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.
More from IBM Maximo
Ibm tech now: october 2, 2023.
< 1 min read - Welcome IBM Tech Now, our video web series featuring the latest and greatest news and announcements in the world of technology. Make sure you subscribe to our YouTube channel to be notified every time a new IBM Tech Now video is published. IBM Tech Now: Episode 86 On this episode, we're covering the following topics: AI on IBM Z IBM Maximo Application Suite 8.11 IBM NS1 Connect Stay plugged in You can check out the IBM Blog Announcements for a…
Expanding the journey to reliability with Maximo Application Suite 8.11
4 min read - Industrial businesses are at a pivotal time—redefining their strategies to address issues associated with workforce shifts, asset reliability, regulatory considerations, environmental impacts and more. Now more than ever, operations executives, IT leaders, technical staff and maintenance leaders must work together to ensure they can stay competitive in their industries, that their physical infrastructure can drive a strong return on assets, and that productivity continues to increase, all to maximize operational efficiency and reliability. Organizations are challenged by the continued integration…
Migrate and modernize IBM Maximo with AWS and Red Hat
6 min read - IBM Maximo has been a leading enterprise asset management solution in the industry for four decades, helping customers streamline work processes with a centralized platform for managing tasks, inventory, regulatory compliance and reporting capabilities. IBM Maximo Application Suite (MAS), the next generation of IBM Maximo, delivers a better user experience, faster integration, robust AI analytics and a broad range of cloud deployment options. IBM MAS provides organizations with a robust and modern asset management solution. IBM MAS is an integrated…
12 considerations when choosing MES software
4 min read - Manufacturing execution systems (MES) have grown in popularity across the manufacturing industry. Implementing such solutions could be the key to a new era of productivity for your organization, but implementing new and expansive IT software can be intimidating. The right time to implement an MES depends on the specific needs and circumstances of each organization, and while there is no one-size-fits-all answer, several key indicators can suggest that it might be the appropriate time. If your manufacturing processes have become…
What Is Contingency Planning? [+ Examples]
Published: January 13, 2023
The COVID-19 pandemic has shown, more than ever, the importance of being prepared with a contingency plan for the unexpected, especially when it comes to business continuity.
While some unexpected interruptions can be due to situations outside of your control, some issues arise that may be caused by internal errors. Unexpected problems can also be positive, like a sudden influx of interest in a new product.
Regardless of the scenario, it's essential to prepare for everything, and contingency planning helps you do so. This post will explain what contingency planning is, outline the steps you can follow to create your own plan, and give examples that you can use for inspiration.
- Contingency Planning
- Business Contingency Plan
- Making a Contingency Plan
- Contingency Plan Timeline
- Contingency Plan Example
Contingency Plan Definition
What is a contingency plan? Simply put, a contingency plan is an action plan designed to help organizations respond to a potential future incident. Think of it as a backup plan, or plan B to guide organizations through a worst-case scenario.
Contingency plans are helpful for all types of organizations, from businesses to non-profits, to government organizations. While these scenarios may never come to fruition, it’s important to have a plan in place so that your team isn’t panicking or scrambling to deal with an unfavorable event at the last minute.
What is contingency planning?
Contingency planning is a proactive process of creating a strategy to help you prepare for any scenario that can affect your business, regardless of the likelihood of its occurrence.
These plans shouldn't focus solely on situations that may harm your business. For example, you may experience a significant increase in revenue during a specific period due to changes in market behavior. This is a good scenario, but you will still need to adapt your operations to scale and appropriately meet the new demands of your growing audience.
Contingency Planning vs. Crisis Management
Contingency planning is also different from crisis management , as it is not a reaction to something that has already happened but more so a plan for if and when something may happen. However, a contingency plan can help you with crisis management when issues arise.
Contingency Planning vs. Risk Management
Risk management is the identification, mitigation, and assessment of potential risks that may affect your organization. This process helps an organization prevent losses before they occur and aids in assessing whether or not certain risks are worth taking. Contingency planning can be a component of risk management since that process helps organizations survive these potential risks.
To ensure your business is prepared for everything, it's crucial to understand how to create a contingency plan.
What is a business contingency plan?
A business contingency plan is a strategy that outlines the steps your business’ teams will take in the event of a crisis occurring. It is essentially the backup plan that goes into action when the worst-case scenario occurs. The goal of your contingency plan is to help your business stay up and running after an issue arises.
Business Continuity Plan vs. Contingency Plan
Although their names vary by few letters, business continuity and contingency plans are different concepts. Continuity is the ability of your business to continue functioning after an incident that has disrupted operations occurs. A contingency plan is an action plan that goes into place if an incident were to happen.
Contingency plans can significantly impact whether your business can achieve continuity. Being able to react and take action during a crisis can dictate whether or not your business can emerge from the other side and continue normal business operations.
You can think of it like this: your continuity plans contain five sections: program administration, governance, business impact analysis, strategies and requirements, and training and testing. If your business also uses contingency plans, it could be part of the strategies and requirements section, which dictates how your business will respond to a crisis if it occurs.
Contingency Planning: How to Make a Business Contingency Plan
Creating a contingency plan is responding to the question of "What if?"
What if your storefront floods? Or what if your supplier goes out of business? The responses to the what-ifs are contingency plans. These scenarios aren't necessarily going to happen, but if there is a possibility that they'll affect your business, you're prepared if they do.
Below we'll discuss the steps that go into contingency planning.
Contingency Planning in 7 Steps
1. identify critical business functions..
This first step is the most important aspect of your planning, as it sets the tone for why your plans need to exist in the first place.
During this phase, identify all critical areas essential to keeping your business up and running every day. As these operations are imperative to success, you need to have plans to ensure that these operations continue, regardless of whatever scenarios arise.
You can think of it like this: these critical areas keep your business up and running on a day-to-day basis. Other areas are important, but these are the main functions that keep you afloat. Given this, you want to be prepared for anything and everything that may happen that can affect the critical areas, whether positive or negative. Contingency planning is exactly that.
Identifying these areas helps you move on to the next step as you begin brainstorming possible scenarios that can impact them.
2. Conduct a scenario assessment.
Once you've identified the critical operations of your business, you'll want to conduct a scenario assessment to identify situations that will affect these functions and put stress on your day-to-day operations.
For example, if your business operates out of a storefront, keeping your storefront up and running is a critical area of your business's success. Maybe you launch a new product that attracts more interest than you thought, and you need to deal with higher in-store traffic and a lack of products to satisfy the market. While it is a positive situation that will draw in more revenue, it can still have negative repercussions for your business if you don't deal with it when it happens.
You can think of this stage as similar to a risk assessment, but the possibilities are positive and negative. It may be helpful to meet with people who work in these critical areas and understand what they think may cause interruptions to their job duties and barriers to their success. Ask them how they feel situations will impact them and how they would deal with each scenario.
If you come up with a long list of threats, you can prioritize them based on their likelihood of occurring and how significant their impact would be on your business.
3. Create contingency plans for each scenario.
During this phase, you'll create contingency plans. Begin with the highest priority "threats," or those most likely to occur and most likely to cause significant stress to your business.
Outline the scenarios, people to inform, and the roles and responsibilities involved parties will have when they respond. We'll go over an example below, but a helpful template to follow can be:
- Outlining the scenario,
- Determine the probability of it occurring,
- Explain how you'll prepare ahead of time,
- Detail what the response will be if and when it happens.
Once you've created your plans, distribute them to key stakeholders in each scenario, so everyone understands what they are responsible for and can prepare ahead of time.
4. Get your plan approved.
Once you’ve come up with a desired plan of action, it’s time to get approval from stakeholders and management. If you’re creating both department-level and company-wide plans, this is especially important. Your plan won’t be a success unless there is buy-in from key members of your team and management. Once all parties agree that the course of action described in the contingency plan works for everyone, you can move forward with confidence.
5. Share the plan with your team.
Once your plan is approved, it’s time to distribute it. Putting it in a shared folder accessible to everyone creates transparency and makes it readily available if the time comes.
Make sure the parties involved know what they’re responsible for in the plan, that way you can execute the plan seamlessly should the worst-case scenario occur.
6. Test your plans.
As with all plans, it's essential to continuously test (more on that in the next section) and update them over time. As businesses scale and change, your business needs will likely change, and specific scenarios will no longer have as significant of an impact. There may also be new scenarios to plan for that you hadn't anticipated or thought of when you were a smaller operation.
It can be helpful to create a timeline that you'll use to spend dedicated periods reviewing your plans, testing them, and communicating with the necessary stakeholders about any changes you've made to the plans.
7. Update your plan as needed.
Consider your contingency plan a work in progress. You’ll need to adapt it as new risks arise and to ensure it still makes sense for your business needs. Whenever a new manager or executive joins the team, be sure to share it with them as needed so they know what (if anything) is expected of them.
Contingency Planning Timeline
As planning is always an involved process, you may be wondering how much time you should devote to each step. Let's discuss a timeline below.
Week One: Identify Key Operations
Give yourself about a week to identify the operational areas essential for business function. You likely already know what these areas are, but you want to do enough research to identify them all.
Weeks Two & Three: Brainstorm Scenarios
Take two to three weeks to brainstorm the scenarios you're going to create plans for. Spend as much time as possible speaking to the necessary stakeholders to understand their ideas about the scenarios and how they'd like them dealt with. You'll want to conduct probability assessments and market research to understand if your competitors have ever dealt with something similar. You want to make sure you have all the necessary information before drafting your plan, so this step should be the longest.
Week Four: Draft Plan
Give yourself a week to draft your plans. The first two steps should give you all the information you need, so the third step is simply fine-tuning your research and creating the final plan. You can also share what you've created with your stakeholders and iterate on what you have based on their feedback.
The final step to creating your plan, maintaining and testing, is a continuous effort. As mentioned above, your business will likely be impacted by different things at different times, so it's always important to review plans and ensure they still relate to your needs. For example, maybe you plan to do quarterly reviews and training so new hires, and existing employees, are all on the same page.
Contingency Planning Example
It may be helpful to have an example of a contingency plan, so we'll go over one below. The examples are of a positive and negative situation, so you can get a sense of how a plan applies to both.
Contingency Planning Mistakes to Avoid
Even with the best intentions, your contingency plan may get off to a rocky start. Here are some common mistakes to avoid when creating one of your own.
Not securing executive buy-in first.
Before you can get your team or department onboard, you must get buy-in from the executive team. Otherwise, you risk creating a doomed plan from the start.
Get their feedback on potential risks and other factors that may impact guidelines in the plan. Having executive support from the start ensures the plan put forth is approved and also can motivate those at the department level to buy-in as well.
Failure to cover multiple scenarios.
When assessing potential risks and scenarios, it’s important not to cut corners or slack. Scenario planning is key to your contingency plan’s success. All potential risks should be taken into account. You can rank them by likelihood, but you should by no means leave less likely events out. Otherwise, you leave yourself vulnerable should the event happen.
Think about how many businesses were affected by supply chain issues during the pandemic. Most probably never predicted such a catastrophe, but the ones that had a plan in place for such an obstacle were better prepared.
Set it and forget it.
It’s really easy to get comfortable once your contingency plan is in place — after all, if you did your due diligence from the start, you’re ready to tackle any obstacle thrown your way.
Unfortunately, it’s not a one-and-done process. A contingency plan should be looked at as a living document and updated as needed. Your business needs will change over time and so will its obstacles and risks.
Create Business Contingency Plan
All in all, contingency plans help you prepare for a host of what-if scenarios, whether they happen or not. As you never want to be caught in a challenging situation, being prepared is the best thing you can do to ensure your business continues to succeed, regardless of whatever happens along the way.
As the saying goes, better safe than sorry .
Editor's note: This post was originally published in November 2021 and has been updated for comprehensiveness.
Don't forget to share this post!
Social Media Crisis Management: Your Complete Guide [Free Template]
De-Escalation Techniques: 19 Best Ways to De-Escalate [Top Tips + Data]
Situational Crisis Communication Theory and How It Helps a Business
What Southwest’s Travel Disruption Taught Us About Customer Service
Showcasing Your Crisis Management Skills on Your Resume
What Is A Business Continuity Plan? [+ Template & Examples]
What Is Reputational Risk? [+ Real Life Examples]
10 Crisis Communication Plan Examples (and How to Write Your Own)
Top Tips for Working in a Call Center (According to Customer Service Reps)
Top 5 Crisis Management Skills for Business Leaders (& How to Apply Them)
Use this contingency plan template to communicate risk, prevention, and mitigation measures in your company.
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.
Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.
More Related Articles
Leave a comment Cancel reply
Please enter an answer in digits: four × 2 =
Download our all-new eBook for tips on 50 powerful Business Diagrams for Strategic Planning.
- Business strategy |
- What is a contingency plan? 9 steps tha ...
What is a contingency plan? 9 steps that could save your business when crisis strikes
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 a business contingency plan?
A business 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.
The differences between a business contingency plan and a project risk management plan
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 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.
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 security 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
9 steps 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 laid 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 a 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 how exactly 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 are low severity but high likelihood? What about risks that are high severity, but relatively low 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 does come, 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.
Level up your marketing plan to drive revenue in 2024
39 empowering business quotes
How to create a winning marketing plan (with examples)
Marketing leaders talk AI: How to optimize your tech stack
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.
Enterprise risk management 101
62% of organizations report experiencing a critical risk event within the past three years. Make sure that your business is adequately prepared with enterprise risk management (ERM). Learn the key benefits and attributes of ERM.
A complete guide to the risk assessment process
Identify and prepare for potential risks in your workplace. This article explains what the risk assessment process is and how you can start your own in five simple steps (including free templates!).
Bring your bright ideas to life.
or continue with