything that could happen to your business, focus on the next few years.
Start with a comprehensive list, putting everything down that could possibly happen to your business in the next 12-24 months. Loss of an employee, a dip in sales, equipment failure, rising shipping costs, insurance increases, etc. Depending on your business, it may also be beneficial to consider larger unforeseen risks such as natural disasters, cyber-attacks, and economic downturns.
We can all look back at the beginning of the pandemic and learn from the events. Use that knowledge to think about potential future risks and build your list.
Now that you have all those frightening potentials listed, it’s time to prioritize. You need to think about your key risks. The ones that are most likely to happen or will cause the greatest hardship to your business. Realistically you should prioritize no more than 3-5 key risks.
Remember, you can always use these initial contingency plans to help you explore additional risks. More than likely, several risks will have similar effects on your business functions. It’s much easier to adapt your contingency plans once you have them rather than starting fresh every single time.
Now that you’ve done the prep work, it’s time to jump into developing your plan. Take your prioritized list and focus on building contingency plans that outline how you and your business will tackle each risk. Here is what you should include in your contingency plan:
To truly understand how a specific risk impacts your business operations, you’ll need a full financial forecast . This will account for what the risk will do to your revenue, expenses, or both. Having a clear picture of your potential financial situation will help you answer questions such as:
Don’t worry about creating these forecasts from scratch. Instead, start with your current financial forecasts, make a copy, and adjust projections based on what you expect to happen. Be sure to take note of what adjustments you make. This will make it far easier to update your forecast scenarios whenever you bring in more recent real-world performance data for your business.
Looking for a better solution? Learn how you can save more time and ensure greater accuracy when adjusting to actual performance using LivePlan .
With your forecasts in place, you can begin to define the actions you will take. Keep things simple and easy to follow by creating a one-page strategic plan for each risk. In it, you’ll address how the effects of each risk will impact your operations, sales, marketing, milestones, and even funding needs. This will help you answer questions such as:
Document your 12-24 month road map and the key changes you need to implement to keep your business healthy. Keep it lean and actionable to ensure that you and your team will actually be able to use it when the time comes. The LivePlan Pitch page is a perfect place to outline your one-page strategy.
You’ve considered the risks. You have contingency plans in place that include financial forecast scenarios and a one-page action plan. It’s now time to connect your contingency plans to your overall business strategy and business plan.
Ideally, you should have a simple, lean business plan that is helping guide your business over the next 12-36 months. If not, take 30-minutes to develop one based on your current expectations for your business. This will make it far easier to update and use when facing the risks you’ve identified.
Take this business contingency plan example for instance. If your unexpected event is about a financial risk (such as a dip in sales), connect that contingency plan with your financial plan as a potential fork in the road. You can easily do this same exercise with the two to three more contingency plans you have already built out.
The end goal is to make this quick and painless so that you can spend less time planning and more time acting when a crisis you’ve planned for occurs.
Think of it like attachments for a tractor. Where you have all of the right buckets and tools to get your yard in tip-top shape. You’re prepared to jump right in and take on everything from mowing and digging to laying down new gravel. All you need to do is add the right attachments ahead of time. That’s exactly how you want your contingency plans to function with your current plan.
Once you have integrated the contingency plans into your overall business plan, it’s time to get your team on board. You want to be sure that they understand the ins and outs of your business plan, and how each contingency should be executed when the time comes.
So how do you get your team on board? Try these three simple steps:
You can check out our guide on how to conduct a monthly plan review meeting for a more thorough explanation of how to set up this process.
The hard work is done. You have thought about potential hurdles your business might face and you have a plan. Your team is engaged and you now have a regular review schedule in place to keep your business on track.
All you have to do now is implement your lean business plan, watch for obstacles, and be ready to use your contingency plans if needed. Don’t worry, your regular review meetings will help you track your actual results against your plan and will give you an opportunity to revise your plan if need be. Check out how LivePlan can help simplify this process and help you make better business decisions in any scenario.
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Small Business Contingency Plans Explained
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A business contingency plan is a course of action that will be taken if an unexpected event occurs that could disrupt the business. It's a backup plan that ensures the business can continue to operate despite an adverse event.
A business contingency plan is a “plan B” or blueprint for how to keep your business running in the event of a natural disaster, major technical issue, or other unforeseen disruption. A contingency plan identifies potential risks to your business and outlines steps your management team and employees can take if confronted with one of those risks. It helps protect the health and safety of your workers after an event has occurred, while also minimizing business interruptions that can result in financial losses. A well-thought-out plan can mean the difference between staying in business and shutting down.
Every business should have a contingency plan so it can resume its operations as soon as possible after a disruptive event occurs.
A plan will save you time and money since you've already decided what resources you need and actions to take to keep your business going. It can also alleviate some of the stress you're likely to feel when disaster strikes.
Rather than fretting about what you should do, you can simply follow the steps you've laid out ahead of time.
The first step in creating a contingency plan is to determine what risks are most likely to impact your business and the functions they will impact. Think about how your business normally operates and the types of events that could disrupt its major activities. Your risks depend on the nature of your business and your geographical location. For instance, hurricanes and earthquakes are risks in some areas but not others. Here are examples of events that could cause disruptions:
Some of these events could also have legal implications. For example, all 50 states, along with D.C. and U.S. territories, have laws requiring businesses to notify individuals whose personally identifiable information has been stolen or released in a data breach.
The next step is to conduct a business impact analysis so you can predict the potential outcomes of a disruption of one of your business functions or processes. An analysis can help you estimate the operational and financial impacts of a disruption. It can also help you gather the information you will need to develop recovery strategies. Here are examples of the potential operational and financial impact from the disruption of business functions and processes:
When estimating the impact of events, be sure to consider timing and duration.
A hurricane, structure fire, or data breach may have a greater effect on your income or costs if it occurs during your busy season than when business is normally slow. Likewise, a disruption that lasts for a day will have less impact than one that extends for a week or a month.
You can use the results of your impact analysis to rank your risks in order of priority. Risks with the greatest potential impact should be listed first.
One of the easiest ways to write a contingency plan is to use a template, which is provided by several state and local websites including, for example, the one for Cambridge, Massachusetts .
Once you've analyzed your risks and estimated their impacts, you can begin writing your contingency plan. You'll need a plan for each of the risks you've identified. For example, suppose your manufacturing business is highly dependent on a grinding machine. If the machine became inoperable due to physical damage or a malfunction, your business might have to shut down temporarily. You draft a contingency plan outlining steps you will follow if your machine becomes unusable. Your plan, in turn, might include contact information for two companies that rent machines similar to yours.
When writing your contingency plan, be sure to identify specific people who will need to take action. For instance, suppose your firm employs a highly-skilled salesperson named Susan, who generates 50% of your firm's sales. If Susan left your firm or was unable to work for an extended period, your sales would plummet. You know a retired salesperson (Jim) who could step in for Susan temporarily. However, before you include Jim in your plan, you should explain the roles and responsibilities you'd expect him to fulfill and obtain his consent.
Once you've completed your contingency plan, be sure to share it with your managers and staff who will be responsible for implementing it. Ask them for their feedback, as they may think of a potential risk or impact you didn't consider.
Here's an example of how a company might use a contingency plan.
Tom owns Tasty Treats, a manufacturer of frozen prepared meals. The firm generates 60% of its revenue from sales of frozen pizza, all of which is made at a central location. Tom worries that his business could be severely impacted if a catastrophe occurs at the pizza manufacturing facility and he's forced to shut it down. Tom thinks his biggest risks are fire, windstorm, equipment breakdown, and an extended power outage, and that all have a high probability of occurring. He drafts a detailed contingency plan. Here are the highlights.
Fire | Lost sales, lost customers, increased expenses | Install sprinkler system. Identify temporary alternate locations. | Report incident to insurer. If site isn't usable within 3 days, move to alternate location. |
Windstorm | Lost sales, lost customers, increased expenses | Make building more wind resistant. Identify temporary alternate locations. | Report incident to insurer. If site isn't usable within 3 days, move to alternate location. |
Equipment Breakdown | Lost sales, lost customers, increased expenses | Buy . Identify resources to repair, replace or rent equipment. | Immediately contact repair shop. Rent equipment if repairs will take longer than 3 days. |
Power Outage | Lost sales, lost customers | Buy . Buy generator. | Operate with generator if outage lasts longer than 24 hours. |
Ready.gov. " Business Impact Analysis ." Accessed Jan. 28, 2021.
National Conference of State Legislatures. " Security Breach Notification Laws ." Accessed Jan. 28, 2021.
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Plan A in the business world is essentially the same for every company on any given day: Keep doing what works well to increase revenue and customer satisfaction.
Unexpected business disruptions such as natural disasters, technology failures, and even the COVID-19 pandemic, however, are inevitable. That’s why a business contingency plan -- your Plan B -- is essential to minimize the impact of these events on day-to-day operations.
A business contingency plan identifies a variety of catastrophic events that could occur and formulates responses to mitigate their effects.
These situations, as with the examples above, are typically beyond your control, so the best you can do is determine your optimal course of action when time is of the essence to protect your business.
The business contingency plan is much like project risk management but on a larger scale. Instead of anticipating and managing risk at the team or department level, the business contingency plan is applicable across large swaths, if not all, of your company.
Input from all levels within your organization, everyone from senior-level executives to front-line workers, is critical when developing a business contingency plan as part of your change management efforts.
In addition, because extreme events are inevitable without being predictable, how quickly you recover from these situations will be one of your key business metrics.
You also need to keep the three considerations below in mind to shape an effective business contingency plan.
When a crisis happens, the number one priority is the continued operation of the company, which ultimately boils down to cash flow and solvency. This requires thinking proactively about your cash reserves, liquid assets, and bottom-line numbers to keep the lights on and doors open.
After making sure your company can survive the financial impact of a catastrophic event, the next issue is customer loyalty. While everyone knows the unexpected can and will happen, your customers demand that you respond quickly and transparently.
Anything less than that can lead to a damaged reputation and customer defection to your competitors.
Being ready to deal with negative events like a natural disaster is a common contingency plan example, but you also need to be prepared when unexpected good fortune comes your way.
If a marketing initiative goes viral and leads to a spike in orders, which could strain your supply chain and production capabilities, you must have a plan for that too.
As part of your business development efforts, contingency planning is also a form of gap analysis. You will not only be identifying potential threats and their relative likelihood, but you’ll also be determining how prepared you are now versus where you need to be to ensure operations continue with the minimum amount of interruption.
The first step in compiling the information necessary to flesh out a contingency plan template is to identify all the potential threats your company faces. In general, these can be broken out into three categories: natural disasters, human-caused events, and technology failures.
To determine the maximum number of potential threats, you’ll need to cast a wide net by soliciting input from multiple departments and personnel within your organization as well as other stakeholders. In addition, business consultants, who have a perspective beyond that of the company itself, can offer valuable insights.
A visual threat chart will help categorize the different types of crises that could impact business operations. Image source: Author
Once you’ve identified all potential threats, everything from a power outage to the eruption of a volcano to a cyberattack, you’ll need to prioritize each threat based on its general likelihood. After all, if you’re located on a coastline, flooding will be more likely than the dust storm that might be a routine occurrence in an arid region.
You’ll want to use a uniform "instrument" -- that is, a consistent method -- to analyze the potential impact of different disasters based on the information you collected in step one. Otherwise, you could end up with an ever-moving target that will make your resource allocation less effective.
A threat matrix allows you to plot multiple threats to determine which ones warrant higher priority. Image source: Author
Now you are ready to lay out your responses to various threats. Critical elements to determine your standard operating procedure for each scenario include personnel responsibilities, equipment, cost, offsite contacts and service providers, and recovery timeline.
Your threat responses must be detailed enough to provide clear guidance during a crisis. At the same time, they cannot be so granular that they don’t allow the flexibility necessary to respond quickly as chaotic events unfold.
Once each contingency plan has been tested and approved, it must be easily available to all employees and stakeholders. After all, it won’t do any good gathering dust in a three-ring binder on the top shelf in a locked storeroom.
As with other planning documents, including financial, strategic, and succession, your contingency plans are living documents, not museum pieces, and must be treated as such.
Successful contingency planning deals with the same issues as all other project planning: avoiding silos, updating results, and disseminating information.
Contingency planning cannot be left to one department or, even more problematically, to one person due to the scope of processes, money, and personnel involved in recovery efforts.
You should use a cross-functional team to obtain actionable input from a variety of organizational perspectives.
In addition, your contingency management plan is not a static document because it presents your best options and responses at a single point in time.
As your business evolves, personnel change and different resources and capabilities become available, you’ll need to regularly revisit the contingency planning process to reflect these changes.
The best contingency planning in the world won’t do you any good if nobody knows about this key piece of business intelligence or how to access it in the middle of an emergency.
Make sure everyone knows how to find this information, their respective roles to play, and how to reach and remain in contact with other members of your disaster response teams.
Strictly speaking, developing your business contingency strategy is not a front-line, day-to-day operations activity. At the same time, a lack of planning for the worst things that could happen threatens the very existence of your company.
That’s why you need to maximize your efforts and be as efficient as possible by using, for example, the best project management software to work both smart and hard.
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What is contingency planning, what is a contingency plan, contingency plan example, how to create a contingency plan, business contingency plans, project contingency plans.
Contingency plans are used by smart managers who are aware that there are always risks that can sideline any project or business. Without having a contingency plan in place, your organization won’t be well prepared for risk management .
The term contingency planning refers to the process of preparing a plan to respond to any risks or unexpected events that might affect an organization. Contingency planning starts with a thorough risk assessment to identify any risks and then develop a contingency plan to resolve them or at least mitigate their negative impact.
Contingency planning takes many shapes as it’s used for helping businesses and projects across industries. Even governments use contingency plans to prepare for disaster recovery or economic disruption, such as those caused by natural disasters.
A contingency plan is an action plan that’s meant to help organizations mitigate the negative effects of risks. In simple terms, a contingency plan is an action plan that organizations should execute when things don’t go as expected.
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Now that we’ve briefly defined what contingency planning is, let’s take a look at a contingency plan example involving a manufacturing project.
Let’s imagine a business that’s planning to manufacture a batch of products for an important client. Both parties have signed a contract that requires the manufacturer to deliver the products at a certain date or there may be negative consequences as stated on the purchase agreement. To avoid this, the business leaders of this manufacturing company start building a contingency plan.
To keep this project contingency plan example simple, let’s focus on three key risks this company should prepare for.
ProjectManager has everything you need to build contingency plans to ensure your organization can respond effectively to risks. Use multiple planning tools such as Gantt charts, kanban boards and project calendars to assign work to your team and collaborate in real time. Plus, dashboards and reports let you track progress, costs and timelines. Get started today for free.
Like a project plan , a contingency plan requires a great deal of research and brainstorming. And like any good plan, there are steps to take to make sure you’re doing it right.
To create an effective contingency plan you should first identify what are the key processes and resources that allow your organization to reach its business goals. This will help you understand what risks could be the most impactful to your organization. Research your company and list its crucial processes such as supply chain management or production planning as well as key resources, such as teams, tools, facilities, etc., then prioritize that list from most important to least important.
Now, identify all the risks that might affect your organization based on the processes and resources you’ve previously identified. Figure out where you’re vulnerable by brainstorming with employees, executives and stakeholders to get a full picture of what events could compromise your key business processes and resources; hire an outside consultant, if necessary. Once you’ve identified all the risks, you should use a risk log to track them later.
Once you’ve identified all the risks that might affect your processes and resources, you’ll need to establish the likelihood and level of impact for each of those risks by using a risk assessment matrix . This allows you to determine which risks should be prioritized.
Now, write a risk mitigation strategy for each risk that you identified in the above steps. Start with the risks that have a higher probability and higher impact, as those are the most critical to your business. As time permits you can create a plan for everything on your list.
Contingency plans should be simple and easy to understand for the different members of your audience, such as employees, executives and any other internal stakeholder. The main goal of a contingency plan is to ensure your team members know how to proceed if project risks occur so they can resume normal business operations.
When you’ve written the contingency plan and it’s been approved, the next step is to ensure everyone in the organization has a copy. A contingency plan, no matter how thorough, isn’t effective if it hasn’t been properly communicated .
A contingency plan isn’t chiseled in stone. It must be revisited, revised and maintained to reflect changes to the organization. As new employees, technologies and resources enter the picture, the contingency plan must be updated to handle them.
We’ve created an action plan template for Excel to help you as you go through the contingency planning process. With this template, you can list down tasks, resources, costs, due dates among other important details of your contingency plan.
A business contingency plan is an action plan that is used to respond to future events that might or might not affect a company in the future. In most cases, a contingency plan is devised to respond to a negative event that can tarnish a company’s reputation or even its business continuity. However, there are positive contingency plans, such as what to do if the organization receives an unexpected sum of money or other project resources .
The contingency plan is a proactive strategy, different from a risk response plan , which is more of a reaction to a risk event. A business contingency plan is set up to account for those disruptive events, so you’re prepared if and when they arrive.
While any organization is going to plan for its product or service to work successfully in the marketplace, that marketplace is anything but stable. That’s why every company needs a business contingency plan to be ready for both positive and negative risk management.
In project management, contingency planning is often part of risk management. Any project manager knows that a project plan is only an outline. Sometimes, unexpected changes and risks cause projects to extend beyond those lines. The more a manager can prepare for those risks, the more effective his project will be.
But risk management isn’t the same as contingency planning. Risk management is a project management knowledge area that consists of a set of tools and techniques that are used by project managers to create a risk management plan.
A risk management plan is a comprehensive document that covers everything about identifying, assessing, avoiding and mitigating risks.
On the other hand, a contingency plan is about developing risk management strategies to take when an actual issue occurs, similar to a risk response plan. Creating a contingency plan in project management can be as simple as asking, “What if…?” and then outlining the steps to your plan as you answer that question.
ProjectManager has the project planning and risk management tools you need to make a reliable contingency plan that can quickly be executed in a dire situation.
Use our task list feature to outline all the elements of a contingency plan. Since a contingency plan likely wouldn’t have any hard deadlines at first, this is a good way to list all the necessary tasks and resources. You can add comments and files to each task, so everyone will know what to do when the time comes.
Our dashboard gives you a bird’s eye view of all of the critical project metrics. It displays live data so you’re getting a real-time look at how your project is progressing. This live information can help you spot issues and resolve them to make sure that your contingency plan is a success. Which, given that it’s your plan B, is tantamount.
If you’re planning a project, include a contingency plan, and if you’re working on a contingency plan then have the right tools to get it done right. ProjectManager is online project management software that helps you create a shareable contingency plan, and then, if you need to, execute it, track its progress and make certain to resolve whatever problems it’s addressing. You can do this all in real time! What are you waiting for? Check out ProjectManager with this free 30-day trial today!
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The vast majority of failed projects and bankrupt companies had a plan and followed it. So why do these projects and companies end up failing?
Unexpected things happen that companies don’t plan for, and many fail to adapt in time.
The key: having a sound contingency plan. A contingency plan is all about expecting the unexpected and preparing to deal with worst-case scenarios ahead of time. This article will cover why you need a contingency plan, and walk you through step-by-step instructions for creating one. We’ll also provide a contingency planning template you can implement and use on monday.com immediately.
A contingency plan is a predefined set of actions that you will implement in response to specific future events that put your project or business at risk.
A simple example of a contingency plan is to back up all your website data. That way, if your website gets hacked, it will be easy to restore the data after regaining access and changing passwords.
Without that backup, the team might have to recreate the entire website from memory or build a website from scratch . That’s a significant expense and can mean several extra days (or weeks!) of downtime.
A contingency plan is about managing and lowering risk and setting yourself up for speedy disaster recovery.
There are two types of contingencies that you should plan for: budget contingency & schedule contingency.
Here are a few examples of how contingency planning could help save the day, no matter what happens:
Imagine that a key team member unexpectedly leaves the project. If you were contingency planning for this scenario, you might outline the following steps you could follow if you lost a key project team member:
How about if a natural disaster disrupted operations at your primary office location? Could your business cope? With a continuity plan in place, you’ll turn things around quickly:
Do all your logistics depend on a few key suppliers? Then you should have a supply chain contingency plan in place, in case of unexpected production or shipping delays.
Murphy’s Law specifies that anything that can go wrong will go wrong. And any experienced project planner knows how true that is! Contingency planning can make or break your business:
Contingency planning helps to identify potential risks and get ahead of them with a proactive plan. That way, even when things go wrong, you can minimize the disruption to operations and reduce your financial losses.
Having a contingency plan in place enables you to respond to the unforeseen more effectively, adapt to changing conditions, and recover from setbacks more efficiently.
In many industries, contingency planning is mandated by regulatory requirements, so you’ll need these plans in place to avoid penalties and maintain good legal standing.
Customers trust businesses that handle disruptions effectively. The ability to respond quickly and effectively when things go wrong will help build your reputation for great customer service.
Looking for a tool to make contingency planning easier? With monday.com, you can store all your contingency plans in a central location, communicate changes with stakeholders, and create automated workflows in response to unexpected events.
Your contingency plan should include the following components:
Begin by making a thorough identification of potential risks that could realistically occur. Depending on what kind of contingency plan you’re putting together, these could be all the risks that could impact your business, or the risks that could delay or disrupt a specific project or product.
For example, in terms of business-level contingency planning, you could list out:
Your plan should then outline various responses that you could choose between, for each risk you’ve identified. These might be:
For each risk and response option, you should then add in a plan of action, including:
You’ll also want to make sure that you have a plan in place to communicate effectively with all stakeholders, including:
Decide in advance when you’ll activate a specific contingency response. For instance, you might have a particular threshold beyond which you’ll move to a contingency plan — such as the severity level of a natural disaster. You should also define who has the authority to make these decisions, and how the decision will be made (by committee or by chain of command, for instance.)
To keep your plan up to date, you should schedule regular tests and reviews. For instance, for a natural disaster contingency plan, you might want to run a drill once a year, to practice your response procedures and make sure that everything works as it should.
Let’s cover the basic contingency planning process and detail how to get yours up and running.
What processes are essential to your business and safely delivering your product or service to customers?
If you’re a manufacturing company that ships directly to consumers, a simplified process list might look something like this:
Looking at this list, you can see how vulnerable it is to natural disasters or even minor human errors.
Create an overview of every crucial process in your organization.
Once the process list is created, consider what might disrupt business continuity.
What can go wrong with each of these critical processes?
Let’s look at an example of what could go wrong with “last-mile delivery” …
And that’s only a preliminary list. Once you start thinking about it, you’ll realize how many things you rely on to avoid going wrong, even for fundamental processes.
Every business process is vulnerable to some sort of emergency or human error and requires a solid risk management process .
Once the risks are identified, it’s essential to determine how they could impact your business.
Are they likely to happen? How large will the impact on your business if they do occur?
Most companies use “qualitative risk assessment” to do this.
PMI uses the following risk exposure assessment table — also called the probability impact matrix — to evaluate … the probability and impact of potential risks.
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First, rate the severity of the impact on a scale from 1–100. Then, multiply with a percentage based on how likely it is to occur.
The quantitative risk assessment approach is less common — but more practical — to assess the potential cost of each risk.
How much would each risk potentially cost your business? To get a better overview, add these 4 columns to the risk register template :
This means you can make an educated decision when budgeting contingency reserves into project plans and yearly budgets.
During the risk analysis , estimate the potential costs of the adverse event.
EXAMPLE: if your online store goes down, multiply the average online sales revenue per hour with expected downtime. Make one pessimistic and one realistic estimate.
Your hosting service may also have a flat fee for restoring sites, which would be your response cost. If these costs are unreasonably high and the event is likely, estimate the costs of a mitigation effort. In this case, it could be a firewall and extra procedures, like 2-factor authentication, an important security system , for all employees.
Budget in those costs. An accurate budget is the first part of emergency response and prevention. Without enough cash, your team won’t be able to put any response plans into action.
Create a response plan for events by exploring the following questions:
The specifics depend on your company’s unique processes and situation.
A contingency plan only works if it’s used when things go wrong—and that means that everyone in your organization knows to reach for the plan in times of trouble. To make sure that happens:
If you want your contingency plans to protect your business, you have to keep them up to date. That means you’ll need to schedule regular reviews of the plan to check that it’s still relevant and aligned with your changing business.
Remember to communicate updates or revisions to all relevant stakeholders, and provide opportunities for additional training if needed.
Having your business contingency plan on paper is an excellent place to start. But it won’t translate to how your entire company will tackle a crisis.
That’s where monday.com comes in. Our flexible digital workspace gives you everything necessary to ensure everyone follows the contingency plan when they need to.
Make sure that no employee is left clueless during a crisis. Our contingency plan template has everything you need to start the planning process.
With our pre-built template, you can feel confident you’re following best practice contingency planning, so your business will run smoothly even in the case of unexpected events.
With monday.com’s powerful integrations and automations, you can respond to unfavorable events more quickly.
For example, you can immediately create and assign a work item whenever a customer submits a bug report.
This approach helps avoid another potential problem: customer service failing to report bug reports to your development team.
The best time to start acting is before a catastrophic event that puts your entire project or business at risk.
To do that, your management team needs a clear understanding of the project’s status at all times.
Use the 30,000-foot view every manager needs to avoid predictable project delays and failures and check that project controls are working properly.
When starting a project or business, most people plan according to the status quo. Unfortunately, that’s a best-case scenario and not helpful in the real world.
A contingency plan helps you prepare for worst-case scenarios and keep your project afloat, should anything go wrong.
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When audiences think of Back to the Future, they remember Michael J. Fox’s performance. Yet, Fox – and his iconic "life preserver" vest– wasn’t the first choice for Marty McFly.
Universal Studios actually filmed another actor as the main character for several weeks. When that didn’t feel right they switched to Plan B: Fox. The rest is history.
Having a Plan B, otherwise known as a contingency plan, makes continuity possible. Whether it’s for a movie cast or a natural disaster, having a contingency plan in your back pocket allows for quick shifts and flexibility when potential setbacks or issues arise.
A business contingency plan, or Plan B, is a backup plan you can use if there’s a disruption in your company’s operations. Because of COVID-19, our minds tend to jump to worldwide disasters, but Joe Spector, Founder and CEO of Dutch , warns that more common risks are issues like “data breaches, loss of staff or customers, or declining business relationships.”
And it’s because these issues are so common that they are often overlooked as needing a contingency plan. But disruptions, transitions, and adaptability take time and money, and having a plan in place will help mitigate any potential upsets so your business can continue to run as smoothly as possible.
To ensure your company is ready for the unexpected, your leadership must adopt a strategic contingency planning process. It makes sense to have backup plans, but did you know that only 12% of business leaders considered their companies prepared for 2020? Because pandemics, natural disasters, and data breaches aren’t predictable, it’s critical to have backup plans in case any major disruption occurs.
Leaders are in unique positions to challenge traditional approaches and implement tools and practices that take a modern look at risk assessment and risk management. Mark Shinkman, Vice President of Gartner’s Risk and Audit Division, attributes the absence of COVID-19 contingency plans to antiquated methods. He explains, “This lack of confidence shows that many organizations approach risk management in an outdated and ineffective manner."
These outdated and ineffective practices involve department leaders assessing risks and creating contingency plans unique to their teams. However, this siloed approach fails to look at departmental risks that could impact the company as a whole. As a result, companies are ill-prepared to address crises that spread into other departments.
Traditional contingency planning favors department-level risk management, which can negatively impact the company.
Most risks can impact your entire organization. If your departments work together, you can more easily understand these risks and develop a proactive plan. However, the traditional, siloed model will leave teams scrambling.
For example, unexpected turnover, furlough, and leave all affect staffing levels, which in turn influence a department’s ability to deliver on goals. If you don’t have a contingency or succession plan in place, other departments besides your People team may be affected.
This particular siloed planning process could result in:
Looking at risks from a holistic view eliminates the traditional risk management tunnel vision. As a leader, you can make this happen. Encourage your departments to collaborate with others in the company so they can see the overlap in crises. With this high-level view, your departments will be better equipped to keep your company running in the event of a crisis.
To create a successful, aligned contingency plan, it’s important to analyze your potential risks, plan responses, and manage recovery efforts when crises occur.
Contingency planning starts by acknowledging the risks that your company faces. After all, you can’t create a backup plan if you don’t know what you’re trying to overcome.
Invite department heads, team leads, and/or employees to anonymously participate in a risk assessment. Have respondents identify risks they believe are important and encourage participants to include both internal and external sources. Next, have them rate those risks on their likelihood and severity. Include a rating scale of one to 10, with one being low likelihood/low impact and 10 being high likelihood/high impact. It may be important to provide examples of each ranking to better calibrate results.
Once responses are in, gather leadership and additional department heads or team leads to review the responses and ratings. Use a risk assessment matrix or scatter plot to visualize the severity of each risk.
These visualizations can help your team identify urgent risks and determine an appropriate course of action.
Prioritize your results by reviewing the following:
As you move forward with creating your contingency plan, consider how a particular course of action will target your crises and impact your workforce and company.
Acknowledging the trickle-down effect these risks—and your response to them—will have across your company, while being transparent in your collaboration practices, empowers your leaders to figure out how to respond on the department level. Furthermore, collaborating on crisis responses also provides your department leaders with an opportunity to voice concerns and share how each crisis would impact their teams.
For a business contingency plan example, let’s say that a few of your team members live in tornado country. It’s very possible that a natural disaster could affect them and their workflow, resulting in disrupted communication between team members and customers.
The customizable business plan template below can guide your team through problem solving your potential scenarios and responses.
Download your editable contingency plan template here .
After collaborating with teammates and assessing potential risks, it’s now time to solidify your contingency plans.
As you compile your plans, make sure to include the steps your teams took to assess the risk, the various scenarios you drafted (even ones you may not have selected), and recommendations for how often leadership should review the plan.
You can go into as much detail as your team feels is necessary. Some companies might draw up a minimalist table view to make triggers and actions visible, while other companies may rely on thorough documentation to capture all aspects of their contingency plan.
How much detail you put into a guide will also depend on the factors in play. A data breach, for example, would involve specific team members and stakeholders with specific recovery strategies outlined. But a natural disaster that takes out the main office would involve a number of stakeholders and a broader plan to manage resources. Your approach will ultimately reflect the needs of your company and the complexity of the risk.
An additional (but equally important) component of your contingency planning guide is communicating it to and training your employees through mock simulations. Spector advises that your people should not only know their specific roles and responsibilities when the plan goes into effect, but also if and when adjustments are made “in accordance to changes in organizational processes and technologies.”
It’s important to revisit and refresh your contingency plans not only when processes and technologies change, like Spector mentioned, but also when positions are backfilled and roles and responsibilities shift.
You may also find that your team struggles to enact the plan. Shinkman warns that some people “tend to deal with emerging risks by just assuming they will go away and instead focus their attention on what is most important today.” But when those seemingly small problems aren’t addressed, they can quickly become larger, more serious issues down the road.
To successfully revisit your plans, cycle back through the above steps with your team to identify the best course of action. If you need to reassess a threat that wasn’t high risk before but has since become urgent, enlist your leadership team to talk through where the risk falls now. Then, proceed to create a new contingency plan or revise your existing one.
Although you don’t want to be fear-driven, remember that disruptions can happen at any time. It’s therefore important to have a plan – any plan – in place.
You might opt for a stable enough plan that’s ready to go at a moment’s notice. You may choose to invest more time in making your contingency plan iron-clad. That’s the beauty of revisiting and refreshing your plans: risks and responses constantly change, and you have the ability to shift and further solidify your reactions.
One part of contingency planning is having a solid headcount planning strategy. Ready to ease its complexity?
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40 detailed contingency plan examples (& free templates).
Good strategies always involve a contingency plan in case the original plan backfires. In some cases, the original plan may not be as successful as you expect which is why you need a contingency plan example to achieve the same goal . We have heard the term “Plan B” before and this in its simplest way, is a contingency plan.
Table of Contents
The steps taken by an organization when an unexpected situation or event occurs is a contingency plan. A contingency plan example may be positive like when there’s an unexpected surplus in the cash flow. But more often than not, the contingency planning process mostly refers to negative events.
The events which might have a bearing on the organization’s financial health, reputation or on its ability to continue with business operations. Such events may include natural disasters, fire, network failure, and a data breach, to name a few.
Having a contingency plan template helps you make sure that there’s always a continuity in the business. Most of the bigger business organizations have sets of business contingency plan templates for various potential threats. These undergo extensive research and the resulting appropriate responses get subjected to full practice even before the crisis occurs.
You can consider a contingency plan as a proactive approach as compared to crisis management, which is more of a reactive approach. Having a contingency plan ensures that you’re always prepared for any eventuality. Conversely, a plan for crisis management enables you to control the response after the eventuality occurs.
Also, keep in mind that the design of a contingency plan template is only for risks that can you can identify and not for unknown or unidentified risks. This is for the simple reason that you cannot make a plan if you don’t know the risk.
It’s also worth noting that contingency plans don’t only exist in anticipation should things go wrong but you can also create one to make the most of strategic opportunities.
For instance, you have come to know of a new type of software for training that’s about to get released soon. Should this occur during the project, you can create a contingency plan on how to include this into the training stage of your project .
As mentioned earlier, a contingency plan example responds to a negative event that might affect or tarnish the reputation of an organization or its financial standing. In business, however, a business contingency plan template isn’t always negative. There are cases of positive contingency plans too.
Also, keep in mind that the contingency planning process is a proactive strategy, unlike crisis management which is a reaction to something that has happened. A contingency plan accounts for any disruptive events to ensure that the company is always prepared if and when such events should occur.
Contingency plans are usually part of the risk management department and project managers should know that the plan is simply an outline. However, there are times when the project may extend beyond this. This means that the manager can be more prepared to make changes in the plan if he deems it would be more effective.
Risk management isn’t the same as the contingency planning process. Risk management is more about establishing, assessing, mitigating, avoiding, sharing, transferring, and accepting risks, whereas a contingency plan focuses on developing steps for when a risk occurs. But they share a common aspect. They both describe the steps to take in such an occurrence.
In its simplest form, a contingency plan definition is what you should do when an unexpected event takes place. Simpler still is “What if….?”, then creating an outline of the steps that answer this question.
Project management always involves several entry points for risks that you have to consider for a contingency plan example. Here are some risk factors that you should take into account for a contingency plan template:
Here are the basic steps in the contingency planning process:
You need a lot of planning and research when creating a contingency plan example. But planning ahead, with each plan makes things easier for you. When creating one for your company, follow these steps:
Managers will always get confronted with challenges that they should consider before and while creating contingency plans. These challenges include:
As the situation in Ukraine evolves, businesses should be mindful of potential risks to their people, assets, operations, or supply chains in the region and globally. Marsh, as part of the Marsh McLennan family of companies, has created a page with information, tools, and resources related to the Russia-Ukraine conflict. Please visit the page for the latest information.
August 9, 2024
Build a strong business continuity plan to protect against business disruptions with the help of this step-by-step guide.
What are the consequences of a company lacking a contingency plan that addresses incidents that disrupt operations? The major loss of profits and reputational standing are two examples. Negative results like these force businesses to put countless hours toward rebuilding.
Let’s look at how organizations can avoid these impactful outcomes by creating a strong business continuity plan.
A business continuity plan is a comprehensive strategy designed to ensure an organization can continue its essential operations during and after a significant disruption. The goal is to minimize downtime, protect assets, and quickly return to normal operations.
According to PwC, 96% of business leaders stated their organizations experienced disruption in the past two years. Also, 76% said their most serious disruption had a medium to high impact on business operations.
A successful plan should assess all risks, including weather events and cyberattacks. Once a company identifies these vulnerabilities, the plan should also:
Enhanced risk management.
Business continuity is a big part of risk management. It enables teams to develop recovery procedures and strategies to mitigate the risks and ensure continuity.
The main goal of risk management is to identify, assess, and manage potential risk. Business continuity planning focuses on proactive actions that help ensure resiliency.
Business continuity increases customer confidence by demonstrating that an organization can handle disruptions and continue delivering products or services without significant interruption.
As a result, customers feel more secure and confident in their ongoing relationship with the organization, knowing their business will be met even in adverse situations.
In today’s business landscape, there are countless rules and regulations. A business continuity plan can help account for regulatory obligations. A business continuity plan starts with a realistic assessment of potential risks.
Companies can use these plans to mitigate these risks, track requirements to meet regulatory compliance during and after a disaster and help teams avoid fines and penalties.
Pre-established plans empower business leaders to act fast during a disruption. This proactively minimizes confusion for team members. It also ensures a coordinated response across the organization.
Stakeholders look to business leaders to take charge when situations occur. Investors, lenders, and other individuals need to know a business can manage risks and uncertainties. A business continuity plan shows that a leader will protect the stakeholders’ investments.
Yes, developing and implementing a business continuity plan requires an initial investment. However, creating this plan can ultimately result in significant cost savings. Businesses save money over time by mitigating the financial losses associated with operational disruption.
Additionally, it provides aid for expenses related to rebuilding operations. Rather than having no documentation or plan for consistency, workers can save time and energy by following the steps outlined. While this doesn’t keep employers from spending money, it gives businesses a jumping-off point.
A strong business continuity plan analyzes all the risks affecting a company’s normal operations. Possible incidents include natural disasters, civil unrest, political violence, and cyberattacks. With this plan, employers can:
Follow these steps to create a plan:
Most teams don’t have a designated business continuity specialist. These professionals are responsible for specific tasks within the business continuity framework. They focus on:
Employers can create a continuity team instead of hiring one person to handle the tasks. This group spearheads the review process and manages the disruption if an incident arises. The business continuity team also ensures the plan is consistent across all business units and updated regularly.
To reduce problems and plan for the future, businesses must understand their risks. Start the planning process by listing every potential threat to operations. Assess the probability and impact of each threat. This planning should be a team effort. Address every threat, including:
Employers must identify and prioritize key business processes, resources, and dependencies should there be a business disruption. These observations can help teams assign recovery time objectives and make decisions about recovery priorities and strategies.
Every business has different recovery requirements. Business leaders must develop strategies to respond to risk events and recover critical functions within their recovery time objectives identified during the risk assessment and business impact analysis.
Creating a recovery strategy includes brainstorming solutions that can create consistency.
Offering training and exercises can help prepare an organization for potential business disruptions. Performing trial runs can make recovery easier during a disruption. This preparation can help identify any missing aspects and possible improvements.
It’s vital to update the organization’s continuity plan regularly. The continuity team should make necessary adjustments as staff members change and emerging risks arise. Learning from past mistakes and trial runs can make business continuity management impactful.
While these two plan types are similar, one can’t replace the other. Disaster recovery plans focus on technology and information technology infrastructure, while business continuity plans examine the operational recovery of key business processes, resources, and dependencies.
Both support critical business functions and incident management, especially for companies that struggle with technology downtimes and related costs. IT professionals generally lead disaster recovery planning by creating plans to recover from unexpected technology disruptions. The prioritized IT resources identified during the business impact analysis will help guide disaster recovery planning.
A business continuity plan can help ensure your team prepares for what’s next. Marsh McLennan Agency's risk management specialists can help you create a proactive plan to address potential disruptive incidents.
Partnering with our team offers your business:
Ready to elevate your business’s incident preparation and improve resiliency and risk management?
Reach out to a specialist today to learn more.
Reach out to a specialist today.
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Justin Goodbread CFP®, CEPA, CVGA, at WealthSource Partners, LLC, is a financial educator, wealth manager, author and speaker.
Starting a business is never simple, but starting one during an economic downturn can be especially difficult. With many challenges compounding the typical struggles business owners face, a recession may cause would-be entrepreneurs to hold off on starting a business. However, there are still opportunities to build a successful business, even in tough economic times.
Launching a business during a recession comes with several unique challenges. One of the biggest challenges is the lack of available funding. Banks and other lenders are often hesitant to provide loans during a recession , as they are more likely to see defaults and bankruptcies.
Another challenge is the cautious spending habits of consumers. During a recession, many people are less inclined to spend money. This can make it difficult for businesses to generate revenue. This especially rings true for luxury or nonessential goods and services, as consumers prioritize necessities over discretionary purchases.
Despite these challenges, there are many examples of businesses that were founded during recessions and went on to become successful .
So, how can you increase your chances of success when starting a business during a recession? Here are a few key strategies to consider:
Your contingency plan should detail the steps you'll take if your business can't generate the revenue you anticipated. It should also outline strategies for cutting costs, reducing overhead and conserving cash.
You always want to avoid unnecessary costs. But this is an absolute necessity during a recession. This could mean implementing a hiring freeze, negotiating with suppliers or finding more efficient ways to operate your business. During the most recent downturn, my company chose to reevaluate its systems and processes to become hyper-efficient. By cutting costs, you can improve your profit margins to better withstand the challenges of a recession.
Diversifying your revenue streams is another important strategy for preparing your business to succeed during a recession. This means offering a scope of products or services that appeal to many segments or industries.
Although there are many ways of diversifying your revenue, our company began developing new services to offer to our clients. Likewise, we expanded our market reach by partnering with advisors in markets across the country.
By having multiple sources of revenue, you can be better suited to withstand changes in consumer behavior.
During hard economic times, consumers are more likely to be value-conscious. This means you need to focus on creating value. You could do this through discounts and promotions, or simply by ensuring that your products or services are high-quality and meet customer needs.
Technology can be a powerful tool for businesses during a recession. Through automation, you can reduce overhead and improve operational efficiency. For example, several years ago, David's Bridal switched to an automated messaging platform and saw a 30% reduction in call center operating costs.
Although it may be harder to secure financing during a recession, it isn't impossible. Let's explore a few options.
During a recession, governments may offer funding programs or other incentives to help stimulate the economy. There could be government programs available to small businesses in your area.
Traditional banks may be hesitant to provide loans during a recession, but there are alternative financing options available. These include peer-to-peer lending and crowdfunding, among other options. If you're willing to share equity in your business, there are even more options such as private equity lending or mezzanine financing. Just be sure to research each option and consider how it could impact your business.
Building relationships with potential investors can be a powerful way to secure financing during a recession. I often attend networking events and have made great connections with investors. If you have networking events in your community, I encourage you to participate.
By understanding the challenges of a recession, preparing your new business to succeed and exploring alternative financing options, you can increase your chances of success. Remember: There are plenty of successful businesses that were founded and grown during tough economic times.
You can't win at business if you're just sitting on the porch. So do your due diligence, then pursue your entrepreneurial dreams.
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Risk management and mitigation play a crucial role in Sales and Operations Planning (S&OP). In this blog post, we will delve into how S&OP can effectively identify and address risks.
Let’s explore the S&OP and the risk management strategies to mitigate potential disruptions and maximize operational efficiency.
Sales and Operations Planning (S&OP) is a strategic and structured process for companies to align business goals with forecasted demand through an effective allocation of operational resources. This involves cross-functional collaboration to come up with an accurate demand forecast and, thus, balance the appropriate supply to meet customer needs.
As noted in the article “ Key Capabilities of S&OP for your Supply Chain ”, an efficient S&OP process helps to increase corporate profitability through the strategic use of the company’s resources.
The S&OP process helps teams mitigate risks by:
Thus, putting in place a holistic and structured S&OP plan ensures transparency across the organization and alignment with the overall business goals. This way, it grants the ability to manage risk in a timely manner to stay ahead of the competition and overcome uncertainties.
Risk management not only is a key capability of S&OP, but it is also a key benefit , granting companies the ability to identify and approach possible risks in time to secure their business.
First things first: There’s no risk to manage if it hasn’t been identified. You need to be able to “name” the risks in your supply chain as these can impact the overall performance of your business.
Risks may appear differently in supply chain planning versus financial planning . In supply chain planning, risks frequently come from the accuracy of underlying assumptions – like whether the forecasted demand is accurate or whether production will hit the expected levels with the plant running without unscheduled downtime.
On the other hand, in financial planning risks are from a different nature. They may result from currency fluctuations, cash flow shortages, or challenging customer payment terms, among others.
Let’s be more specific and define the different types of risk you can identify and tackle through S&OP.
Supply chain risks.
These might range from disruptions in suppliers or transportation failures to geopolitical circumstances that impact your business. Having a robust and well-established S&OP process helps you to identify and resolve these risks.
The same happens with inventory capacity. S&OP balances the supply and the demand accurately and in real time to prevent excess inventory or stockouts. This results in the reduction of the risk of lost sales or holding costs.
These come with changes in the market – customer preferences and market trends – that could impact demand. Many products are seasonal which can impact the demand for finished goods and the supply of raw materials.
S&OP and specifically “scenario planning” play a crucial role in anticipating these changes and adjusting production plans accordingly.
These kinds of risks can arise from capacity utilization or process efficiency. By aligning production capacity with the forecasted demand and synching operations across departments, S&OP helps to reduce the risk of overburdening resources or underutilizing capacity. It also minimizes bottlenecks and inefficiencies in the production.
As part of the S&OP process, budgeting and financial planning ensure the right allocation of resources to minimize cost overruns. It also aligns sales and operations to meet sales targets and maintain steady revenue streams. Manufacturers always want to take on new business, but many times the process of determining if the new business will be profitable is not performed.
Assessing risk severity and impact.
A key step in risk management is assessing the possible resulting “harm”. Missed orders provide a good example of the possible severe impact of failing to meet the expectations of the S&OP plan. When the organization and stakeholders involved in the process don’t follow the supply chain plan and implement it efficiently, orders for critical customers can be late or incomplete.
The impact can be huge: It could result in both a loss of business and a harm to the corporation’s reputation. Also, your company’s competition can get a chance to “get their foot in the door” by having their product qualified as a suitable replacement to your product given the risks associated with yours. Missed orders can squander years of sales and technical development work.
Revenue streams are also a target. If the finance department was counting on the revenue stream from the lost business, they will then not be able to meet their revenue forecasts.
Other consequences of a breakdown in the planning process include, among others, elevated labor costs coming from unscheduled overtime and increased shipping costs for expedited shipments.
An essential part of any risk management process is to leverage the likelihood of events. All team members involved in the planning process should distinguish between events that we can control versus events that are not under our control.
Your team needs to put in place a process that facilitates discussion among all key stakeholders. By following this process, you should come up with a list of the likelihood of controlled and uncontrolled events that can impact your supply chain.
A great tool that S&OP uses to evaluate the impact of unanticipated disruptions to your plan is “What if” scenario planning . By leveraging different scenarios, your team can draft different strategies to approach each situation. They can then use the results of this contingency planning to develop the appropriate mitigation plan for each possible scenario.
A mitigation plan is nothing more than a set of actionable strategies designed to solve unlikely events to mitigate the negative impact in your business. For example: If one supplier is based in a place where a natural disaster or an industrial accident that curtails their normal production rates occurs, qualifying multiple raw material suppliers provides companies with alternatives to avoid losing business.
Implementing a robust S&OP process in your company will not only streamline operations but it will provide you with the right framework for identifying, assessing, and mitigating risks in your supply chain and, in the end, your business.
QAD S&OP software supports and enhances your S&OP process to help you align sales and operations, anticipate changes in customer demand, manage risk effectively and boost growth.
As Pierre Monchal, ADM‘s (NEOVIA) Corporate Supply Chain Director explains : “Properly anticipating our customers’ requirements has become strategic so that our entire supply chain — from purchasing through to distribution via the production plants — could be ready to meet those needs.”
“We have, therefore, gradually moved to a genuine culture of anticipating and adapting to the market, calling for improved demand forecasts and better fine-tuned preparation of operations,” he says.
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When business operations are disrupted by a negative event, good contingency planning gives an organization's response structure and discipline. During a crisis, decision-makers and employees often feel overwhelmed by the pile-up of events beyond their control, and having a thorough backup plan helps reestablish confidence and return ...
Here's how to create a contingency plan in seven steps: Step 1. Create a Policy Statement. A policy statement is the outline of the authorization that exists to develop a contingency plan. This ...
A contingency plan is similar to a project risk management plan or a crisis management plan because it also helps you identify and resolve risks. However, a business contingency plan should cover risks that span multiple projects or even risks that could affect multiple departments. To create a contingency plan, identify and prepare for large ...
Business Contingency Plan (Click on the template to edit it online) Step 4: Share and Maintain the Plan . Once you have completed the contingency plans, make sure that they are quickly accessible to all employees and stakeholders. Review your contingency plans from time to time and update them as needed. And it's a best practice to inform ...
A business contingency plan is used to identify any potential business risks and clearly identifies what steps need to be taken by staff if one of those risks ever becomes a reality. A business continuity plan sounds similar in name and like a business contingency plan, aims to mitigate risks to the company. Business continuity plans outline a ...
Contingency Planning in 7 Steps. 1. Identify critical business functions. This first step is the most important aspect of your planning, as it sets the tone for why your plans need to exist in the first place. During this phase, identify all critical areas essential to keeping your business up and running every day.
A business contingency plan (or business continuity plan) is a strategy for how your company will respond quickly to disruptive events and keep operating. A comprehensive plan lays out the steps management, employees, and other stakeholders would take in multiple scenarios to help minimize the impact on day-to-day operations and quickly recover
Developing an effective contingency plan involves several key steps: Step 1: Identify potential risks and vulnerabilities. The first step in creating a contingency plan is to identify potential ...
Business contingency planning is work an organization does to determine how it responds to future events that might affect the business. The goal is to prepare an organization to respond to negative events and mitigate their impact on the business. A business contingency plan is a written document that outlines an organization's contingency planning efforts.
Contingency plans, also known as "business continuity plans," "emergency response plans" and "disaster recovery plans" help organizations recover after a disruption. Whether they're preparing for a global outbreak of a deadly virus, crisis management around a data breach or the loss of an important client, contingency plans help ...
A contingency plan can also help organizations recover from disasters, manage risk, avoid negative publicity, and handle employee injuries. By developing a contingency plan, your business can react faster to unexpected events. The faster your organization is able to get back up and running, the less impact you'll see on profits and revenue.
A solid contingency plan can be developed for standard system disruptions or worst-case scenarios. For most businesses, a good plan can mean the difference between success and failure, so it's important to always have one in place. Read on to learn the importance of contingency planning.
A business contingency plan is a course of action that your organization would take if an unexpected event or situation occurs. Sometimes a contingency can be positive—such as a surprise influx of money—but most often the term refers to a negative event that affects an organization's reputation, financial health or ability to stay in ...
A contingency plan is a proactive strategy designed to help businesses prepare for potential risks and disruptions. It outlines the necessary steps to lower potential damage, ensure your business operations continue, and that an organization can recover from its biggest risks or unexpected adverse situations.
Step 1: Create a contingency planning policy statement. A contingency plan policy statement is a formal document that outlines the contingency objectives for your organization, such as getting back to normal operations by a certain time. A policy statement also expresses the authority and gives the guidance necessary for stakeholders to create ...
A business contingency plan is an established strategy or backup plan designed to help organizations respond to possible future events. This contingency planning process encourages you to consider business and financial strategies for potential risks well in advance. It's basically a lean business plan that takes into account unexpected ...
A business contingency plan is a "plan B" or blueprint for how to keep your business running in the event of a natural disaster, major technical issue, or other unforeseen disruption. A contingency plan identifies potential risks to your business and outlines steps your management team and employees can take if confronted with one of those ...
Step 1: List potential threats. The first step in compiling the information necessary to flesh out a contingency plan template is to identify all the potential threats your company faces. In ...
A business contingency plan is an action plan that is used to respond to future events that might or might not affect a company in the future. In most cases, a contingency plan is devised to respond to a negative event that can tarnish a company's reputation or even its business continuity. However, there are positive contingency plans, such ...
6. Share the contingency plan. A contingency plan only works if it's used when things go wrong—and that means that everyone in your organization knows to reach for the plan in times of trouble. To make sure that happens: Identify who needs to be aware of and involved in contingency planning.
To create a business contingency plan for your small business, follow these steps: Identify all the risks with your small business. These include risks related to hardware failure, suppliers going out of business, and core staff leaving the company. Prioritize the risks based on their impact on your small business, Determine the impacts these ...
A business contingency plan, or Plan B, is a backup plan you can use if there's a disruption in your company's operations. Because of COVID-19, our minds tend to jump to worldwide disasters, but Joe Spector, Founder and CEO of Dutch , warns that more common risks are issues like "data breaches, loss of staff or customers, or declining ...
In business, however, a business contingency plan template isn't always negative. There are cases of positive contingency plans too. Also, keep in mind that the contingency planning process is a proactive strategy, unlike crisis management which is a reaction to something that has happened. A contingency plan accounts for any disruptive ...
A project contingency plan is an established, pragmatic set of actions that your team will follow if a predetermined risk materializes and makes your initial plan impossible. For example, your software development team is updating a website for a retail company. In the middle of the project, your lead full-stack developer accepts a position ...
How we help you craft a plan A business continuity plan can help ensure your team prepares for what's next. Marsh McLennan Agency's risk management specialists can help you create a proactive plan to address potential disruptive incidents. Partnering with our team offers your business: Analytics to support better decision-making.
Create A Contingency Plan Your contingency plan should detail the steps you'll take if your business can't generate the revenue you anticipated. It should also outline strategies for cutting costs ...
Using Scenario and Contingency Planning to develop a Risk Mitigation Plan. A great tool that S&OP uses to evaluate the impact of unanticipated disruptions to your plan is "What if" scenario planning. By leveraging different scenarios, your team can draft different strategies to approach each situation.