Contingency Plan

A contingency plan is a plan devised for an outcome other than in the usual (expected) plan. Contingency planning is ignored in many companies. Day-to-day operations are demanding, and the probability of a significant business disruption is small, so it’s hard to make time to prepare a good plan.

However, if you’re proactive in the short term, you’ll help ensure a quicker and more effective recovery from an operational setback in the long term, and you may save your organization from failure in the event that risks materialize. Contingency planning requires an investment of time and resources, but if you fail to do it – or if you do it poorly – the costs could be significant if a disaster happens.

It is often used for risk management when an exceptional risk that, though unlikely, would have catastrophic consequences. Contingency plans are often devised by governments or businesses. For example, suppose many employees of a company are traveling together on an aircraft which crashes, killing all aboard. The company could be severely strained or even ruined by such a loss. Accordingly, many companies have procedures to follow in the event of such a disaster. The plan may also include standing policies to mitigate a disaster’s potential impact, such as requiring employees to travel separately or limiting the number of employees on any one aircraft.

The need for drawing up contingency plans emerges from a thorough analysis of the risks that your organization faces. It’s also useful in thinking about new and ongoing projects: what happens when ‘Plan A’ doesn’t go as expected? Sometimes Plan A simply means ‘business as usual.’ Other times, with more sophisticated risk management plans, Plan A is your first response to deal with an identified risk – and when Plan A doesn’t work, you use your contingency plan.

Use these principles in your risk assessment process:

  • Address all business-critical operations – A good plan identifies all critical business functions, and it outlines ways to minimize losses.
  • Identify risks – For each of these functions, conduct a Risk Analysis to identify the various risks that your business may face. What has the potential to significantly disrupt or harm your business? The end result of a risk analysis is usually a huge list of potential threats: if you try to produce a contingency plan for each, you may be overwhelmed. This is why you must prioritize.
  • Prioritizing risks – One of the greatest challenges of contingency planning is making sure you don’t plan too much. You need a careful balance between over-preparing for something that may never happen, and adequate preparation, so that you can respond quickly and effectively to a crisis situation when it occurs.

Developing the Plan

Remember these guidelines when it’s time to prepare your contingency plan:

  • Your main goal is to maintain business operations – Look closely at what you need to do to deliver a minimum level of service and functionality.
  • Define time periods – What must be done during the first hour of the plan being implemented? The first day? The first week? If you look at the plan in this way, you’re less likely to leave out important details.
  • Identify the trigger – What, specifically, will cause you to implement the contingency plan? Decide which actions you’ll take, and when. Determine who is in charge at each stage and what type of reporting process they must follow.
  • Keep the plan simple – You don’t know who will read and implement the plan when it’s needed, so use clear, plain language.
  • Consider related resource restrictions – Will your organization be able to function the same way if you have to implement Plan B, or will Plan B necessarily reduce capabilities?
  • Identify everyone’s needs – Have people throughout the company identify what they must have, at a minimum, to continue operations.
  • Define ‘success’ – What will you need to do to return to ‘business as usual’?
  • Include contingency plans in standard operating procedures – Make sure you provide initial training on the plan, and keep everyone up-to-date on changes.
  • Manage your risks – Look for opportunities to reduce risk, wherever possible. This may help you reduce, or even eliminate, the need for full contingency plans in certain areas.
  • Identify operational inefficiencies – Provide a standard to document your planning process, and find opportunities for performance improvement.

Maintaining the Plan

After you prepare the contingency plan, you need to do several things to keep it practical and relevant – don’t just create a document and file it away. As your business changes, you’ll need to review and update these plans accordingly. Here are some key steps in the contingency plan maintenance process

  • Communicate the plan to everyone in the organization.
  • Inform people of their roles and responsibilities related to the plan.
  • Provide necessary training for people to fulfill these roles and responsibilities.
  • Conduct disaster drills where practical.
  • Assess the results of training and drills, and make any necessary changes.
  • Review the plan on a regular basis, especially if there are relevant technological, operational, and personnel changes.
  • Distribute revised plans throughout the company, and make sure that the old plan is discarded.
  • Keep copies of the plan off-site, and in a place where they can be accessed quickly when needed.
  • Audit the plan periodically:
  • Reassess the risks to the business.
  • Analyze efforts to control risk by comparing actual performance with the performance levels described in the contingency plan.
  • Recommend and make changes, if necessary.

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