critical risks and contingencies in business plan

Enterprises are often defined by how they deal with events that are out of their control. For example, how you react to a disruptive technology or cope with a sudden change in the markets can be the difference between success and failure.

Contingency planning is the art of preparing for the unexpected. But where do you start and how do you separate the threats that could do real harm to your business from the ones that aren’t as critical?

Here are some important definitions, best practices and strong examples to help you build contingency plans for whatever your business faces.

What is a contingency plan?

Business contingency plans, also known as “business continuity plans” or “emergency response plans” are action plans to help organizations resume normal business operations after an unintended interruption. Organizations build contingency plans to help them face a variety of threats, including natural disasters, unplanned downtime, data loss, network breaches and sudden shifts in customer demand.

A good place to start is with a series of “what if” questions that propose various worst-case scenarios you’ll need to have a plan for. For example:

• What if a critical asset breaks down, causing delays in production?
• What if your top three engineers all quit at the same time?
• What if the country where your microprocessors are built was suddenly invaded?

Good contingency plans prioritize the risks an organization faces, delegate responsibility to members of the response teams and increase the likelihood that the company will make a full recovery after a negative event.

Five steps to build a strong contingency plan

1. make a list of risks and prioritize them according to likelihood and severity..

In the first stage of the contingency planning process, stakeholders brainstorm a list of potential risks the company faces and conduct risk analysis on each one. Team members discuss possible risks, analyze the risk impact of each one and propose courses of action to increase their overall preparedness. You don’t need to create a risk management plan for every threat your company faces, just the ones your decision-makers assess as both highly likely and with a potential impact on normal business processes.

2. Create a business impact analysis (BIA) report

Business impact analysis (BIA) is a crucial step in understanding how the different business functions of an enterprise will respond to unexpected events. One way to do this is to look at how much company revenue is being generated by the business unit at risk. If the BIA indicates that it’s a high percentage, the company will most likely want to prioritize creating a contingency plan for this business risk.

3. Make a plan

For each potential threat your company faces that has both a high likelihood of occurring and a high potential impact on business operations, you can follow these three simple steps to create a plan:

• Identify triggers that will set a plan into action: For example, if a hurricane is approaching, when does the storm trigger your course of action? When it’s 50 miles away? 100 miles? Your teams will need clear guidance so they will know when to start executing the actions they’ve been assigned.
• Design an appropriate response: The threat your organization prepared for has arrived and teams are springing into action. Everyone involved will need clear, accessible instructions, protocols that are easy to follow and a way to communicate with other stakeholders.
• Delegate responsibility clearly and fairly: Like any other initiative, contingency planning requires effective project management to succeed. One proven way to address this is to create a RACI chart . RACI stands for responsible, accountable, consulted and informed, and it is widely used in crisis management to help teams and individuals delegate responsibility and react to crises in real time.

4. Get buy-in from the entire organization—and be realistic about cost

Sometimes it can be hard to justify the importance of putting resources into preparing for something that might never happen. But if the events of these past few years have taught us anything, it’s that having strong contingency plans is invaluable.

Think of the supply chain problems and critical shortages wreaked by the pandemic or the chaos to global supply chains brought about by Russia’s invasion of Ukraine. When it comes to convincing business leaders of the value of having a strong Plan B in place, it’s important to look at the big picture—not just the cost of the plan but the potential costs incurred if no plan is put in place.

5. Test and reassess your plans regularly

Markets and industries are constantly shifting, so the reality that a contingency plan faces when it is triggered might be very different than the one it was created for. Plans should be tested at least once annually, and new risk assessments performed.

Contingency plan examples

Here are some model scenarios that demonstrate how different kinds of businesses would prepare to face risks. The three-step process outlined here can be used to create contingency plans templates for whatever threats your organization faces.

A network provider facing a massive outage

What if your core business was so critical to your customers that downtime of even just a few hours could result in millions of dollars in lost revenue? Many internet and cellular networks face this challenge every year. Here’s an example of a contingency plan that would help them prepare to face this problem:

• Assess the severity and likelihood of the risk: A recent study by Open Gear showed that only 9% of global organizations avoid network outages in an average quarter. Coupled with what is known about these attacks—that they can cause millions of dollars in damage and take an immeasurable toll on business reputation—this risk would have to be considered both highly likely and highly severe in terms of the potential damage it could do to the company.
• Identify the trigger that will set your plan in action: In this example, what signs should decision-makers have watched for to know when a likely outage was beginning? These might include security breaches, looming natural disasters or any other event that has preceded outages in the past.
• Create the right response: The organization’s leaders will want to determine a reasonable recovery time objective (RTO) and recovery point objective (RPO) for each service and data category their company faces. RTO is usually measured with a simple time metric, such as days, hours or minutes. RPO is a bit more complicated as it involves determining the minimum/maximum age of files that can be recovered quickly from backup systems in order to restore the network to normal operations.  

A food distribution company coping with an unexpected shortage

If your core business has complex supply chains that run through different regions and countries, monitoring geopolitical conditions in those places will be critical to maintaining the health of your business operations. In this example, we’ll look at a food distributor preparing to face a shortage of a much-needed ingredient due to volatility in a region that’s critical to its supply chain:

• Assess the severity and likelihood of the risk: The company’s leaders have been following the news in the region where they source the ingredient and are concerned about the possibility of political unrest. Since they need this ingredient to make one of their best-selling products, both the likelihood and potential severity of this risk are rated as high.
• Identify the trigger that will set your plan in action: War breaks out in the region, shutting down all ports of entry/exit and severely restricting transport within the country via air, roads and railroads. Transportation of their ingredient will be challenging until stability returns to the region.
• Create the right response: The company’s business leaders create a two-pronged contingency plan to help them face this problem. First, they proactively search for alternate suppliers of this ingredient in regions that aren’t so prone to volatility. These suppliers may cost more and take time to switch to, but when the overall cost of a general production disruption that would come about in the event of war is factored in, the cost is worth it. Second, they look for an alternative to this ingredient that they can use in their product.

A social network experiencing a customer data breach

The managers of a large social network know of a cybersecurity risk in their app that they are working to fix. In the event that they’re hacked before they fix it, they are likely to lose confidential customer data:

• Assess the severity and likelihood of risk: They rate the likelihood of this event as high , since, as a social network, they are a frequent target of attacks. They also rate the potential severity of damage to the company as high since any loss of confidential customer data will expose them to lawsuits.
• Identify the trigger that will set your plan in action: Engineers make the social network’s leadership aware that an attack has been detected and that their customer’s confidential information has been compromised.
• Create the right response: The network contracts with a special response team to come to their aid in the event of an attack and help them secure their information systems and restore app functionality. They also change their IT infrastructure to make customer data more secure. Lastly, they work with a reputable PR firm to prepare a plan for outreach and messaging to reassure customers in the event that their personal information is compromised.

The value of contingency planning 

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 operations to normal.  

Here are a few benefits organizations can expect from strong contingency plans:

• Improved recovery times: Businesses with good plans in place recover faster from a disruptive event than companies that haven’t prepared.  
• Reduced costs—financial and reputational: Good contingency plans minimize both financial and reputational damage to a company. For example, while a data breach at a social network that compromises customer information could result in lawsuits, it could also cause long-term damage if customers decide to leave the network because they no longer trust the company to keep their personal information safe.
• Greater confidence and morale: Many organizations use contingency plans to show employees, shareholders and customers that they’ve thought through every possible eventuality that might befall their company, giving them confidence that the company has their interests in mind.

Contingency plan solutions

IBM Maximo Application Suite is an integrated cloud-based solution that helps businesses respond quickly to changing conditions. By combining the power of artificial intelligence (AI) , Internet of Things (IoT) and advanced analytics, it enables organizations to maximize the performance of their most valuable assets, lengthen their lifespans and minimize costs and downtime.

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• Business strategy |
• What is a contingency plan? A guide to ...

What is a contingency plan? A guide to contingency planning

A business contingency plan is a backup strategy for your team or organization. It lays out how you’ll respond if unforeseen events knock your plans off track—like how you’ll pivot if you lose a key client, or what you’ll do if your software service goes down for more than three hours. Get step-by-step instructions to create an effective contingency plan, so if the unexpected happens, your team can spring into action and get things back on track.

No one wants Plan A to fail—but having a strong plan B in place is the best way to be prepared for any situation. With a solid backup plan, you can effectively respond to unforeseen events effectively and get back on track as quickly as possible. 

A contingency plan is a proactive strategy to help you address negative developments and ensure business continuity. In this article, learn how to create a contingency plan for unexpected events and build recovery strategies to ensure your business remains healthy.

What is contingency planning?

What is a contingency plan .

A contingency plan is a strategy for how your organization will respond to important or business-critical events that knock your original plans off track. Executed correctly, a business contingency plan can mitigate risk and help you get back to business as usual—as quickly as possible. 

You might be familiar with contingency plans to respond to natural disasters—businesses and governments typically create contingency plans for disaster recovery after floods, earthquakes, or tornadoes. 

But contingency plans are just as important for business risks. For example, you might create a contingency plan outlining what you will do if your primary competitors merge or how you’ll pivot if you lose a key client. You could even create a contingency plan for smaller occurrences that would have a big impact—like your software service going down for more than three hours.

Contingency planning vs risk management

Project risk management is the process of identifying, monitoring, and addressing project-level risks. Apply project risk management at the beginning of the project planning process to prepare for any risks that might come up. To do so, create a risk register to identify and monitor potential project risks. If a risk does happen, you can use your risk register to proactively target that risk and resolve it as quickly as possible. 

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-level risks.

Contingency planning vs crisis management

Contingency planning is a proactive approach that prepares organizations for potential emergencies by implementing pre-planned risk mitigation strategies. It involves identifying threats and crafting strategies in advance. 

Crisis management , on the other hand, is reactive, focusing on immediate response and damage control when a crisis occurs. While contingency planning sets the stage for effective handling of emergencies, crisis management involves real-time decision-making and project management during an actual crisis. Both are important for organizations and businesses to maintain their stability and resilience.

Contingency plan examples

There are a variety of reasons you’d want to set up a contingency plan. Rather than building one contingency plan, you should build one plan for each type of large-scale risk or disaster that might strike. 

Business contingency plan

A business contingency plan is a specialized strategy that organizations develop to respond to particular, unforeseen events that threaten to disrupt regular operations. It's kind of like a business continuity plan, but there's one key difference. 

While business continuity plans aim to ensure the uninterrupted operation of the entire business during a crisis, a business contingency plan zeroes in on procedures and solutions for specific critical incidents, such as data breaches, supply chain interruptions, or key staff unavailability. 

A business contingency plan could include:

Strategies to ensure minimal operational disruption during crises, such as unexpected market shifts, regulatory compliance changes, or severe staff shortages.

Partnerships with external agencies that can provide support in scenarios like environmental hazards or public health emergencies.

A comprehensive communication strategy with internal and external stakeholders to provide clear, timely information flow during crises like brand reputation threats or legal challenges.

Environmental contingency plan

While severe earthquakes aren’t particularly common, being unprepared when “the big one” strikes could prove to be catastrophic. This is why governments and businesses in regions prone to earthquakes create preparedness initiatives and contingency plans.

A government contingency plan for an earthquake could include things like: 

The names and information of the people designated to handle certain tasks in advance to ensure the emergency response is quick and concise

Ways to educate the public on how to respond when an earthquake hits

A timeline for emergency responders.

Technology contingency plan

If your business is particularly data-heavy, for example, ensuring the safety and cybersecurity of your information systems is critical. Whether a power surge damages your servers or a hacker attempts to infiltrate your network, you’ll want to have an emergency response in place.

A business’s contingency plan for a data breach could involve: 

Steps to take and key team members to notify in order to get data adequately secured once more

The names and information of stakeholders to contact to discuss the impact of the data breach and the plan to protect their investment

A timeline to document what is being done to address the breach and what will need to be done to prevent data breaches in the future

Supply chain contingency plan

Businesses that are integral parts of the supply chain, such as manufacturing entities, retail companies, and logistics providers, need an effective supply chain contingency plan to continue functioning smoothly under unforeseen circumstances.

These plans hedge against supply chain disruptions caused by events like natural disasters or technological outages and help organizations reduce downtime and ensure real-time operational capabilities. 

A supply chain contingency plan could include:

Secure critical data and systems while promptly notifying key team members, such as IT staff and management, for immediate action.

A predetermined list of essential stakeholders, including suppliers, customers, investors, and authorities, should be contacted to inform them about the disruption and steps being taken.

A detailed timeline is essential for documenting the immediate response and outlining long-term strategies to prevent future disruptions in the supply chain.

Pandemic contingency plan

In the face of a global health crisis, a pandemic contingency plan is vital for organizations in healthcare, retail, and manufacturing. This plan focuses on mitigation strategies to minimize operational disruptions and ensure the safety of employees while maintaining business continuity. 

A pandemic response plan could include:

A comprehensive health and safety protocol for employees, which integrates regular health screenings, detailed risk analysis, and emergency medical support as key components.

Flexible work arrangements and protocols for remote operations and digital communication.

A list of key personnel and communication channels for immediate response and coordination.

Regularly reviewing and adapting the pandemic contingency plan as part of an ongoing disaster recovery plan to address evolving challenges and lessons learned.

How to create a contingency plan

You can create a contingency plan at various levels of your organization. For example, if you're a team lead, you could create a contingency plan for your team or department. Alternatively, company executives should create business contingency plans for situations that could impact the entire organization. 

As you create your contingency plan, make sure you evaluate the likelihood and severity of each risk. Then, once you’ve created your plan—or plans—get it approved by your manager or department head. That way, if a negative event does occur, your team can leap to action and quickly resolve the risk without having to wait for approvals.

1. Make a list of risks

Before you can resolve risks, you first need to identify them. Start by making a list of any and all risks that might impact your company. Remember: there are different levels of contingency planning—you could be planning at the business, department, or program level. Make sure your contingency plans are aligned with the scope and magnitude of the risks you’re responsible for addressing. 

A contingency plan is a large-scale effort, so hold a brainstorming session with relevant stakeholders to identify and discuss potential risks. If you aren’t sure who should be included in your brainstorming session, create a stakeholder analysis map to identify who should be involved.

2. Weigh risks based on severity and likelihood

You don’t need to create a contingency plan for every risk you lay out. Once you outline risks and potential threats, work with your stakeholders to identify the potential impact of each risk. 

Evaluate each risk based on two metrics: the severity of the impact if the risk were to happen and the likelihood of the risk occurring. During the risk assessment phase, assign each risk a severity and likelihood—we recommend using high, medium, and low. 

3. Identify important risks

Once you’ve assigned severity and likelihood to each risk, it’s up to you and your stakeholders to decide which risks are most important to address. For example, you should definitely create a contingency plan for a risk that’s high likelihood and high severity, whereas you probably don’t need to create a contingency plan for a risk that’s low likelihood and low severity. 

You and your stakeholders should decide where to draw the line.

4. Conduct a business impact analysis

A business impact analysis (BIA) is a deep dive into your operations to identify exactly which systems keep your operations ticking. A BIA will help you predict what impact a specific risk could have on your business and, in turn, the response you and your team should take if that risk were to occur. 

Understanding the severity and likelihood of each risk will help you determine exactly how you will need to proceed to minimize the impact of the threat to your business. 

For example, what are you going to do about risks that have low severity but high likelihood? What about risks that are high in severity, but relatively low in likelihood? 

Determining exactly what makes your business tick will help you create a contingency plan for every risk, no matter the likelihood or severity.  

5. Create contingency plans for the biggest risks

Create a contingency plan for each risk you’ve identified as important. As part of that contingency plan, describe the risk and brainstorm what your team will do if the risk comes to pass. Each plan should include all of the steps you need to take to return to business as usual.

Your contingency plan should include information about:

The triggers that will set this plan into motion

The immediate response

Who should be involved and informed?

Key responsibilities, including a RACI chart if necessary

The timeline of your response (i.e. immediate things to do vs. longer-term things to do)

For example, let’s say you’ve identified a potential staff shortage as a likely and severe risk. This would significantly impact normal operations, so you want to create a contingency plan to prepare for it. Each person on your team has a very particular skill set, and it would be difficult to manage team responsibilities if more than one person left at the same time. Your contingency plan might include who can cover certain projects or processes while you hire a backfill, or how to improve team documentation to prevent siloed skillsets. 

6. Get approval for contingency plans

Make sure relevant company leaders know about the plan and agree with your course of action. This is especially relevant if you’re creating team- or department-level plans. By creating a contingency plan, you’re empowering your team to respond quickly to a risk, but you want to make sure that course of action is the right one. Plus, pre-approval will allow you to set the plan in motion with confidence—knowing you’re on the right track—and without having to ask for approvals beforehand.

7. Share your contingency plans

Once you’ve created your contingency plans, share them with the right people. Make sure everyone knows what you’ll do, so if and when the time comes, you can act as quickly and seamlessly as possible. Keep your contingency plans in a central source of truth so everyone can easily access them if necessary.

Creating a project in a work management platform is a great way of distributing the plan and ensuring everyone has a step-by-step guide for how to enact it.

8. Monitor contingency plans

Review your contingency plan frequently to make sure it’s still accurate. Take into account new risks or new opportunities, like new hires or a changing business landscape. If a new executive leader joins the team, make sure to surface the contingency plan for their review as well. 

9. Create new contingency plans (if necessary)

It’s great if you’ve created contingency plans for all the risks you found, but make sure you’re constantly monitoring for new risks. If you discover a new risk, and it has a high enough severity or likelihood, create a new contingency plan for that risk. Likewise, you may look back on your plans and realize that some of the scenarios you once worried about aren’t likely to happen or, if they do, they won’t impact your team as much.

Common contingency planning pitfalls—and how to avoid them

A contingency plan is a powerful tool to help you get back to normal business functions quickly. To ensure your contingency planning process is as smooth as possible, watch out for common pitfalls, like: 

Lack of buy-in

It takes a lot of work to create a contingency plan, so before you get started, ensure you have support from executive stakeholders. As you create your plan, continuously check in with your sponsors to ensure you’ve addressed key risks and that your action plan is solid. By doing so, you can ensure your stakeholders see your contingency plan as something they can get behind.

Bias against “Plan B” thinking

Some company cultures don’t like to think of Plan B—they like to throw everything they have at Plan A and hope it works. But thinking this way can actually expose your team to more risks than if you proactively create a Plan B.

Think of it like checking the weather before going sailing so you don’t accidentally get caught in a storm. Nine times out of ten, a clear sunny day won’t suddenly turn stormy, but it’s always better to be prepared. Creating a contingency plan can help you ensure that, if a negative event does occur, your company will be ready to face it and bounce back as quickly as possible. 

One-and-done contingency plans

It takes a lot of work to put a contingency plan together. Sometimes when you’ve finished, it can be tempting to consider it a job well done and forget about it. But make sure you schedule regular reminders (maybe once or twice a year) to review and update your contingency plan if necessary. If new risks pop up, or if your business operations change, updating your contingency plan can ensure you have the best response to negative events.  

You’ve created a contingency plan—now what?

A contingency plan can be a lot of work to create, but if you ever need to use it, you’ll be glad you made one. In addition to creating a strong contingency plan, make sure you keep your plan up-to-date.

Being proactive can help you mitigate risks before they happen—so make sure to communicate your contingency plan to the team members who will be responsible for carrying them out if a risk does happen. Don’t leave your contingency plan in a document to collect dust—after creating it, you should use it if need be!

Once you’ve created the plan, make sure you store it in a central location that everyone can access, like a work management platform . If it does come time to use one of your contingency plans, storing them in a centrally accessible location can help your team quickly turn plans into action.

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Mastering Contingency Planning: Expert Strategies, Proven Best Practices, and Testing Techniques for Optimal Results

By Joe Weller | May 9, 2023

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Successful organizations must understand potential risks and have contingency plans in place to address them. We’ve assembled expert tips on effective contingency planning and offer practical insights on how to test those contingency plans.

Included on this page, you’ll find the benefits of contingency planning , steps to take to create a contingency plan, examples of contingency plans , and information on a range of exercises your team can do to test its contingency plans.

What Is a Contingency Plan?

A contingency plan is a proactive strategy that outlines the actions a person or entity will take in response to a potential future event. Businesses often develop contingency plans to prepare for risks and mitigate their impact on the business.

What Is Business Contingency Planning?

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. It typically includes a comprehensive assessment of possible risks to the business and corresponding measures the organization has planned to mitigate these risks, such as legal and budget contingency.

Why Is a Business Contingency Plan Important?

A business contingency plan is crucial for any organization, as it helps them respond quickly and effectively to negative events. With a solid contingency plan in place, companies can minimize damages and continue to thrive even amid challenges.

While an organization might develop a contingency plan for risks to individual projects or general risks to the enterprise as a whole, business contingency plans refer specifically to general risks to the enterprise. This document details all of the most important risks that a business or organization faces.

In recent years, the importance of business contingency plans has increased significantly. With the rise of climate change, natural disasters have become more frequent and disruptive, underscoring the need for organizations to have effective contingency plans. In addition, the ever-growing threat of cybercrime has further highlighted the importance of contingency planning, as businesses increasingly rely on technology to operate.

“Before, you might have said, ‘What are the odds of a 100-year flood?’” says Luis Contreras, President and Principal Consultant for AzTech International , a California consultancy that helps organizations manage large, complex projects. “Well, they are happening more often now. ‘What are the odds of a cyber incident?’ Well, they're happening more often.”

Many organizations take steps in their risk management programs to try to completely eliminate certain risks. However, it’s almost impossible for any organization to completely eliminate the chance of a risk happening, says Erika Andresen,  a business continuity and resilience expert, author, and founder of EaaS Consulting . Business contingency planning is important, she says, “because your risk management will fail at a certain point.”

The Benefits of a Contingency Plan

Contingency plans offer several benefits to organizations. They enable organizations to respond promptly and effectively to unexpected events, minimize damages, and facilitate a quick recovery. With a contingency plan in place, organizations can take proactive measures to mitigate risks.

Here are some of the primary benefits of having a contingency plan in place:

• Improves Event Responsiveness: By having a clear plan in place, there is no confusion and individuals know how to react without blindly searching for direction. This enables the organization to take swift and effective action, minimizing response times and ensuring continuity of operations.

• Facilitates Quick Recovery: Organizations with good contingency plans bounce back quickly from negative events. For example, a severe storm or power outage might have a huge effect on a state or metropolitan area, but businesses that have backup generators and other contingency plans can often resume operations quickly. “It's resilience — it's how your company stays a company,” Andresen says. “That's how the company is able to grow and thrive. You've figured out that you're going to have a risk that is going to impact your operations. And then you worked and took the extra step to put in policies and procedures to get yourself back up and running with minimal disruption.”
• Decentralizes and Disseminates Important Information: Business contingency planning forces organization leaders to gather people to assess the organization’s potential response to various events. This work necessitates the sharing of important information about the company and its operations, resulting in more people knowing how to assist in the company’s response. Accessible, decentralized information is invaluable in a crisis event or when top leaders in a company suddenly leave.“If you have a company with one or two top leaders, then it makes it even more important,” says Lokenauth. “If one person has all the knowledge, when something happens to that one person, how does the company function?”
• Gives the Company Confidence in Its Operations: When you create effective contingency plans, you boost the confidence of everyone in the company. You instill a sense of trust that the company will respond well in an emergency. Moreover, you enhance confidence in the company’s overall preparedness, foresight, and integrity.

What Does a Contingency Plan Cover?

A contingency plan covers the important risks the organization is monitoring and any possible triggers to those risks. It also outlines the specific actions organization staff will take to respond to them.

A contingency plan often includes the following components:

• Triggering Events: Identify the events that can make a risk event more likely to happen, such as weather patterns or market conditions.
• Response Details: Outline specific actions the organization will take in response to a risk event, including preventive measures and mitigation strategies.
• Organizational Responsibilities: Detail the roles and responsibilities of key personnel within the organization, such as the crisis management team and first responders. This might include a RACI chart that outlines who is responsible, accountable, consulted, or informed about specific response actions.
• Key Contacts: Include contact information for key people or organizations that will be involved in the response efforts, such as emergency services, suppliers, and customers.
• Outside Experts: Identify outside experts or consultants the organization might need to engage for help when responding to the risk event, such as legal advisors, public relations firms, or technical specialists.
• Response Timeline: Include a timeline that details when certain responses need to happen, such as when to activate the crisis management team, notify stakeholders, or implement recovery measures.

Learn more about important components and how to write an effective contingency plan in this all-inclusive guide to writing contingency plans.

How to Develop a Contingency Plan

Developing a contingency plan begins with identifying and assessing potential risks. Next, teams outline an appropriate response to each risk, including specific actions that need to be taken and who will be responsible for executing those actions.

Steps in Business Contingency Planning

To develop an effective contingency plan, businesses need to follow some critical steps. The process starts with identifying and assessing potential risks and creating a response plan. Teams should then be trained on the plan and continually monitor potential risks.

These are the important steps to creating an effective contingency plan:

• Identify and Assess Risks: Identify potential risks that could have the most significant impact on your organization. This assessment might involve conducting a business risk analysis to evaluate potential threats, vulnerabilities, and consequences. Learn more about this step in the contingency planning process in this comprehensive guide to risk mitigation .
• Identify Resources: Identify what resources your organization already has that can help with contingency responses. This might include people, tools, or services that can be used to respond quickly to an unexpected event. Gather and coordinate those resources.
• Create Contingency Plans: Create a contingency plan for each risk that your organization has identified as critical. This plan should outline specific actions that need to be taken, who will be responsible for those actions, and a timeline for executing the plan.
• Seek Input and Secure Approvals: Get input from stakeholders and people within your organization on your draft contingency plans. Once you’ve gathered feedback, finalize plans and get approval from the organization’s leaders.
• Share Your Plans: Communicate your contingency plans to all relevant stakeholders within your organization. This includes making sure that everyone understands what the plans are, what their role is in executing the plans, and any necessary training or resources required to implement them.
• Perform Training Exercises: Train all relevant staff members on the contingency plans, and make sure they understand their roles in executing them. To test the effectiveness of the plans, perform exercises or drills that simulate potential risk events.
• Monitor Risks and Contingency Plans: ​​Regularly review and assess business risks to ensure that your contingency plans remain effective and relevant. Evaluate whether the current plan provides the best response to potential risks and consider making updates or modifications as necessary.
• Create New or Adjusted Contingency Plans as Needed: If your monitoring indicates that your contingency plans require adjustments, take action and promptly update them.

Business Contingency Planning Grid Template

Download a Sample Business Contingency Planning Grid Template for  Excel | Microsoft Word

Download a Business Contingency Planning Grid Template for  Excel | Microsoft Word

Download this business contingency planning grid template to assist your team in identifying potential risks to consider in your organization’s business contingency planning. This template provides a comprehensive list of broad risk categories and specific risks within those categories. By using this tool, you can evaluate which risks are relevant to your organization and develop appropriate contingency plans.

Contingency Planning for IT

Contingency planning in IT follows the same basic steps as other organizations. However, it often begins with a contingency planning policy statement , which outlines an organization’s broad approach to contingency planning.

What to Include in a Contingency Planning Policy Statement

A contingency planning policy statement is a document that outlines how an organization will perform contingency planning. It includes details on objectives, roles and responsibilities, resource and training requirements, testing schedules, and data backup and storage plans.

A contingency planning policy statement should include the following components:

• Objectives: Describe the organization's overall contingency planning objectives — for example, what types of risks the organization is preparing to address and how the organization's contingency planning efforts align with its overall business goals.
• Roles and Responsibilities: Outline the specific roles and responsibilities for performing contingency planning within the organization. This should include both high-level positions and specific individuals who will be responsible for carrying out different components of the plan.
• Organizational Functions and Departments: Identify which organizational functions and departments will be responsible for performing contingency planning. This helps ensure that all relevant areas of the organization are involved in the planning process.
• Resource Requirements: Determine the resources needed to support contingency planning efforts, including funding, personnel, equipment, and other necessary resources.
• Employee Training Requirements: Develop a plan for training employees on their roles and responsibilities in the event of a contingency situation. This might include both general training on contingency planning concepts and specific training on the organization's specific plan.
• Schedules of Exercises and Tests: Establish a schedule for conducting exercises and tests of contingency plans to ensure that they are effective.
• Procedures for Maintaining and Updating: Develop procedures for maintaining and updating contingency plans over time, including regular reviews and updates to reflect changes in the organization's risk landscape or other relevant factors.
• Data Backup and Storage: Determine how the organization will back up and store all electronic data to ensure that critical information is not lost in the event of a contingency situation.

A Contingency Plan Model for IT

The National Institute of Standards and Technology (NIST) has created SP 800-34, a popular contingency plan guide for IT. The guide outlines the steps and considerations that organizations should take when developing, implementing, and maintaining an effective contingency plan.

The SP 800-34 guide covers the entire contingency planning process, from risk assessment to plan testing and maintenance. It is widely used as a reference by government agencies, private organizations, and security professionals.

IT Preventive Controls

Any organization’s IT contingency plan should include preventive controls. These are measures an organization can take to prevent interruptions to information services or technology.

 Here are some basic IT preventive controls recommended by the NIST for federal information systems:

• Uninterruptible power supplies (UPS): To provide short-term backup power to all components, appropriate for the size of your system.
• Fuel-powered generators: To provide power over the longer term.
• Air-conditioning systems: Establish adequate capacity to prevent failure of components that malfunction when overheated.
• Fire and smoke detectors: Install in appropriate locations.
• Fire suppression systems: Install to minimize potential damages.
• Water sensors: Place in the ceiling and floor of rooms where computer equipment is located.
• Containers for backup media and vital non-digital records: Ensure they are heat resistant and waterproof.
• Master system shutdown switch: Make available for emergencies.
• Off-site storage areas: Use them for backup media, system documentation, and important non-digital records.
• Technical security controls: This includes management of cryptographic keys.
• Frequent scheduled backups of data: This includes information on where the backups are stored, onsite and offsite.

Examples of Contingency Plans

Contingency plan examples can help your team understand what to consider in creating a plan and the important components to include.

You can learn more about contingency planning and download blank and example contingency plans.

Business Contingency Planning Best Practices

To improve your organization’s business contingency planning, experts recommend following a number of best practices, such as performing an effective risk assessment, training employees on the plan, and conducting exercises to test the plan.

These are some best practices to follow for effective business contingency planning:

• Perform Good Risk Assessment and Analysis: Your team should identify the most critical risks through a thorough risk assessment. This includes analyzing the potential impact of each risk and determining which risks require a comprehensive contingency response.
• Ensure All Team Members Are Aware of Contingency Plans: Contingency plans will not be effective if the employees in your organization are not aware or have only a vague understanding of them. Incorporate contingency planning into employee training and orientation programs, and communicate regular reminders and updates on the plans through team meetings, newsletters, and other internal communication channels.
• Train Staff and Conduct Regular Drills: Your organization should train all employees responsible for specific tasks in the plan. Conducting exercises or drills where employees simulate a risk event scenario can help teams identify potential gaps or issues in the plan and improve its effectiveness. Many organizations will complete a business continuity or contingency plan, then “put it on a shelf and say, ‘OK, I did it.’ No, you didn’t,” says Andresen. “You haven't done it. You don’t know what’s in it. You don’t have the muscle memory for what the procedures are. When the disaster happens, you don’t want to be saying, ‘Hold on, let me flip through the pages.’ That's another integral part to business continuity planning or contingency planning: to train the plan and exercise the plan. That’s how you figure out if the plan works.”
• Continually Review Plans and Make Necessary Adjustments: Drills and exercises are crucial to contingency planning, as they allow organizations to identify which contingency are ineffective and need to be revised. It is essential to modify plans when necessary, whether due to changing risks or other factors. After conducting a drill on a contingency plan, Andresen advises, “Go back and relook at the plan and say, ‘OK, we did this well. This didn't work. This needs to be improved.’” By doing so, teams can ensure that their contingency plans actually work. “This is why this needs to be revisited continuously so that the plan is not just a heavy paperweight,” says Andresen. “Don't break your arm patting yourself on the back that you've accomplished making the plan — actually do something with it.”

Types of Exercises to Test Your Contingency Plan

Conducting a variety of drills and exercises for contingency plans is essential for organizations that want to be prepared for any potential risks. The following chart outlines different types of exercises that can test and improve your contingency plans.

Common Contingency Planning Pitfalls to Avoid

To achieve effective contingency planning, it is important to be aware of common challenges and pitfalls. One such challenge: organizations not allocating sufficient resources to planning and executing responses that are part of the plans.

These are some of the most common challenges and pitfalls to avoid:

• Lack of Resources Devoted to Contingency Planning and Actions: To create effective contingency plans, organizations must allocate staff time and resources for both planning and response. This includes significant resources to execute the actions required in response to a risk event. Neglecting these necessary resources can result in ineffective contingency plans and costly responses to risks.
• Lack of Buy-in From Organizational Leaders: Lack of buy-in from organizational leaders often results in a lack of resources. Leaders who don’t value contingency planning might not provide the necessary funding, time, or attention to ensure the plans are effective. This can result in plans that are incomplete, inadequate, or not tested or updated regularly. “Every level of employee is going to look at leadership and see if they take this seriously,” Andresen says. “Is this some simple extra duty? If leadership is saying, ‘No, this is really important, and this is why this is important,’ they get the employees behind that. Then the employees are going to take it seriously.”
• Bias Against Plan B Thinking: Contingency planning assumes that at some point, an organization’s mission is going to fail. Unfortunately, some organizational leaders have a bias against this, as they perceive it as thinking about a Plan B. However, these leaders must work to understand that having contingency plans is vital for the organization’s future and doesn’t reflect a lack of confidence in Plan A.
• One-and-Done Contingency Plans: According to Andresen, organizations often develop contingency plans because they are deemed useful or someone within the organization encourages their development. However, these contingency plans are often completed, then disregarded. In order for contingency plans to be effective, organizations must share them widely, train their employees on them, and continuously adapt them to changing circumstances.

Effective vs. Ineffective Contingency Planning Example

The table below demonstrates the varying outcomes between a well-considered contingency plan and one that is less so. The consequences of these differing results can be significant for both the organization and the community.

Resource and Environment at Risk: An oil production facility has above-ground oil flowlines that run for 7,000 feet. The facility is located half a mile west of a major creek and six miles north of a river. The creek flows into the river, which flows into a town of 150,000 people located 12 miles away.

Contingency Plan Purpose: Detect and mitigate any significant oil leak from the facility's flowlines, with the goal of minimizing environmental damage. The plan places a special emphasis on preventing oil from reaching the nearby creek or river.

Business Contingency Plan vs. Business Continuity Plan

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 Continuity Plan: A business continuity plan outlines the steps an organization will take to maintain normal operations following a major and disruptive event, such as an earthquake, fire, or major data breach.
• Business Contingency Plan: A business contingency plan covers a broader range of risks that an organization might face and outlines how the organization plans to respond. These risks can include potential major disruptions or events that might not directly affect operations but still require an effective response.

Business Contingency Plan vs. Project Risk Management Plan

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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The Easy Guide to Creating a Business Contingency Plan

Updated on: 2 November 2022

How to avoid disasters? Be prepared for them. 

When things are going well, you often forget to plan for the bad times. But when disaster strikes, you could lose everything in a heartbeat.

An earthquake can bring your whole shop to the ground, your biggest client can choose your competitor over you, your system suddenly can crash making you lose important data etc. There are endless possibilities of disasters if you really think about it. 

That’s why lack of a plan can be a disaster of its own. 

Let’s see why you need a business contingency plan and how to create one in a few simple steps.  

What is a Business Contingency Plan? 

But first, let’s define what a contingency plan is. 

A contingency plan is a proactive strategy that describes the course of actions or steps the management and staff of an organization need to take in response to an event that could happen in the future. It plays a significant role in business continuity , risk management and disaster recovery. 

It helps you stay prepared for unforeseen events and minimize their impact. It also outlines a plan for carrying out the normal business operations after the event has occurred.  

It’s also known in names such as plan B, backup plan, and disaster recovery plan. In case your primary plan doesn’t work, it’s time to execute the plan B.

Benefits of a Contingency Plan 

Without a contingency plan you’re opening yourself to unnecessary risks. Here are some important benefits of a contingency plan that you cannot look away from. 

• Helps react quickly to negative events. As a contingency plan lists the actions that need to be taken, everyone can focus on what to do without wasting time panicking.
• Having a contingency plan in place allows you to minimize damage that could happen from a disaster and minimize the loss of production. For example if you have emergency generators set up, even during a blackout, your team can work seamlessly. 

How to Make a Contingency Plan 

An effective contingency plan is based on good research and brainstorming. Here are the steps you need to follow in a contingency planning process. 

Step 1: List down the key risks

Identify the major events that could have a negative impact on the course of your business and on the key resources, such as employees, machines, IT systems etc. 

Involve other team heads, subject experts, and even outsiders like business consultants to get a deeper understanding of things that may cause problems and jeopardize the direction.

Use a mind map to organize and categorize the information you gather from the brainstorming session with the staff. You can easily share this with everyone in the organization to get their input as well.

Step 2: Prioritize the Risks Based on Their Impact 

Once you have created a list of all the possible risks that could occur in different areas of your business, start prioritizing them based on the threat they pose. 

The risk impact probability chart is a handy tool you can use here. It helps you evaluate and prioritize risks based on the severity of their impact and the probability of them occurring.

Step 3: Create Contingency Plans for Each Event

In this step you’ll create separate plans that outline the actions you need to take in case the risks you identified earlier occur. 

Consider what needs to be done in order to resume normal operations after the impact of  the event. 

Here you’ll need to clarify employee responsibilities, timelines that highlight when things should be done and completed after the event, restoring and communications processes and the steps you need to have taken in advance to prevent losses when the event has taken place (i.e. insurance coverage). 

You can use a visual format here to highlight the course of actions. It would be easier for everyone to comprehend.

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 your employees of the changes as well, as it may include updates to their roles and responsibilities.  

What’s Your Take on Contingency Plans?

That is how you make a detailed contingency plan. List down the major incidents that could harm your business operations, prioritize them based on their impact and probability, create an action plan explaining what you should do in case they occur, and review and update them frequently. 

What is the contingency planning process at your organization? Let us know in the comments section below.

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A Contingency Planning Guide: How to Future‑proof Your Business

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.

What is contingency planning?

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.

Why is it important to create contingency plans?

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.

What differentiates a contingency plan from other types of risk planning?

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.

Disaster recovery plan

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.

Crisis management plan

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.

Risk management plan

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.

Pitfalls to avoid when creating your business contingency plan

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.

Not having enough support

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.

Not updating contingency plans

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.

Your contingency planning process in 10 steps

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?”

Step 2: Carry out a business impact analysis

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.

Step 3: Conduct a full risk assessment

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.

Step 4: Classify the key risks to your business

Once you have all your potential risks, it’s time to evaluate how they might impact your organization. Ask yourself the following key questions:

• What is the likelihood that these risks will happen?
• How would these risks impact your business?
• What is the level of severity for each risk?

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.

Step 5: Draft contingency plans for prioritized risks

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.

Step 6: Get buy in from stakeholders

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.

Step 7: Distribute your contingency plans and make them easily accessible for your entire organization

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.

Step 8: Train your employees

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.

Step 9: Put your contingency plans to the test

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.

Step 10: Continually review and revise your contingency plans

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.

Ensure your business continuity first, thank us later

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.

An overview of business contingency plans

Reading time: about 3 min

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.

What is a contingency plan?

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.

How to write a contingency plan

There are many factors to consider when building a contingency plan. These four steps are a good place to start preparing for the unexpected.

1. Identify the risks

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.

2. Prioritize the risks

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.

3. Develop contingency plans

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. 

4. Maintain the plan

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. 

Buniness contingency plan example

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.

Lucidchart, a cloud-based intelligent diagramming application, is a core component of Lucid Software's Visual Collaboration Suite. This intuitive, cloud-based solution empowers teams to collaborate in real-time to build flowcharts, mockups, UML diagrams, customer journey maps, and more. Lucidchart propels teams forward to build the future faster. Lucid is proud to serve top businesses around the world, including customers such as Google, GE, and NBC Universal, and 99% of the Fortune 500. Lucid partners with industry leaders, including Google, Atlassian, and Microsoft. Since its founding, Lucid has received numerous awards for its products, business, and workplace culture. For more information, visit lucidchart.com.

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5 Steps to Create a Contingency Plan for Your Business

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.

What is a business contingency plan?

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 scenarios

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? 

Strategy adjustments

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? 

Why is a contingency plan necessary?

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. 

How to create a contingency plan for your business

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.

1. Identify and list the risks

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.  

2. Prioritize key risks

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. 

3. Outline contingency plans for each risk

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:

Financial forecasts for each risk

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:

• Will you have enough cash to address the risk? 
• How does the risk affect your ability to collect cash, and pay your bills?
• Are there any obvious costs that you can minimize or cut? 
• Do you need to consider expanding a credit line or applying for a loan?

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 .  

The one-page plan

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:

• What strategies in marketing and sales have to be changed or adjusted? 
• Do you have to hire new people? 
• Do you need to reduce costs and expenses to survive the risk? 
• What are the roles and responsibilities required to address the risk?

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. 

4. Connect them to your overall business plan

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. 

5. Share, review and revise

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:

• Share the plan with the contingency plans integrated into the appropriate places. 
• Invite team members to a meeting where you can present the business plan, the potential unexpected events your business might have to face, and the contingency plans that outline how you navigate around them. 
• Set the expectation with the team for regular, monthly review meetings. This is where you can review business health, compare actual results to the planned results and assess the need to implement a contingency plan.

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. 

Preparation is everything

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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What Is Contingency Planning? Creating a Contingency Plan

Table of Contents

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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Action Plan Template

Use this free Action Plan Template for Excel to manage your projects better.

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.

• Supply chain shortages: The supply chain is one of the most important business processes for this manufacturing company. Therefore, one of the most impactful risks is a raw material shortage which may occur if their main supplier is unable to deliver the materials they need on time. To prepare a contingency action for this risk, the business owners decide to reach out to other suppliers and place standing purchase orders which give them the opportunity to ask for a certain quantity of materials at some point in the future. If the risk of a supply chain shortage occurs, they’ll have multiple sources of raw materials available in case their main supplier can’t keep up with their demand levels.
• Machinery breakdown: Another risk that might halt production is the malfunction of machinery. To prepare for this, business leaders hire extra maintenance personnel and order spare parts for their production line machinery as part of their contingency plan. If the risk of machinery breakdown becomes a reality, the organization will have the labor and resources that are needed to mitigate it.
• The team is not meeting the schedule: If the manufacturing team members are failing to meet their goals on time for whatever reason, the manufacturing business will need to allocate more resources such as extra labor and equipment to complete the work faster. However, this contingency action will generate additional costs and reduce the profitability of the project.

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.

1. Identify Key Business Processes and Resources

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.

2. Identify the Risks

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.

3. Analyze Risks Using a Risk Matrix

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.

4. Think About Risk Mitigation Strategies

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.

5. Draft a Contingency Plan

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.

6. Share the Plan

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 .

7. Revisit the Plan

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.

Contingency Plan Template

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.

Using ProjectManager to Create a Contingency Plan

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 Task Lists to Outline the Elements

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.

Reference Dashboards to Monitor the Contingency Plan

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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Why Having a Contingency Plan Is So Important — and How to Develop an Effective One Let's discuss the importance of contingency planning, what a comprehensive contingency plan should include and how to implement one effectively.

By Greg Davis • Apr 27, 2023

Opinions expressed by Entrepreneur contributors are their own.

In today's ever-changing business environment, business owners, entrepreneurs and franchise owners need to be prepared for the unexpected. Contingency planning is a critical component of business growth, enabling organizations to minimize disruptions and recover quickly from unforeseen events.

In this article, we will discuss the importance of contingency planning, the key elements of a comprehensive plan and how to implement a contingency plan effectively. By taking proactive steps to prepare for potential challenges, businesses can build resilience and ensure continued growth and success.

Related: 4 Ways to Prepare Now so Your Business Survives the Unexpected Later

Why contingency planning matters

Disruptions can come in many forms, from natural disasters to cybersecurity breaches, equipment failures or even changes in the competitive landscape. Without proper planning, these events can have a devastating impact on a business's operations, finances and reputation. Contingency planning helps businesses minimize the impact of disruptions, maintain operational continuity and recover more quickly from setbacks. This resilience is crucial for business growth, as it enables organizations to adapt to changing conditions and capitalize on new opportunities.

Elements of a comprehensive contingency plan

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 risks and vulnerabilities that could impact your business. This includes both internal and external factors, such as natural disasters , equipment or network failures, supply chain disruptions, cybersecurity breaches, changes in the landscape or the loss of key personnel. By identifying potential threats, businesses can better understand their exposure and develop targeted strategies to address these risks.

Step 2: Develop response strategies

Once potential risks have been identified, businesses should develop response strategies to mitigate the impact of these events. This may involve developing alternative suppliers, establishing backup systems or processes or implementing new security measures. Response strategies should be tailored to the specific risks faced by the business and should take into account factors such as the likelihood of the event occurring, the potential impact on operations and the resources required to implement the strategy.

Step 3: Establish a communication plan

In the event of a disruption, clear communication is essential to ensure that all stakeholders, including employees, customers and suppliers, are aware of the situation and know what steps are being taken to address the issue. A comprehensive communication plan should outline how the information will be shared, who will be responsible for providing updates and what channels will be used to communicate with different stakeholders.

Step 4: Train employees and build awareness

For a contingency plan to be effective, employees need to be aware of the potential risks facing the business and understand their roles and responsibilities in the event of a disruption. This may involve training employees in new processes or procedures, providing guidance on emergency response protocols or conducting regular drills to ensure that all team members are prepared to act quickly and effectively in the event of a crisis.

Step 5: Review and update the plan regularly

As the business environment continues to evolve, it is essential that contingency plans are regularly reviewed and updated to reflect changes in the company's operations, industry dynamics or the broader economic landscape. This may involve conducting periodic risk assessments, updating response strategies or refining communication protocols to ensure that the plan remains relevant and effective.

Related: 5 Reasons Why You Should Create an Emergency Response Program for Your Business

Implementing a contingency plan

With a comprehensive contingency plan in place, businesses can take steps to minimize the impact of disruptions and maintain operational continuity . Key steps in the implementation process include:

Developing an action plan

An action plan should outline the specific steps that will be taken to address each identified risk, including timelines, resources and responsibilities. This plan should be clear, concise and easily accessible to all team members, ensuring that everyone understands their role in the event of a disruption .

Allocating resources

Contingency planning may require the allocation of resources, such as budget, personnel or equipment, to implement response strategies effectively. Businesses should prioritize resources based on the likelihood and potential impact of each identified risk, ensuring that the most critical vulnerabilities are addressed first.

Testing and refining the plan

Once the plan has been developed, it is essential to test its effectiveness through simulation exercises, drills or other means. This will help identify any weaknesses or gaps in the plan and enable the business to refine its strategies accordingly. Regular testing also helps ensure that employees are familiar with the plan and prepared to act in the event of a disruption.

Monitoring the environment and adapting

Contingency planning is an ongoing process that requires businesses to monitor changes in their operating environment and adapt their strategies accordingly. This may involve updating the plan to address new risks, adjusting response strategies in light of changing circumstances, or reallocating resources as needed. By staying attuned to the evolving business landscape, organizations can remain agile and resilient in the face of uncertainty .

Contingency planning is a critical component of business growth, enabling organizations to navigate the unexpected and maintain operational continuity in the face of disruptions. By identifying potential risks, developing targeted response strategies and implementing a comprehensive plan, businesses can build resilience and drive continued success. As the business environment continues to evolve, contingency planning will remain a vital tool for business owners, entrepreneurs and franchise owners seeking to capitalize on new opportunities and protect their organizations from unforeseen challenges .

Related: How to Create a Disaster Plan for Your Business

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How To Create A Smart Contingency Plan For High-Risk Projects

Contingency plans ensure projects go as smoothly as possible and maximize the chances of project success. Learn how to build one for your next project.

Sam Barnes,   Digital Delivery and Leadership Expert

• project planning

Every seasoned project manager knows from experience that projects rarely go exactly to plan. I learned the need for a solid contingency plan the hard way. 

Early in my career, I would plan out a project on paper and would be convinced that I had all bases covered. But sometimes, the first unexpected challenge would rear its head from the starting gates—my perfect plan was ruined already. Then I would scramble around with the project team to deal with the fire as best we could.

This type of work invariably takes the focus off of the work that should be happening on a project, and risks you losing the trust of clients and stakeholders early on.

Enter contingency plans.

What is a contingency plan?

Contingency plans spell out actions that should be taken if an identified risk becomes reality.

Contingency plans are typically created at the start of a project —but not necessarily. A project manager will work with the team to develop step-by-step action plans for the most impactful risks identified and then do the same if new risks are identified as the project progresses.

Contingency plans also come in less formal guises. For example, when releasing a new big feature on a software platform, it’s wise to have developed a rollback plan. This means that if any problems arise from the release deemed too impactful to stay in place for any time, the team can quickly revert the platform to its pre-release state. In this case, the rollback plan is a type of contingency plan item.

Contingency plan vs. mitigation plan

As we mentioned, contingency plans are reactive—they’re meant to lay a plan for responding to an anticipated issue. 

On the other hand, a mitigation plan is proactive and more about minimizing the chances of risks becoming issues in the first place.

However, the two are closely linked, and contingency plans in larger project management environments are directly related to risk plans.

Why do you need contingency planning in project management?

Put simply, you need contingency planning in project management to ensure projects go as smoothly as possible and to maximize the chances of project success. 

Without a contingency, when things go wrong (which they almost certainly will), time, money, quality, morale, and trust are lost in the process of fixing things.

Contingency plans are most needed on high-risk, larger projects. Larger projects have more moving parts and are, by definition, more complex. Thus, there is a high chance of something happening that would have a high negative impact. Having a clear plan of action for big risks that turn into issues can be the difference between project failure and success.

Conversely, if you’re working on a very small project that you have done many times before with a client and technology you know well, you probably don’t need to develop a contingency plan. In this case, risk is low, and spending time on a contingency plan would probably be wasted time and money.

Plan and estimate projects in Float

Whether big or small, you can plan project work in Float. Monitor your team's schedule, set budgets with five different models, and compare estimates vs. actuals all in one place.

5 steps to create and manage an effective contingency plan

1. assess the identified risks for high impact.

Review the risk register you have created, and select the risks that need to be included in a contingency plan. You can do this by assessing risks based on likelihood, impact, and severity. 

While you ideally want to include all risks, start with the most impactful ones and work down the priority order. This is because often contingency planning can take a back seat in the haze of a busy project, so it’s wise to focus on the most important risks first.

2. Create the contingency steps

Work with your team and stakeholders to play a series of ‘what if’ scenario games for each risk register item selected. This is best completed as part of a focused workshop, so you can have everyone’s full attention. It’s important to get people in the zone of contingency thinking.

Here are some actions to take in this workshop:

• Create a row on a whiteboard or virtual whiteboard that starts with a risk
• Ask the team to imagine that the risk has become a reality. 
• Note down the triggers that would invoke a contingency plan needing to go into action, in a separate column.
• Discuss with the group how they would react and what steps must be taken to resolve the issue. 
• Note the key steps, sequence, and owners in a separate column next to each risk.
• Play back the contingency steps and confirm with the group that there are no steps missing, then move on to the next risk.

It’s important to involve a wide array of stakeholders, as each will know how particular issues should be resolved. Never underestimate who you need to develop contingency plans with.

3. Get approval from senior stakeholders and clients

Once a contingency plan is complete and you have team consensus, the next step is to seek approval from the senior stakeholders and clients. These are the folks who ultimately are the arbiters of risk tolerance for any project.

Set up a dedicated session to take them through the plan. This is important because when contingency plan overviews are tacked onto the end of another meeting, they can be skimmed over too quickly due to lack of time or, quite frankly, interest. 

Make sure to communicate the importance of running through the plan for approval and make the session happen.

4. Circulate and socialize the contingency plans 

Once approved, make sure to circulate the contingency plans to everyone involved in the project. Do your best to ensure that everyone is acutely aware of this plan, knows where to find it and what each of their responsibilities are for any given issue. 

A slightly annoying but effective way to check that you’ve socialized the plan enough is to gamify spot checks so that people know the risks and plans. For example, create a project game with a leaderboard where you randomly ask a project team member to name the top three risks on the risk register and what the contingency plan is. You can award points to those who answer best and keep score, awarding a small fun prize to the most accurate people. 

It sounds corny, but a common issue with contingency plans is that they are forgotten once created, approved and circulated. A good project manager will ensure they’re not.

5. Treat contingency plans as living documents

Contingency plans are mostly created at the start of projects, but it’s a mistake to consider them complete once the first version is created. As with risk registers, contingency plans should be classed as living documents that are constantly reviewed and updated as projects progress.

For longer projects, it’s wise to set up monthly risks and contingency plan review sessions with the project team. You will run through the current risks and contingency plans and determine if the assessment and details are still accurate or if anything needs tweaking, adding, or even removing.

When any changes are made, re-approval should be sought from senior stakeholders and clients, documented in writing.

Contingency plans are critical

Contingency plans are a critical element for large high-risk projects. They allow project teams to think about worst-case scenarios for identified risks and develop a plan that will enable them to resolve any issues as effectively and efficiently as possible.

Make contingency plans a staple for your high-risk projects. Even if you don’t need to deploy them, you can sleep soundly at night knowing that a plan is in place. 

If you do end up deploying a contingency plan, you will be sure that you’re resolving issues in the most timely and comprehensive manner, in a way that your stakeholders and clients approve of and maximizing the chance of keeping your project on time and on budget.

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What Is A Business Contingency Plan & How To Create One

It is the question that haunts business continuity professionals throughout their careers. Of course, there are a million possibilities that might occur at any time. But creating a business contingency plan at least helps you to prepare for the unknown.

Here, we take a look at the basics of business contingency planning , as well as how to create a plan for your own organization.

What is a business contingency plan?

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 business. Examples of a negative event include fire, flood, data breach and a major IT network failure.

Contingency plans are an important part of your overall business continuity strategy because they help ensure your organization is ready for anything. Many large businesses and government organizations create multiple sets of contingency plans so that a variety of potential threats are well-researched and their responses are fully practiced before a crisis hits.

Think of contingency planning as a proactive strategy, whereas crisis management—the other piece of the business continuity puzzle—is more of a reactive strategy. A contingency plan helps to ensure you are prepared for what may come; a crisis management plan empowers you to manage the response after the incident occurs.

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How do i create a business contingency plan.

Creating a contingency plan requires a bit of research and planning. However, working ahead on each plan will be worth it in the long run.

To create a contingency plan for your organization, follow this five-step framework:

1. Identify/prioritize your resources.

First, do a little research throughout your organization to identify and prioritize the resources that your organization cannot do without, such as employees, IT systems, and specific facilities and physical assets.

2. Pinpoint the key risks.

Next, identify the potential threats to these critical resources. Meet with employees, executives, IT and other key personnel to gain a holistic idea of the events that could impact your resources. If necessary, consider bringing in a consultant who specializes in identifying risk.

3. Draft your contingency plans.

Ideally, you would then write out a contingency plan for each of the identified risks. However, it’s best to start with the highest-priority threats—usually those that are most likely to occur and would have the biggest impact. Then, over time you can work toward drafting plans for each lower-priority risk.

As you draft each plan, ask yourself what steps would have to be taken for the organization to resume normal operations. Consider things like communications, employee activity, staff responsibilities and timelines (what needs to happen when). Then, create a step-by-step plan for each risk.

4. Distribute your plans.

Once each plan is completed and approved, ensure that every employee and stakeholder has easy access to it. For this important step, you might consider leveraging  an issue and crisis management app , which provides contingency plans and related documents directly to each employee on his or her mobile device.This approach replaces the traditional hard-copy ring-bound folders and ensures that each employee has access to the most recent plan immediately should the worst happen.

5. Maintain each plan.

Be sure to keep each plan updated as your organization goes through changes, such as hirings and firings and the adoption of new technologies. In addition, rehearse implementation with stakeholders on a regular basis to ensure that each team member knows their role.

What contingencies do you think are most likely to affect your organization? How are you currently preparing for them?

Crisis Management Pillars: Building Alignment With Stakeholders

Use a Risk Assessment to Prioritize the Issues you Need to Manage

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Contingency Plan: The What And The Why

Risk management is a topic that never gets old. In business, managing risks properly allows companies to minimize the downtime and expenses associated with negative events that sometimes occur and ensure uninterrupted business operations.

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What exactly is the contingency plan?

A contingency plan is an emergency plan or plan B.

It is used when something goes wrong and immediate action is required to minimize the damage. The plan is focused on events that may or may not happen, but if they do – some form of disruption will occur to the business processes.

Why does everyone need a contingency plan?

No one is immune to disasters, malicious behavior, or bad luck.

In project management or company management in general, and even in our personal lives, accidents and emergencies are almost inevitable. Whether we like it or not, something is bound to go wrong at some point.

Here are some of the examples of risks that a business contingency plan can target:

• Hackers steal and/or delete your business data.
• Key staff members leave the company abruptly taking the knowledge with them.
• Natural disasters destroy your office space/production site.

The cost of mistakes is very high these days. Clients are ready to walk away at any time, and competition is ruthless. Every disaster that the business goes through can be its last one.

Digital solution to support your contingency plan

There are many ways you can build and enhance your contingency plan that we will discuss later in this article.

One of the great ways to combat many business risks or mitigate them at least is through digitizing your workflow. For example with online group task tracker . Keep your project details, meeting notes, product backlog, and everything else online. Then you won’t be tied to a specific location, and everyone on the team will have access to everything 24/7.

Bordio is a powerful weekly planner with built-in project management tools that are easy and fun to use. In addition the ease of use will help to introduce this modern schedule planner quickly.

In addition to storing all your data securely online and ensuring continuous business flow, Bordio offers:

• Online calendar planner with events and tasks all in one place.
• The waiting list task planners for all unscheduled tasks, dreams, and some-day ideas.
• Project planning tools for self-check to ensure you don’t burn out.

How to create a good contingency plan?

The beauty of the contingency planning process is that it can look any way you like. Still, there are steps that you can take in order to ensure that the plan that you’ve prepared is a good one.

#1 Create a list of key business processes

Before you can plan out your strategy for emergencies, it is important to outline everything that is essential (=critical) to the company’s operations.

Really take your time with this step and ask your team to help out. The less you miss in step one, the more prepared and secure you will end up with the contingency plan.

Use the following questions to help with brainstorming:

• What roles are critical for business?
• Do key employees hold unique knowledge that is not documented somewhere else?
• What processes are mission-critical and ensure normal operations?
• Who’s/what absence would cause disruption and delays?
• What departments/processes require the most resources to build and maintain?
• What resources does the company rely on to continue its operations?

There are many more questions you can ask yourself, but these five should already put you in the right direction.

#2 Think of all risks that can occur with these processes

Just like with step one, don’t rush through the risk identification stage and engage your colleagues if you work with a team. We also recommend using software – working as a team will be much easier if you use convenient remote collaboration software .

The goal here is to identify key risks and write down as many of them as possible. Not to have an anxiety attack but to use this list as a base for further contingency planning.

Tip: Once you’re done with the list in your task organizing app , sit on it for a couple of days. Get back to the list with a fresh mind, go through it and see if you get any new ideas that you didn’t think of before.

If you get stuck, use the “What if” question to get creative again. It is a simple tactic for brainstorming that helps come up with the most unexpected, yet possible risks.

#3 Evaluate the risks you’ve identified

Once you know your risks, it’s time to do deep work with them and conduct business impact analysis (a.k.a. risk assessment).

With risks, your key focus should be on understanding their:

• Probability

There is just the right tool for that – the Impact Probability Matrix, which helps visualize and identify how likely those risks are to occur and what their potential impact is on business.

There are many ways you can classify your risks with this matrix, but we recommend keeping it simple and sticking to the three main categories: high, medium, and low.

Why is this step necessary?

No matter how good your time management skills are, there are rarely enough hours in the day to accomplish everything on our online to-do list or schedule weekly planner . And it is vital that the most critical stuff gets done.

As you look at your list of risks with their severity and likelihood identified, you will be able to prioritize your tasks and work on the most pressing threats first. The 80/20 rule applies to risks too – 20% of risks are responsible for 80% of trouble. Sort those risks out first, and you will already be in a far better position.

#4 Calculating the cost of potential risks

As you work on classifying risks, consider calculating potential costs too. For example, if your online services go down, how much would each hour of downtime cost you? Having numbers in front of you will be extremely helpful when you’ll be thinking through a disaster recovery plan and avoidance scenarios. And if you need to request a budget for those measures, showing real financial damage will help you get approvals much easier. After all, experiencing an emergency is bad, but having no cash to deal with it is even worse.

#5 Working on mitigating the risks

Some risks can be mitigated and avoided completely, others to a certain degree. But to achieve any of that, you need to be proactive about mitigation.

Let’s take the online service as an example. Users log into the web interface to access certain functionality, such as personal finance tools. One of the risks that such a service might experience is hacker attacks and data leaks. Both are horrible risks that can be detrimental to the survival of the service.

So, to mitigate the data leak and hacking issues, for example, you can implement a 2-factor identification and a certain complexity requirement for user passwords. Also, don’t forget about the security of your online weekly schedule maker . Your team in the backend can simultaneously work on strengthening the existing code and implementing more vigorous bug tests to reduce the probability of the solution being hacked.

An alternative example is creating backups of all your critical data and storing it offsite. So, if something happens to your primary server with all data on it, you’ll be able to access and restore the company’s information quicker (or even instantly, depending on the strategy you implement), reducing potential downtime and losses. Some risks can be thought of in advance, such as delegating important tasks first – such as marketing tasks – so that you don’t fill up your work list. This is where startup digital marketing agencies can help you if you are just starting out and b2b saas marketing agencies if you have an established company.

Pro tip: Some risks are very hard to mitigate, and if their probability is very low, then you might consider the cost of ignoring the risk versus the cost of mitigating it. If you choose to leave the risk unattended, remember to factor in the reputational loss in addition to the financial.

For those risks that cannot be mitigated completely, still look for ways to reduce their probability or impact.

#6 Creating an action plan for potential risks

Now that we know all the risks that are out there and have worked on mitigating some of them, it’s time for the most exciting part – drawing up an action plan for top-priority risks.

At this point, we focus on reactive measures –

• What do we do when something bad happens?
• Who has to be notified about the incident/issue?
• Who is responsible for overseeing the contingency plan in action?

For example, if there is a data breach, we have to assign specialists to identify and remove the issue while communicating to our clients, partners, and employees openly about the situation and what we’re doing to resolve it. All management needs to be notified, and the Head of IT is responsible for normalizing the situation.

Or, if you experience rapid growth of customer requests and your support team can’t handle it, we reach out to on-call staff to assist with the avalanche of work. HR needs to be notified to onboard temporary staff and the head of the support team is ultimately responsible for sorting out the problem.

It is also recommended to create a timeline and agree on acceptable issue resolution timeframes and have a communication plan in place too so everyone in the company knows what to do in case of an emergency.

Tip: If you’re short on time, deal with high impact high probability risks first and schedule the rest of the work for later. To make sure you finish the contingency plan for each and every risk, schedule time blocks in Bordio over the next few weeks. Time blocks will ensure you don’t get overbooked and will have the capacity to finalize this important task.

#7 Get approvals for contingency plan from department managers

Ideally, you should be working with managers throughout the entire process of creating the contingency plan, so they should be well aware of what’s in it.

Still, make sure you get formal approvals from everyone before the plan is shared further. Everyone needs to understand and accept the plan. When the disaster happens, there will be no time for discussions or misunderstandings.

#8 Communicate the details of the contingency plan with the team

Make sure that your team is in the know.

Share that you have a contingency plan, why it’s there and how it’s beneficial to everyone. Let respective departments know about the potential risks you’ve identified for their workflow and how such risks will be addressed. Keep all information about the contingency plan and key steps somewhere everyone can see them, for example in a shared Bordio note.

#9 Contingency plan maintenance

Once your contingency plan is implemented and rolled out, you’ll need to update it regularly to ensure it remains relevant. Things change, and they change fast. New processes are introduced in companies all the time, making your current contingency plan obsolete.

Make sure you not only create contingency plans but review them at least once a quarter or every time your risk management strategy is updated. If you follow Scrum methodology , for example, you can run such contingency plan check-ups during Sprint Review meetings. Also, conduct a contingency plan review each time a major change is introduced in the company’s workflow.

That way, you will truly protect yourself against the unknown and keep the business secure.

Contingency plan risks to watch out for

There are key risks associated with contingency planning that can jeopardize the entire initiative. It’s good to be aware of them to be able to prevent them.

Risk 1: The initiative is not supported

Often stakeholders agree to something reluctantly but don’t support it fully. With business contingency plans, it’s a matter of business survival, so it’s critical to ensure honest buy-in from all key stakeholders.

Risk 2: Outdated contingency plans

We’ve talked about it already, but it’s a very common risk, so it’s worth repeating it. Contingency plans are not meant to be done and forgotten about. It is a lot of work to draw up such a plan, so there is a lot of temptation to just leave it once it’s finished. However, an outdated business contingency plan is worse than a non-existing one, because you can make the matter so much worse with an inadequate emergency response.

Risk 3: Refusal to think about plan B

It’s human nature to not want to think about negative things. That’s why so many people ignore insurance policies, never make a will, and skip data backups. Same with companies, employees and managers might not want to think about unexpected events or the possibility of something going wrong. It’s vital to build a trusted relationship with them and explain how such superstitions can damage the company’s future.

Final thoughts on the contingency planning process

The best scenario for a contingency plan is to never be used and it’ll just be there somewhere ready to go in the virtual planner app . Yet, if something bad does happen, the second best thing is to have a relevant, detailed, and well-thought-out plan that will save the day when the disaster strikes.

If you’d like to be better prepared for what the fast-paced work environment of today brings us, check out our guides on Agile , critical path method , and fast-tracking in project management.

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Business Plan 101: Critical Risks and Problems

When starting a business, it is understood that there are risks and problems associated with development. The business plan should contain some assumptions about these factors. If your investors discover some unstated negative factors associated with your company or its product, then this can cause some serious questions about the credibility of your company and question the monetary investment. If you are up front about identifying and discussing the risks that the company is undertaking, then this demonstrates the experience and skill of the management team and increase the credibility that you have with your investors.  It is never a good idea to try to hide any information that you have in terms of risks and problems.

Identifying the problems and risks that must be dealt with during the development and growth of the company is expected in the business plan. These risks may include any risk related to the industry, risk related to the company, and risk related to its employees. The company should also take into consideration the market appeal of the company, the timing of the product or development, and how the financing of the initial operations is going to occur. Some things that you may want to discuss in your plan includes: how cutting costs can affect you, any unfavorable industry trends, sales projections that do not meet the target, costs exceeding estimates, and other potential risks and problems.  The list should be tailored to your company and product. It is a good idea to include an idea of how you will react to these problems so your investors see that you have a plan.

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Module 4. Mitigation and contingency risk plan

Learning Outcomes

• Compose a mitigation risk plan.
• Compose a contingency risk plan.
• Optimise monitoring and controlling risk processes.

A risk response strategy outlines both the mitigation and contingency risk plans and forms a key component of the overall risk management plan. The PMBOK refers to a risk response strategy which is undertaken by a project team or manager. This plan aims to decrease the probability of a risk occurring, and/or lessening the consequence or impact of a risk (PMI 2021). As outlined in previous chapters, there are numerous steps that make up the risk response plan, including identifying, evaluating and analysing risks, and creating treatment plans. However, the overarching aim of each of these steps is to decrease the levels of exposure or likelihood of a risk and its overall consequence.

Information collected and documented within the risk register is used to develop a risk response plan . Each identified risk and opportunity is outlined, along with the level of likelihood and consequence and the project risk tolerance threshold. Understanding this information, the project manager and project team are responsible for determining appropriate risk responses.

Treatment options need to be developed and actions need to be implemented to enhance opportunities and decrease the impact of risks on project objectives. Therefore, a response plan fits within the project plan and outlines actions required. This plan increases the likelihood and outcome of the identified opportunities, while decreasing the impacts of risks.

The response plan is a strategy used to consider proactive actions, whereby risk responses are about preventing risk rather than cancelling the project all together. Within the PMBOK , there are 2 types of risk response plans: contingency and mitigation.

Contingency plan

The contingency response plan outlines the responses and actions to be implemented if or when a risk occurs (Heimann 2000). Triggers are defined as the cues to execute contingency risk plans. It is mandatory to track and define the risk triggers to develop the risk contingency responses. As different triggers occur in the environment, the reserves can be used.

Both opportunities and risks should be planned for within contingency plans (Heimann 2000). This includes any event which poses a risk or a threat to the project – defined as a negative risk. Whereas any event which offers an opportunity for the project is defined as a positive risk. Across both these events, the response planning is in place to ensure that the most is made out of any opportunity and to provide a strategy to respond to and overcome risks.

Steps for creating the contingency plan:

• Identify specific events which could trigger the implementation of the contingency plan.
• Document the roles and responsibilities, timeframes or processes, where the plan occurs and how it will be implemented.
• Outline guidelines to report and communicate processes. Document how stakeholders will be engaged, who will send the information, how frequently, and how soon after risks occur the communication needs to be shared.
• Monitor and report the contingency plan, ensuring it is up-to-date with all potential risks.

There are 6 primary components of a contingency plan:

• Triggers: the ‘things’ that happen which require the implementation of the plan.
• Response plan: outlines what will be done in response to the trigger.
• Stakeholder engagement: sharing the risk occurrence and the implementation of the plan with key or primary stakeholders.
• Timeframes: consideration of how soon after the trigger or the risk a response action will be taken.
• Likelihood: how likely it is it that the risk will occur.
• Consequence: the level of consequence or effect of the risk occurring.

A primary tool that can be used to develop a contingency plan is the reserve or contingency budget and schedule analysis. This tool assists the project manager and team to determine how much contingency is required for both budget and schedule, based on the risk register. The contingency or reserve is used to respond to risks as they occur. The project manager and team need to ensure that the remaining contingency (both budget and schedule) are sufficient throughout the project life cycle. Where there is less contingency left compared to the number of risks, the project risk manager may need to seek additional funding and/or resources or complete a mitigation plan.

Implementing a contingency plan requires effective project management to ensure that all the strategies, risks and deliverables are managed appropriately. This includes the role of the project team members, who need to be aware of the risks within the register. They need to be entrusted to respond when needed and be empowered to implement strategies. In addition, the project team needs to be comfortable with the overarching risk management process, ensuring that they are comfortable developing risk mitigation and implementing contingency plans when identified risks occur. The project manager also needs to hold project team meetings frequently and encourage the project team members to be involved.

There are 4 common challenges that project managers and project teams face when trying to use contingency planning for risks:

• low priority given to risk contingency planning
• project team and stakeholders may be more confident in their original plan
• there are no clear organisational strategies in place for enterprise risk management
• not enough investment in risk identification.

Risk mitigation plans

The risk mitigation plan outlines actions to be taken in advance of a risk occurring or pre-emptively in response to a risk trigger occurring (Becker 2004). The process for creating the risk mitigation plan includes identifying, analysing, planning, implementing, and monitoring and controlling, as outlined in Figure 5.  A primary component of the mitigation process is an iterative risk management process.

Figure 5. Risk mitigation plan process, by Carmen Reaiche, Samantha Papavasiliou and Frank Anglani, licensed under CC BY (Attribution) 4.0

• Risk identification: potential risks are identified and their relationships are defined.
• Risk analysis and evaluation: the likelihoods and consequences of risks are assessed. Consequences can include budget, schedule, technical, performance impacts and functionality.
• Risk prioritisation: all identified risks are prioritised and ranked by the most critical to the least.
• Risk mitigation planning, implementation, and monitoring and controlling: risks that have been analysed and ranked as high or medium criticality have mitigation planning conducted.
• Risk tracking: throughout the project, the risks are identified and added to the register.

As outlined in the previous chapter, there are many options for responding to the specific risks within the mitigation process, including accepting, avoiding, controlling, transferring, monitoring and watching risks.

Mitigation plan content should include:

• Roles and responsibilities: this includes documenting who is responsible for identifying and implementing risks.
• High-level mitigation strategies: the aim of creating and developing strategies is to reduce consequence and likelihood.
• What are the necessary actions?
• What timeframes need to be followed (e.g., when must actions be finalised or implemented)?
• Who is responsible for taking actions?
• What are the necessary resources?
• How will the actions decrease the levels of likelihood and consequence for the potential risks if they were to occur?

The actions required should be completed through one of the processes below:

• Backward planning: this is the process of evaluating the impact of the risk and outlining a schedule for successful intervention (Becker 2004).
• Forward planning: this is the process of determining the schedule breakdown required to implement each step within the action plan, including the expected completion date (Becker 2004).

These processes will help to evaluate the primary decision points to determine when the project risk process needs to move from the mitigation plan to the contingency plan.

Similarities and differences: mitigation versus contingency plans

It is recommended to have both risk contingency and mitigation response plans in place for managing risk management processes within a project and organisation. There are numerous differences which are outlined in Table 15.

Table 15. Risk mitigation versus risk contingency plans

There are numerous factors which need to be considered as part of risk mitigation and contingency plans (Becker 2004), including:

• Understanding clients and stakeholder needs: who are the risk decision-makers and who has the authority to accept and avoid risks?
• Liaising with subject matter experts: seek input from experts inside and outside of the organisation.
• Recognising the chance of risks reoccurring: identify and maintain risk awareness, to ensure that all stakeholders understand that there is always a level of risk present.
• Encouraging risk-taking: there are consequences to not taking risks – some may be negative, others may be positive. There is a need to take some risks to identify and respond to opportunities.
• Recognising opportunities: there are opportunities that can arise from taking risks. Identify whether there is an advantage to taking risks (e.g., performance, capability, flexibility, efficiency).
• Encouraging deliberate consideration for mitigation or treatment options: there needs to be careful analysis of the options to mitigate risks and discussion with project teams, stakeholders and subject matter experts on the value of specific options.
• Not all risks require mitigation: low ranked risks do not require considerable mitigation planning; however, they need to be tracked, monitored and controlled in case of changes.

The post-project review should include the risk management process, including learnings from the project, an analysis of how the project went, an evaluation of what occurred during the project, whether there needs to be improvements, and what went well.

Monitoring and controlling process

Developing the risk response plans (including contingency and mitigation plans), requires developing and implementing a corresponding monitoring and controlling process. In risk management, a monitoring and controlling process is ongoing throughout the project life cycle. This involves developing processes which document information, which in turn assists with making informed decisions, either before, during or after a risk occurrence. These processes include:

• evaluating the risk response plans implemented
• assessing effectiveness of the actions taken
• ongoing environmental monitoring for potential risk triggers
• reassessing identified risks to examine if there are any changes in their exposure levels
• once a risk has been triggered and a response action taken, determining the residual risks
• creating assurance processes to ensure that policies and procedures associated with risk plans are used
• determining the validity of the contingency plans implemented or not used
• accounting for project scope, schedule, budget and quality changes that may have been approved throughout the project life cycle
• ongoing assessment of whether the project assumptions, constraints, and risks are valid.

There are 2 primary elements within the process for controlling risks within a project:

• Regular risk reviews. At least once a week, the project manager and team should allocate time to review the identified risks, identify new risks and monitor progress of all the risks which have been triggered or up/down graded. This process should include a periodic, in-detail review of the entire process and risk register.
• Project risk reporting. This involves ensuring that risk exposure levels are documented, with high likelihood and consequence risks documented within ongoing status reporting. At a minimum, the top 10 risks should be outlined within the status and performance reporting. This includes any actions taken to respond to a risk arising or a trigger occurring.

The monitoring and controlling process occurs throughout the project life cycle; however, there are some primary documents which are used to support the process. These include:

• Risk response plan: outlines the current state of risks, the potential future impacts if the risk was to occur and the responses required.
• Risk register: used for tracking project risks.
• Change requests: a log which includes the variations, change orders and changes implemented throughout the project.
• Project communications: all the communications that relate to managing the project and the corresponding risks.
• Post project review: understanding the effectiveness of the project risk responses and overall management process within the project. This includes identifying opportunities for improvement.

Tools for project risk monitoring and controlling

There are many tools which can be used to support monitoring and controlling in the project risk management space. The tools can be either manual or automated. These tools include project risk audits, status reporting and meetings, project risk assessments, change variance, and risk trend analysis.

These processes can be run manually or streamlined to be automated, depending on the size of the project, the complexity and the industry. Regardless of how the monitoring and controlling is completed, the information needs to be collected and displayed in real-time or as close to real-time. This enables project managers, project team members and stakeholders to track risks, and allows the assessment of risk, based on up-to-date information.

Now let’s review our knowledge:

Key Takeaways

• The monitoring and controlling process occurs throughout the project life cycle.
• Information collected and documented within the risk register is used to develop a risk response plan.
• The contingency response plan outlines the responses and actions to be implemented if or when a risk occurs.
• A primary tool that can be used to support the development of contingency plans is the reserve or contingency budget and schedule analysis.

Becker GM (2004) ‘A practical risk management approach’, paper presented at PMI® Global Congress 2004—North America , Anaheim, CA., Project Management Institute, Newtown Square, PA.

Heimann JF (2000) ‘Contingency planning as a necessity’, paper presented at Project Management Institute Annual Seminars & Symposium , Houston, TX., Project Management Institute, Newtown Square, PA.

Project Management Institute (2021)  A guide to the project management body of knowledge (PMBOK® Guide) , 7th edn, Project Management Institute, Newtown Square, PA.

Risk Assessment and Quality Project Management Copyright © 2022 by Carmen Reaiche, Samantha Papavasiliou and Frank Anglani is licensed under a Creative Commons Attribution 4.0 International License , except where otherwise noted.

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Emergency contingency planning is crucial to every business and facility. Disasters and emergencies can occur at any time, and without the proper safeguards in place, a company can sustain significant damage to its bottom line, workforce, and reputation. Conducting a risk assessment and creating response plans can be time-consuming and expensive when done alone. However, employing an experienced and successful company for contingency planning and risk management can make a considerable difference in your disaster mitigation efforts.

Here is some guidance on how to strategize for and protect against events that could disrupt your operations — plus how you can benefit from hiring an external party to handle your safety contingency plans and risk reports.

• Purpose of a Contingency and Risk Assessment Plan

Types of Potential Emergencies

• Contingency Planning Services
• Emergency Preparedness Plan and Preparation

Purpose of a Risk Assessment and Contingency Plan in Risk Management

What is an emergency preparedness plan? It is a detailed strategy for protecting your business against external risks and emergencies, such as natural disasters. Creating a risk assessment plan and contingency report involves identifying the potential risk areas to create an effective response should those problems develop. These plans involve members on every level of an organization, from CEOs to entry-level employees, to inform these individuals of what to do in case of an emergency or impending event.

The essential steps to creating a contingency plan for risk management involve pinpointing what risks are most likely to disrupt your company — otherwise known as the risk assessment. Then, you must define how severe of an impact each of these risks will have and sort them into appropriate categories. Which ones will have the most devastating effects should they occur? These top priority concerns will require the most detailed action plans.

Once a business discovers what its risks are, it can go about addressing them in numerous ways. This stage is where you would begin building a contingency plan for how to approach the risk. How you respond will depend on multiple factors, such as how much risk your business is willing to take and what kind of risks you’re confronting. After you conduct emergency contingency planning and establish an effective set of methods, this strategy will need to be updated every year or so to ensure its timeliness and relevance.

Many types of emergencies can threaten a business, though we will primarily focus on two within this post — pandemics and natural disasters.

In the face of both pandemics and natural disasters, you should have an emergency preparedness plan for the workplace that includes  protective actions for life safety , as defined by the Department of Homeland Security. These measures can include lockdowns, shelter-in-place orders, and evacuations — actions that are meant to protect the lives of every person within a facility.

Natural disasters happen quite frequently, especially depending on where your business is located, but you may have little experience with planning for a pandemic. The elements of a risk mitigation and response plan for a pandemic will include many of the same components you’d employ for other types of emergencies. Your risk assessment and contingency plan should contain an executive summary, stakeholder commentary, funding, and health safety information.

Every risk analysis — including pandemic-based plans — should merge the below concepts into a singular, detailed strategy for your business or facility to operate from:

• Design and engineering
• Procurement and construction management
• Cost estimating
• Identification of funding and regulatory limitations
• Master planning
• Maintenance planning
• Public discussion facilitation

Pandemics can disrupt workplaces in numerous ways. Supply chains halt their normal operations, and employees miss work because of dealing with illness or caring for others.  Pandemic planning  addresses these issues while also considering the health and safety of everyone within your workplace or facility. Here are some best practices to keep in mind when strategizing for specific events like pandemics:

• Know the right information:  Review local and federal health and safety guidelines to ensure your business is compliant with these measures. Train your employees on how to uphold these guidelines and any company-specific techniques you’re adopting to protect workers and clients.
• Create business and facility guidelines:  Establish policies that will protect employee well-being, such as mental health initiatives and sick policies that avoid penalizing anyone who falls ill. Develop a social distancing plan that will enable your workers and consumers to interact without the risk of transmitting infection.
• Develop an essential team:  It may be necessary to downsize your workforce and only maintain vital positions to avoid disease spread or prevent your business from falling into debt. In this case, it should be a priority to cross-train essential workers so they’ll be prepared for additional job duties.
• Gather supplies:  Make sure you have enough cleaning supplies and items like hand sanitizer, soap, and personal protective equipment (PPE) for every person. Consider each item’s shelf life and recommended storage conditions to ensure your goods last for as long as possible.
• Identify risks with a risk report:  Analyze your business or facility for potential health risks — do employees frequently interact with members of the public? In unprotected environments, it is more likely for someone to fall ill. Enforce social distancing and the necessary hygiene methods, but also be sure to work with your insurance company and local health agencies to provide your workers with medical care.

Natural Disasters

Natural disasters can come in the form of tornadoes, hurricanes, floods, earthquakes, and many more events. Each type of natural disaster requires its own emergency plan for optimal preparedness and disaster mitigation, as they all bring a unique set of circumstances. For example, you might find it necessary in your risk reports to invest in commercial flood insurance if your facility is located in an area that often experiences floods.

You can also sign up to receive alerts from your local community warning service or follow a federal service like the National Oceanic and Atmospheric Administration (NOAA) Weather Radio. You should create and regularly practice  flash flood evacuation plans  that include emergency functions and specific exit procedures. This natural disaster is only one example of the kind of planning you might do when facing a weather event. Familiarize yourself with the most common disasters and mitigation strategies in your region.

You can use  a FEMA emergency preparedness plan  to help you pinpoint specific risks and brainstorm actionable items for addressing these issues. FEMA categorizes disasters as recurring events  consisting of four phases  — although some businesses split them into five and alter the order of steps as necessary:

• Prevention:  This phase involves many of the actions outlined in this article, such as preparing for disasters to reduce losses. Running risk analyses helps your business identify concerns and begin answering them. A planning team should be created with a representative from every department in your company to perform assessments.
• Preparedness:  Preparedness prioritizes ongoing strategies such as employee training and emergency planning. Business leaders and workers must be able to recognize threats early on so they can respond accordingly. Emergency preparedness planning for disaster response should always account for human, business, and property impact.
• Response:  The emergency procedures you establish determine how you respond to sudden risks. If your company’s supply chain faces significant downtime due to the wide-reaching effects of a natural disaster, how will you pivot to keep operations flowing efficiently?
• Recovery:  The recovery phase involves the restoration of day-to-day services, allowing companies to return to normal operating procedures as soon as possible. This stage will often involve the use of post-emergency services and insurance policies, as well as your company’s legal team.
• Mitigation:  Mitigation involves lessening the loss of life and assets. Through protecting employees and facilities, businesses can reduce the severity with which they’re affected by a natural disaster or other phenomena. This step can include restructuring emergency plans to better serve real-life scenarios and developing improvement strategies to address gaps in current plans.

SitelogIQ’s Contingency Planning Services

SitelogIQ offers a three-tiered contingency plan for businesses looking to protect their employees and their assets on a long-term scale, especially during these current uncertain times. Because no single solution can fit every business, we work with your company or facility to develop a plan that suits your specific needs.

Tier 1 — Engineered Infection Protection (EIP)

The first level of our multi-tier approach involves our pathogen mitigation plan, which helps you sanitize and restore your facility both now and in the long term. As a part of this tier, we offer deliverables such as an EIP Selection Matrix, which we build by visiting your facility and conducting engineering work. Other deliverables include a five-year, long-term facility maintenance tool with EIP measures and funding sources to keep your facility well-maintained long after the initial pandemic.

As an added option, you can load your five-year plan into our proprietary database using data entry only, which requires less effort and time. Adopting such a tool can help you manage committed costs and maintain your existing assets, keeping your building safe and energy-efficient. Your long term maintenance strategy can become part of a  master plan intended to facilitate long-term upgrades and improvements within your business. Your master plan will share several common elements with your emergency preparedness and safety contingency strategy, including risk identification and mitigation.

Advantages of adopting EIP include:

• Low barrier to entry:  There are no intricate or lengthy processes involved in using our planning services. By providing a low barrier to entry, we can get you started on emergency contingency planning quickly and easily.
• Trust building:  Because we conduct every step of the process — humidification, filtration, ultraviolet germicidal irradiation (UVGI), and more — we keep ourselves transparent so you are always aware of the next steps.
• Custom solutions:  Our surface and airborne contamination solutions can adjust to fit your facility and provide the most effective cleaning and decontaminating power for your needs. Cleaning technologies we use include electrostatic and ultra-low-volume (ULV) fogging and UVGI.

Tier 2 — Policy Implementation Plan

The second level of our approach includes implementing policies that will enable everyone in your workplace to have a standard protocol for pandemic management. This solution allows you to access deliverables such as color-coded floor plans to enforce social distancing and design documents for facility modifications. These modifications can apply to room layouts, improved protective measures for employee and visitor well-being, and many more safety features.

We provide services that will help you plan for social distancing in learning environments, food services businesses, and the busing industry. Whichever sector you’re part of, you can benefit from SitelogIQ’s plan. By choosing our policy implementation plan, you will also receive recommended architectural modifications and measures.

Tier 3 — Installation of Protective Measures

Once you have chosen your preferred protective measures, SitelogIQ will install these components. We use both GS schedules and external service providers (ESP) for procurement. When you choose our contingency planning services, you receive a customized plan that accounts for all local conditions, including:

• Signage and wayfinding plans
• Cost assessment
• Site, campus, and room plans
• Funding plans
• Procurement list
• Ramping and toggling plans

SitelogIQ offers multiple construction management solutions — Agency Construction Management, Construction Management At-Risk, and Program Management. Here’s a look at what each one offers during the building process:

• Agency Construction Management:  This solution works as  a fee-based service  that provides you a highly experienced and objective advocate throughout the process. SitelogIQ serves as your Agency Construction Manager (ACM) by walking you through each step and taking every action within your best interest. Our in-house team offers numerous high-quality services for each phase — preconstruction, construction, and close-out.
• Construction Management At-Risk:  When you choose this solution, SitelogIQ will work with you as the Construction Management At-Risk Provider during the preconstruction phase. You’ll receive services such as cash flow analysis, value engineering, and scheduling. Once things move into the construction phase, we continue conducting the building process until completion.
• Program Management:  SitelogIQ  manages the entire project team , including the design team and other vital members, to help you organize your system under a single entity. We hire your architects, engineers, and other contractors and perform contract administration with everyone on your team. By choosing program management, you can increase your operational efficiency and eliminate high contingency expenses.

Let SitelogIQ Coordinate Your Emergency Preparedness Plan and Preparation

If you need assistance with conducting a business risk analysis and creating a contingency plan customized for your local conditions, SitelogIQ will guide you through every step of the process. We are a full-service facility planning , design, and management company with expert-level knowledge in facility maintenance and construction. Our team consists of architects, energy managers, engineers, and many more individuals with extensive experience in facility creation and upkeep.

Our experience with facilities in various disciplines — including healthcare , education , government , and more — ensures we will deliver a customized and efficient project no matter what kind of facility you own. Learn how to manage pandemics, natural disasters, and other types of emergencies more effectively by getting in touch with us today. Call us at 888.819.0041 or  fill out our contact form  for more information.

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HR and Contingency Planning: Ensuring Business Success

A contingency plan is a backup plan for when things don’t go according to plan. In the business world, having a contingency plan in place is essential for ensuring that operations continue even in the face of unexpected events.

Whether it’s a natural disaster, an economic downturn, or a sudden loss of key personnel, a well-crafted contingency plan can help you weather the storm and come out on the other side. In this article, we’ll discuss the best practices and strategies for creating a successful and productive workplace , drawing on the experiences and research in the HR field.

What is a Contingency Plan?

A contingency plan is a backup plan that outlines the steps to be taken in the event of an unexpected situation or crisis. It is a plan of action that helps businesses to be prepared for potential risks and minimize the impact of negative events. The purpose of a contingency plan is to help businesses continue to operate smoothly, even when unexpected events occur.

Contingent Workforce:

Contingent workers are employees who are not permanent employees of the company but are hired to perform a specific task. Contingent workers include temporary workers, staffing agency workers, and workers in behavioral therapy, substance use disorder treatment programs, and other similar programs. The contingent workforce is an essential component of many businesses and must be included in contingency planning.

5 Steps of Contingency Planning:

Step 1: identify risks.

A well-designed contingency plan should include clear procedures for contingency management, including a course of action for responding to unexpected events, a plan for workforce management , and a comprehensive business contingency plan that outlines the steps the organization will take to ensure business continuity. The action plan should also include measures for monitoring and evaluating the effectiveness of the response, to ensure that the contingency management strategies are effective and up-to-date.

The first step in contingency planning is to identify the risks that could disrupt your business operations. This could include things like natural disasters, economic downturns, or the sudden loss of key personnel. Once you have identified these risks, you can start to plan for how you will manage them if and when they occur.

Step 2: Assess Impact

Once you have identified the risks, the next step is to assess the impact that they could have on your business operations. This will help you determine the extent to which you need to prepare for each risk and what resources you will need to manage it effectively.

Step 3: Develop a Plan

Once you have assessed the impact of the risks, the next step is to develop a contingency plan. This should include a clear outline of the steps you will take to manage each risk , including the roles and responsibilities of each team member, the resources you will need, and the timeline for implementation.

Step 4: Implement the Plan

Once you have developed your contingency plan, the next step is to put it into action. This could include things like setting up a backup system for your data, creating a plan for how you will manage the workload if key personnel are suddenly unavailable, or developing a plan for how you will continue operations if your primary location is unavailable.

Step 5: Monitor and Review

Finally, it’s important to monitor and review your contingency plan on a regular basis to ensure that it remains effective and relevant. This could include things like conducting periodic risk assessments, updating the plan as needed, and regularly training your team on the plan and their roles and responsibilities.

What is a Good Contingency Plan?

A good contingency plan is one that is comprehensive, realistic, and flexible enough to adapt to changing circumstances. It should address all of the key risks that could disrupt business operations, including natural disasters, economic downturns, and the sudden loss of key personnel.

The plan should also have a clear outline of the steps that will be taken to manage each risk, including the roles and responsibilities of each team member, the resources that will be needed, and the timeline for implementation. A good contingency plan should have the following characteristics:

• Clear Objectives: The plan should have clear and achievable objectives that outline the desired outcome in response to a potential risk. This helps ensure that everyone understands what is expected of them in the event of a crisis.
• Involvement of Key Stakeholders: The plan should involve all relevant stakeholders, including employees, management, and third-party providers. This helps ensure that everyone is on the same page and that the plan is comprehensive and well-rounded.
• Flexibility: The plan should be flexible enough to adapt to changing circumstances, and should be reviewed and updated regularly to reflect changes in the business environment.
• Risk Assessment: The plan should include a comprehensive risk assessment that identifies potential risks and the steps that will be taken to mitigate them.
• Clear Communication Plan: The plan should include a clear communication plan that outlines how information will be shared with employees and other stakeholders in the event of a crisis.
• Testing and Drills: The plan should be tested and rehearsed through regular drills and exercises. This helps identify any weaknesses or gaps in the plan and ensures that everyone is familiar with their roles and responsibilities.
• Accessibility: The plan should be easily accessible to all employees, and should include simple and straightforward instructions that can be followed in the event of a crisis.

Human Resource Risk and Contingency Planning

Human resources (HR) are a critical component of any organization and effective risk management and contingency planning is essential for ensuring the continued operation of business. In today’s rapidly changing business environment, it is important for organizations to anticipate and prepare for potential risks that could impact the workforce, such as natural disasters, economic downturns, or the sudden loss of key personnel.

A well-designed contingency plan can help organizations respond to these risks and minimize the impact on employees. For example, in the event of a natural disaster, a contingency plan can help ensure the safety of employees and provide guidelines for how the organization will continue to provide essential services. Similarly, in the event of a sudden loss of key personnel, a contingency plan can help ensure that critical business functions are maintained while a replacement is found.

HR plays a crucial role in the development and implementation of contingency plans, as they are responsible for managing the organization’s most valuable asset – its employees. This includes developing policies and procedures for managing risks , providing regular training to employees on their roles and responsibilities, and ensuring that all employees understand the contingency plan.

In addition to addressing the needs of employees during a crisis, contingency planning can also help organizations manage their contingent workforce. Contingent workers include temporary and contract employees who do not have a permanent, long-term employment relationship with the organization. By having a clear plan in place for managing the contingent workforce, organizations can ensure that they have access to the resources they need to continue operating even in the face of unexpected events.

In conclusion, effective HR risk management and contingency planning is essential for ensuring the continued operation of business in the face of unexpected events. By working closely with other departments and regularly reviewing and updating the contingency plan, HR can help organizations minimize the impact of risks on the workforce and ensure business continuity.

In today’s rapidly changing business environment, having a robust contingency plan is more important than ever. EmployeeConnect can assist organizations in developing and implementing effective contingency plans by providing a centralized platform for managing workforce data, monitoring risks, and tracking response efforts. With EmployeeConnect, HR managers can access real-time data on their workforce, allowing them to quickly assess the impact of potential risks and respond accordingly. We also provides tools for creating and updating contingency plans, and for communicating important information to employees and other stakeholders. By leveraging the power of technology, EmployeeConnect can help organizations stay one step ahead of potential risks and ensure business continuity in the face of unexpected events. Experience the benefits of EC for yourself by scheduling a demo today.

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What Is a Contingency?

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What Are Contingencies and Contingency Plans? Definition and Examples

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

A contingency is a potential occurrence of a negative event in the future, such as an economic recession, natural disaster, fraudulent activity, terrorist attack, or a pandemic.

Although contingencies can be prepared for, the nature and scope of such negative events are typically unknowable in advance. Companies and investors plan for various contingencies through analysis and implementing protective measures.

In finance, managers often attempt to identify and plan using predictive models for possible contingencies that they believe may occur. Financial managers tend to err on the conservative side to mitigate risk, assuming slightly worse-than-expected outcomes.

A contingency plan might include arranging a company's affairs so that it can weather negative outcomes with the least distress possible.

Key Takeaways

• A contingency is a potentially negative event that may occur in the future, such as an economic recession, natural disaster, or fraudulent activity.
• Companies and investors plan for various contingencies through analysis and implementing protective measures.
• A thorough contingency plan minimizes loss and damage caused by an unforeseen negative event.
• Contingency plans can include the purchase of options or insurance for investment portfolios.
• Banks must set aside a percentage of capital for negative contingencies, such as a recession, to protect the bank against losses.

How a Contingency Works

To plan for contingencies, financial managers may often also recommend setting aside significant reserves of cash so that the company has strong liquidity, even if it meets with a period of poor sales or unexpected expenses.

Managers may seek to proactively open credit lines while a company is in a strong financial position to ensure access to borrowing in less favorable times. For example, pending litigation would be considered a contingent liability . Contingency plans typically include insurance policies that cover losses that may arise during and after a negative event.

However, insurance policies may not cover all of the costs or every scenario. For example, business interruption insurance doesn't usually cover pandemics, which many businesses suffered through as a result of the coronavirus pandemic.

The Federal government had to step in and pass the  Coronavirus Aid, Relief, and Economic Security (CARES) Act , which provided financial relief to businesses, families, and local governments to stem the economic hardship caused by the pandemic. In particular, the Paycheck Protection Program (PPP) offered $349 billion in aid to small businesses to help them maintain their payroll and expenses.

Insurance companies might also limit coverage or put exclusions in place for an act of God, which is an exogenous event, meaning outside of human control, such as a flood or an earthquake. Also, insurance can't replace the customers that were lost to competitors due to an event, particularly if it was an internal systems issue such as a data breach.

As a result, businesses need to have contingency plans established to help minimize the lost revenue and increased costs that are involved when business operations have been disrupted. Typically, business consultants are hired to ensure contingency plans consider a large number of possible scenarios and provide advice on how to best execute the plan.

Contingency plans are utilized by corporations, governments, investors, and central banks, such as the Fed. Contingencies can involve real estate transactions, commodities, investments, currency exchange rates, and geopolitical risks.

Protecting Assets

Contingencies might also include contingent assets , which are benefits (rather than losses) that accrue to a company or individual given the resolution of some uncertain event in the future. A favorable ruling in a lawsuit or an inheritance would be an example of contingent assets.

Contingency plans might involve purchasing insurance policies that pay cash or a benefit if a particular contingency occurs. For example, property insurance might be purchased to protect against fire or wind damage.

Investment Positions

Investors protect themselves from contingencies that could lead to financial losses related to investing. Investors might employ various hedging strategies such as stop-loss orders, which exit a position at a specific price level.

Hedging can also involve using options strategies, which is akin to buying insurance whereby the strategies earn money as an investment position loses money from a negative event.

The money earned from the options strategy completely or partially offsets the losses from the investment. However, these strategies come at a cost, usually in the form of a premium, which is an upfront cash payment.

Investors also employ asset diversification , which is the process of investing in various types of investments. Asset diversification helps to minimize risk if one asset class, such as stocks, declines in value.

Contingent Immunization

Contingent immunization is a type of contingency plan used in fixed-income investing. It involves the fund manager switching to a defensive position if the portfolio drops below a predetermined value.

Business Continuity and Recovery

As part of a contingency plan for disasters, such as a pandemic, companies need to plan ahead to ensure that the business can operate during and after an event. This type of contingency plan is often called a business continuity plan (BCP) or a business recovery plan.

Typically, a business continuity team is formed to plan for any possible contingencies and manage the continuity and recovery plan during a disruption . Businesses need to identify their critical business functions and perform an analysis of how an event might impact the company's operations and processes.

The contingency plan would include implementing the recovery of critical business functions such as systems, production, and employee access to technology such as computers.

For example, a contingency plan for a pandemic would include developing a remote work strategy to help prevent the spread of disease and provide employees with secure access to their work.

As a result, companies would need to invest in technology, which could include providing laptops and video-conferencing access to employees, creating cloud-based data storage, and facilitating access to company-wide communications such as email and internal data.

Cybersecurity

With any type of disaster, cybercriminals often try to take advantage of a crisis to hack into a company’s systems and steal data or disrupt business operations. Contingency plans are used to outline the procedures for cybersecurity teams to protect an organization from threats and malicious attacks.

A contingency plan should also prepare for the loss of intellectual property through theft or destruction. As a result, backups of critical files and computer programs, as well as key company patents, should be maintained in a secure off-site location.

Contingency plans need to prepare for the possibility of operational mishaps, theft, and fraud. A company should have an emergency public relations response relating to possible events that have the ability to severely damage the company’s reputation and its ability to conduct business.

How a company is reorganized after a negative event should be included in a contingency plan. It should have procedures outlining what needs to be done to return the company to normal operations and limit any further damage from the event.

For example, financial services firm Cantor Fitzgerald was able to resume operation in just days after being crippled by the 9/11 terrorist attacks due to having a comprehensive contingency plan in place.

Benefits of a Contingency Plan

A thorough contingency plan minimizes loss and damage caused by an unforeseen negative event. For example, a brokerage company may have a backup power generator to ensure that trades can be executed in the event of a power failure, preventing possible financial loss.

A contingency plan can also reduce the risk of a public relations disaster. A company that effectively communicates how negative events are to be navigated and responded to is less likely to suffer reputation damage.

A contingency plan often allows a company affected by a negative event to keep operating. For example, a company may have a provision in place for possible industrial action, such as a strike, so obligations to customers are not compromised.

Companies that have a contingency plan in place may obtain better insurance rates and credit availability because they are seen to have reduced business risks.

As a result of the financial crisis of 2008 and the Great Recession , regulations were implemented requiring bank stress tests to be performed to test how a bank might handle various negative contingencies. The stress tests project how much a bank would lose—if a negative economic event occurred—to determine if the bank has enough capital or funds set aside to survive the event.

Banks are required to have a specific percentage of capital reserves on hand, depending on the total risk-weighted assets  (RWAs). These assets, which are typically loans, have various risk weightings applied to them.

For example, a bank's mortgage portfolio might receive a 50% weighting, meaning the bank—in a negative scenario—should have enough capital that's valued at 50% of the outstanding mortgage loans.

The capital, called Tier-1 capital , can include equity shares or shareholders' equity and retained earnings, which are accumulated savings of prior years' profits. Although there are various components that go into the tier-capital ratio requirement, the ratio has to be at least 6% of the total risk-weighted assets.

Let's say as an example, Bank XYZ has $3 million in retained earnings and $4 million in shareholders' equity, meaning the total tier-1 capital is $7 million. Bank XYZ has risk-weighted assets of $70 million. As a result, the bank's tier-1 capital ratio is 10% ($7 million/$70 million). Since the capital requirement is 6%, the bank is considered well-capitalized when compared to the minimum requirement.

Of course, we won't know if the banking sector's contingency plan will be adequate until another recession occurs, which is a limitation of these plans since it's difficult to plan for every contingency.

Why Is an Environmental Contingency Plan Important?

Businesses that are at risk for environmental accidents–particularly spills of hazardous materials–should always have a plan in place detailing their response actions. Being prepared can help minimize the total damage done to the environment, minimize accident-related costs, and limit liability.

What Is Contingency Theory?

Contingency theory is an approach to management that suggests the best way to run an organization is dependent, or contingent, on that particular situation. In other words, a specific management style can work well in one company and fail completely in another one.

What Are the Steps in Creating a Contingency Plan?

To create a contingency plan, first, identify the key risks to your business and order them in regard to the likelihood of occurring and severity. Next, conduct a business impact analysis (BIA). From there, start shaping your plan, which should include preventive controls, an incidence response plan, a disaster recovery plan, and a business continuity plan. Make sure to provide training to employees, frequent testing, and updating of your plan.

A contingency is a potentially negative future event or circumstance, such as a global pandemic, natural disaster, or terrorist attack. By designing plans that take contingencies into account, companies, governments, and individuals are able to limit the damage done by such events.

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Sat Jul 15, 2023 | Alan Lefkowitz | Contingency Planning

The Top Benefits of Contingency Planning: How to Protect Your Business in Uncertain Times

Economic downturns, global pandemics, sudden market changes—if the tumultuous events of the past years have taught us anything, it’s that unpredictability is life’s only certainty. Whether your business will encounter such stormy seas isn’t up for debate; it’s simply a matter of ‘when’. But what if your business had an unsinkable lifeboat ready for those tempestuous times? Enter contingency planning—your ultimate lifesaver in the face of uncertainty. Discover the transformative benefits of contingency planning and how it can bulletproof your business against unforeseen upheavals.

Understanding Contingency Planning

Contingency planning is a proactive process of identifying potential risks and uncertainties that could interrupt the normal operations of a business, creating a strategy to mitigate these risks, and preparing a comprehensive plan to restore operations in the event of an unexpected event. It’s essentially a strategic tool that helps businesses anticipate and respond to potential threats by having a well-designed plan in place to ensure continuity. Contingency planning is necessary for all businesses because it ensures a system of preparedness, allowing companies to respond effectively when disaster strikes. These disasters can come in many forms; natural calamities like floods, earthquakes, wildfires, cyberattacks, or even pandemics. While it may not be possible to eliminate all risks entirely, the contingency process aims to balance the impact and likelihood of these incidents with the resources available. Additionally, conducting any business activity without solid contingency planning exposes the company to significant financial risks or damage to its brand reputation. An unforeseen disaster can trigger widespread effects such as unresponsive customers, late orders, and missed deadlines, leading to negative publicity among communities connected with your business. So what tangible benefits does contingency planning offer businesses in protecting against these potential disasters?

How It Protects Your Business

One of the primary benefits of contingency planning is that it gives business leaders and other stakeholders peace of mind, knowing that they have taken adequate measures to minimize risks and ensure continuity. The impact of an unexpected event like a natural disaster or cyberattack can be significant, causing significant physical damage, destroying assets, and disrupting normal business operations. A well-designed contingency plan provides critical support across different departments within the organization, minimizing operational downtime even in crisis situations. For example, having software that auto-deploys disaster recovery solutions offers quick restoration and access to data, allowing employees and IT teams to prioritize their responsibilities better. Contingency planning protects organizations by ensuring that they have the necessary resources ready for business continuity. A defined budget anchors the process’s implementation progress, with the needed tools (like physical backup sites or extra equipment) being put in place beforehand. In addition to this, businesses are implementing a cohesive team approach so all members are trained appropriately in contingency management. With these steps taken, companies can keep their essential functions in operation while reducing losses from an unexpected disaster’s effect. According to FEMA, almost 40% of small businesses hit by a natural disaster end up closing their doors permanently. They could have been saved if they had a proper contingency plan in place. Furthermore, effective planning increases profit margins while reducing disruptions, as evidenced by a study showing businesses that invest in technology demonstrate more than double the ROI compared to firms without any tech investments. We’ve explored how contingency planning offers critical support for businesses, but what about some specific advantages provided by these plans?

• In a recent study, the Disaster Recovery Preparedness Council reported that businesses with a functioning disaster recovery plan were able to recover from interruptions twice as swiftly as those without any such arrangements.
• A 2021 Business Continuity Institute report found that over 65% of organizations agreed that their business continuity investments significantly reduced the disruptions caused by a recent unexpected event.
• According to Gartner’s research in 2022, it was revealed that companies with effective contingency plans saw an estimated 35% lower downtime cost during a disruption, compared to those without a plan.

Advantages of Contingency Planning

Contingency planning is an essential tool for any business or organization that wants to thrive in uncertain times. There are several advantages to having a contingency plan that go beyond protecting your business from negative events. One advantage is that it enables you to remain agile and adaptable even when the future seems uncertain. Another benefit is that it allows you to maintain the trust and confidence of your customers, investors, and stakeholders regardless of the challenges you face. For instance, suppose you own a small retail store that specializes in handcrafted accessories. One day, you receive news that a natural disaster is about to hit your area and that you need to prepare immediately for potential damage or power outages. By having a contingency plan in place ahead of time, you’ll be able to quickly determine which products are most at risk, secure them appropriately, and let your staff know what they need to do during the event. This will enable you to minimize losses and downtime while also demonstrating to your customers and partners that you’re prepared for anything. To put this into perspective, think of a contingency plan as an insurance policy for your business. Just as you wouldn’t operate without adequate insurance coverage in case of accidents or liability claims, so too should you have a plan in place for unexpected events that could disrupt normal operations. That being said, there are other benefits to contingency planning beyond minimizing losses during an event. For one thing, having a well-documented contingency plan can help improve internal communication and efficiency within your organization. When everyone knows their role and responsibilities before an event occurs, it’s much easier to coordinate efforts and avoid confusion or panic. This can help speed up recovery times after an event has occurred, reduce disruption overall, and ensure that employees feel confident and supported in challenging situations.

Some might argue that contingency planning is too expensive or time-consuming for small businesses and that it’s only necessary for large corporations with complex supply chains or international operations. However, this couldn’t be further from the truth. In fact, small businesses are often the most vulnerable to disruption from unexpected events precisely because they lack the resources and infrastructure of larger organizations. By investing in a contingency plan early on, you can ensure that your business is able to weather any storms that come its way.

Minimizing Risks and Uncertainties

Another major benefit of contingency planning is that it allows you to minimize risks and uncertainties in your business operations. By proactively identifying potential threats and developing strategies to mitigate them, you’ll be able to reduce the likelihood of negative events occurring in the first place. Let’s say you’re the CEO of a startup company that specializes in innovative technology solutions for healthcare providers. A critical part of your business model involves establishing partnerships with other companies in order to leverage their expertise and resources. However, as you start to explore different partnership options, you realize that some of them carry significant risks related to data privacy, cybersecurity, or regulatory compliance. Without a contingency plan in place, you might be tempted to ignore these risks or simply hope for the best. However, this approach could end up being disastrous if something goes wrong down the line. That’s why it’s crucial to take a proactive approach and develop a contingency plan that outlines how you’ll handle various scenarios related to your partnerships. This could involve conducting thorough due diligence on potential partners, establishing clear contractual terms and performance metrics, and maintaining open lines of communication throughout the partnership lifecycle. By taking these steps, you’ll not only minimize the risks associated with your partnerships but also increase your chances of success overall. This is because having a solid contingency plan in place gives you the confidence and clarity you need to make informed decisions, respond quickly to changing circumstances, and navigate complex challenges with ease. Of course, identifying risks is only the first step. In order to fully capitalize on the benefits of contingency planning, you’ll also need to focus on enhancing efficiency and success rates, which we’ll explore in the next section.

Enhancing Efficiency and Success Rates

One of the significant benefits of contingency planning is that it enhances efficiency and success rates in a business. A contingency plan ensures that everyone in the organization is clear about their responsibilities during an emergency, reducing panic and confusion. For instance, if a fire breaks out in the office building, contingency planning helps determine who is responsible for evacuating staff and customers, who will call the fire department, or who will ensure that critical equipment is shut down. In situations where organizations have to deal with sudden emergencies, such as natural disasters, burglaries, sabotage, or power outages, a well-implemented contingency plan can help minimize the duration of disruptions. With pre-determined procedures and actions in place, employees can quickly take the necessary steps to continue business processes and restore operations, limiting productivity loss. Moreover, it enhances your organization’s competitive advantage over others without contingency planning in place. When competitors are vulnerable to disruptions due to failed systems or infrastructure, you’re well-prepared to keep serving your clients and customers. Not only does this improve customer satisfaction rates since your audience would not experience any delays or inconveniences in accessing your products or services, but it also helps improve the overall success rate of your business. These are just some of the advantages of having a well-executed contingency plan in place. However, while contingency planning can be extremely beneficial for businesses, there are some considerations to be aware of when deciding how much time and financial investment are needed.

The Time and Financial Investment

The effectiveness of a contingency plan depends on how well it’s executed, which requires proper resources. Putting together a comprehensive contingency strategy takes time and money, but the peace of mind that comes with preemptive preparation is invaluable. In fact, without an adequate budget allocation for contingency planning, businesses risk losing more than projected by any unforeseen circumstance, as failure to ensure minimum continuity during these crises could lead to significant revenue impacts. Hence, it’s essential that small and medium-sized businesses have some form of backup plans in place for altering company environments before they get too unstable or risky. On the other hand, some business owners might argue that since they operate in low-risk environments or are faced with sufficient insurance coverage, there is little need for them to spend time developing a contingency plan. However, one must consider the delays in recovery from a disaster even if the company eventually recovers. Having a contingency plan could reduce the length of disruption to services and help minimize operational costs during these periods. The same concept applies to creating an emergency fund. Without one, unexpected events such as medical emergencies or car damage can severely disrupt your life on short notice. Similarly, businesses should prepare for possible disruptions to their operations through planning out contingencies like securing alternative production sources or switching to remote working. The potential loss from not preparing when risk factors are inherently low may cost significantly more in the longer run. That said, businesses must also update their plans frequently and conduct sufficient training programs with all stakeholders involved in carrying out the strategy to ensure all parties know their role in implementing the measures effectively.

Implementing Contingency Planning in Diverse Markets

Contingency planning is a crucial process for any business, regardless of the market or industry it operates. However, implementing a contingency plan may be more complex and challenging in diverse markets due to factors such as regulatory requirements, cultural differences, and varying levels of infrastructure and resources. For instance, a company that operates globally may face different risks and challenges in various regions. In some regions, natural disasters such as earthquakes or hurricanes may pose a higher threat, while in others, political instability or social unrest may be a greater concern. As such, it is important for businesses to tailor their contingency plans according to the specific risks and challenges they face in each region. In addition to this, businesses operating in diverse markets must also consider regulatory requirements when implementing contingency planning. For example, certain industries, such as healthcare and finance, have specific regulatory requirements around data protection and disaster recovery. Failure to comply with these requirements can result in significant legal and financial repercussions. Implementing contingency planning in diverse markets is similar to navigating a complex maze; there are numerous twists and turns along the way that can impact the success of the plan. To successfully navigate this maze, businesses must thoroughly research and understand the unique challenges they face in each market they operate in. While implementing contingency planning in diverse markets can be challenging, failure to do so can have disastrous consequences for businesses. A lack of preparedness can lead to prolonged downtime, reputational damage, and financial losses that can take years to recover from. On the other hand, investing time and resources into developing an effective contingency plan can help minimize risks and uncertainties, enhance efficiency and success rates, and ultimately safeguard the business against unexpected events. In conclusion, implementing contingency planning in diverse markets is a critical aspect of business resilience. While it may be more complex and challenging than implementing contingency planning in a single market, the benefits of being prepared far outweigh the costs. By researching and understanding the unique risks and challenges present in each region, businesses can develop tailored contingency plans that will help protect their assets, safeguard their employees, and maintain business continuity in uncertain times.

Ensure the resilience of your business with effective contingency planning. Contact CFO Strategies LLC at (855) 732-7861 to explore the seven key benefits of contingency planning and safeguard your company’s success.

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12.10 Contingency Planning and Risk

Suppose you are developing a green or environmentally friendly product line that is particularly attractive because of a government tax credit. What if the government rolls back the tax credit? Or what would happen if a key member of the management team leaves the company? What if interest rates sky rocket? What if a key employee deletes the design specifications of a new product? What if a disgruntled employee destroys the social networking application and backup files? It is impossible to have a fall-back plan for every situation. But if there are key people and key assumptions that will determine business success, then a contingency plan is essential.

Risk The probability that some adverse event will happen that will have a negative impact on the start-up’s ability to survive. is the probability that some adverse event will happen that will have a negative impact on the start-up’s ability to survive. Risk management An attempt to identify adverse events within a company and in the external organizational environment, and in turn develop strategies to deal with the consequences. is an attempt to identify the adverse events within a company and in the external organizational environment, and in turn develop strategies to deal with the consequences. Many of the internal risks to the start-up are related to the critical assumptions involving the tenure of the management team, the ability to attract key personnel, the ability to set up key organizational systems such as operations and marketing, the ability to manage cash flows, and the ability to adapt untested technologies. There are also external industry-related risks related to the ability to forecast market growth, and the risks related to unforeseen competitors and unforeseen emerging technologies that might affect profitability. There are also external risks related to economic downturns, interest rates, government intervention, political movements, and even changes related to social norms. Risk assessment also has to be made in terms of the impact of adverse weather conditions, earthquakes, and other natural disasters.

As noted earlier, there is some danger in pointing out weaknesses and threats, but they need to be addressed in a surreptitious manner. This can be accomplished by presenting alternative scenarios and focusing on the probability of their occurrence. Contingency planning and risk assessment should be addressed in the business plan or at least informally documented and communicated among the founders of the business and key management employees.