contingency business plan

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5 Steps to Create a Contingency Plan for Your Business

8 min. read

Updated August 12, 2022

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:

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:

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:

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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Sabrina Parsons

Sabrina has served as CEO of Palo Alto Software since 2007. She and her husband, Noah, founded a UK software distribution company in 2001 that was acquired by Palo Alto Software in 2002. Sabrina is a successful Internet expert, having served as Director of Online Marketing at Commtouch, Senior Producer at Epinions, and founder of her own Web consulting company, Lighting Out.

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The Easy Guide to Creating a Business Contingency Plan

Updated on: 2 October 2024

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 mind mapping tool 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 using action plan template , 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 and timeline maker to create timelines. It would be easier for everyone to comprehend.

Step 4: Share and Maintain the Plan 

Once you have completed the contingency plans using work plan template , 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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Business Contingency Planning Explained

The business world today is more interconnected than ever. From supply chains to the flow of information, everything is going through rapid, unpredictable, and unprecedented change.

The digital revolution has enabled firms to leverage data and connectivity to make rapid decisions, but it has also increased the potential for large-scale failure and security breaches with cascading consequences. From structural shifts presented by climate change to uncertain geopolitical situations, firms today must operate in a world where the future is uncertain, and change can come fast.

A study by McKinsey predicts that catastrophic events will become more frequent while less predictable – they will unfold faster and in more varied ways:

Despite growing risks, however, most companies have remained persistently focused on near and medium-term earnings, typically assuming smooth ongoing business conditions. In the backdrop of a volatile future, it is thus important for firms to build resilience to ensure business continuity.

Business Contingency Planning (BCP) is a way to mitigate the impact of adverse events by developing a strategy that outlines the steps teams must take in the event of a crisis. BCP is essentially the backup plan – the ‘Plan B’ that goes into action when the worst-case scenario occurs. The goal of BCP is to help a business stay up and running after a predictable but unlikely disaster has occurred.

Role of contingency plan in business

Contingency planning is part of a much broader field of management known as Business Continuity Management (BCM) – the goal of which is to ensure that the business continues to operate (or recovers quickly) following a disaster or an adverse event.

As goalposts have moved towards operational and business resilience, organizations have taken a holistic approach to BCM by expanding it to include operational risk management, disaster recovery, contingency planning, insurance aspects, security, regulatory compliance, financial risk management, asset protection, supply chain and more. While these functions are not necessarily integrated, they are interdependent and have blurred boundaries.

Contingency plans are developed to handle specific emergencies and deal with specific threats. They are designed to respond to the initial stages of identified risks and are implemented by front-line managers to respond to such risks occurring within their areas of responsibility.

Steps in contingency planning

1. mapping the risks.

Contingency plans address critical events that could potentially place employees at personal risk (whether physical or psychological), threaten the integrity of critical infrastructure, lead to the loss of sensitive materials or information, hinder the operational productivity of a project, or present a threat to the business interests and reputation of the company.

Hence, contingency planning always begins with risk identification:

Identify sources of risks

The concept of risk is often complex, subjective, and fluid. Any phenomenon that either directly or indirectly affects a business or its employees in terms of productivity and safety is a risk. For practical purposes, risks can be categorized into:

• Personnel Risk – Those in management roles have access to sensitive information. Risk can arise if proper due diligence is not conducted. Sensitive information can leak into the hands of competitors or adversaries.
• Competitive Risks – Business activities are at risk if companies do not take cognizance of how competition is strategizing their activities. Investigative services and analysis can provide insights into new market threats that might emerge with time.
• Due Diligence Risk – a company must be confident that its client, partner, or subcontractor is appropriate in terms of closing deals involving legal, liability, or capital investments. Investigative services can ensure that companies are reputable and appropriate to engage with.
• Reputation Risk – Brands and reputations underpin the status and reliability image of a business; therefore, damage to either brands or a company’s reputation can undermine its commercial productivity.
• Information Risk – While information technology enhances productivity, it can also leave companies vulnerable to data theft or loss. Industrial, criminal, government or terrorist espionage has serious implications for businesses.
• Intellectual Property Risk – Commercial espionage or organized crime poses a serious threat to established products as well as emerging markets. Intellectual property is vulnerable to theft or replication, which can undermine the value of the producer’s performance.
• Physical Risk – crime, insurgency, terrorism, civil unrest, and natural disasters are unpredictable and have significant impacts on companies and individuals.
• Political Risk – Political instabilities can have a considerable impact, especially on firms with a global presence. The analysis and assessment of opaque and uncertain political environments is important to navigate complex political environments.

Identify critical dependencies

The risks identified can affect critical dependencies such as:

• Power and Utilities – risk exposures might result from the disruption to power and other utilities on which the company, its activities, or its personnel are dependent.
• Supply chain assurance – business disruptions might occur if critical materials and supplies are delayed, damaged, or stolen – in terms of safety and security as well as business performance. (Example: Chip shortages induced by the pandemic [2])
• Critical Materials or Structures – risks that might be present if critical structures, facilities, or materials are lost, damaged, or stolen. This also includes assets that the company owns which if affected could significantly disrupt business.
• Employee Confidence – implications of a loss in employee or workforce confidence should they be exposed to risks that undermine their ability or willingness to work.
• Vendor or partners Performance – the degree of dependence a company has upon vendors or partners should they be affected by risks or disruptions that might indirectly affect the company.
• Governance – governance and social stability within an operating region are important components of operational success.
• Technology and Information – risk implications and impacts should technologies be damaged, corrupted, lost, or stolen either from the company or from its clients or vendors.

As a part of contingency planning, organizations must look through the lens of each of these critical dependencies and analyze how the risk affects them.

Perform tactical risk evaluation

Risks are fluid and can change rapidly due to unforeseen circumstances. Their evaluation can be complex and subjective. Mapping risks helps identify their impacts and likelihood. Some of the strategies to evaluate are:

• Hard and Soft Targets – is the company an easy target compared to similar businesses or operations within the region, or are hostile groups more likely to achieve success focusing on less protected companies?
• Common or Unique – are certain risks common within a particular environment, or would they be considered unique or unusual if they were to occur?
• Incentives and Objectives – what are the incentives and objectives of hostile individuals or groups? What are they trying to achieve, and how might they best achieve their goals?
• Capabilities and Trends – what are the realistic capabilities of hostile groups—do they have the knowledge, technology, and funding to be successful, or are they unable to launch sophisticated attacks? Do any trends support this analysis or suggest future risks?
• Mitigation Reliability – what mitigation measures have been created to deal with risks against the company or its personnel? What gaps remain, and how effective are the measures? Should gaps then be addressed or only acknowledged?
• Impact Evaluations – what impacts will be associated with an incident, both to the company and its personnel, as well as to surrounding areas and the populace? Consider the holistic impacts and ramifications of each risk type. Also, how does this impact teammates and subcontractors?
• Tolerances – what tolerances does the company have, as well as the pertinent government, population, and legal systems? How much risk will be accepted by each group, and where do tolerance-level risks get breached?
• Response Capacity – what response measures and capabilities are available to deal with a crisis? Do the government or supporting bodies have the knowledge, resources, and interest to assist the company, or will they be part of the problem? What outsourced and in-house capacities are available and might be brought to bear?

Shown below is a simple risk mapping table that helps gain a picture of natural calamity risk probabilities for a range of countries. It is relatively easy to maintain and provides a mechanism for guiding management decision-making.

Such risk evaluations must be supported by current intelligence and threat evaluations and should be kept alive.

Define risk tolerance

Since individual perceptions and opinions about risks can vary, it is important to define what constitutes a low, medium, high, and extreme risk. This helps avoid ambiguity and brings a consistent approach within a company.

This can be achieved by plotting risks on a risk profile matrix that considers both, impact and likelihood:

Not all risks need a risk management plan. However, those in the red and orange zones of the risk profile matrix must receive priority and have a well-defined action plan.

Identify triggers

Like with risk tolerance, individual perspectives on when a problem becomes a crisis can vary and delay critical response time. It is important to have documented identification of trigger points that spell out when a problem has become a crisis and at what level the crisis is rated.

2. Perform Business Impact Analysis (BIA)

Not all activities performed by a business are equally important. Some are “time critical” and can severely impact the business immediately while others can wait. In the event of a major disruption, activities that have a very low tolerance for disruption must be given priority. They must also receive more attention during the contingency planning process.

A BIA helps businesses pinpoint such processes and involves the following steps:

Identify important business functions

The process begins by making a list of all major organizational functions that support the performance of the organization’s mission. This list must include:

• A description of each function in basic terms.
• Requirements to perform each function (manpower, critical infrastructure, utilities, assets etc.)
• Products or services delivered or actions produced by each function

Some of the methods for identifying business functions include desk review of documentation, questionnaires, interviews, workshops, study of process flows and a review of outputs and deliverables.

Separate the essential functions

From the list of functions identified, separate the truly essential ones from the normal. Only those functions which an organization must perform even during a disruption to normal operations are seen as essential.

The following questions help in assessing if a function is critical:

• What is its true cost to the organization if the function is disrupted?
• How does it impact the organization’s survival?
• How does it impact mission achievement?
• How does it impact the organization’s image?
• What is the financial impact?
• How does it impact the most important customers, deliverables, and services?
• Is it time-critical?
• Does it stop a mission-critical function?
• Could the customer (or user) cope without it?
• Do alternatives exist that could potentially achieve the same (or acceptable equivalent) deliverables?

Essential functions are both important and urgent. Once identified, the list must be presented to leadership for review and concurrence.

Assess the impact of risks on essential functions

Each of the critical risks identified in Step 1 must be studied for its impact on essential functions. Organizations must answer the following questions:

• What is the vulnerability of each essential function vs the risk identified in Step 1?
• What would be the impact if the essential function performance is disrupted?
• What is the timeframe for unacceptable loss of functions and critical assets?

Factors such as lost/delayed sales and income, increased expenses (e.g., overtime labor, outsourcing, expediting costs, etc.), regulatory fines, contractual penalties, customer dissatisfaction or defection, and delay of new business plans must be considered while assessing the impact.

It is also important to consider various scenarios for each risk, ranging from medium to worst. For example, if a hurricane has been identified as a hazard, it is also important to identify that it is a Category 3 or higher hurricane, lasting two days or more, etc.

Such information can be based on historical patterns (typical duration) and general predictions of the effect on the community, as well as likely effects on the organization. Alternatively, for low-frequency risk events where historical data is not readily available (e.g. bombing), general assumptions can be made about the likely characteristics and effects.

3. Develop response plans for each scenario

Response plans are a collection of procedures and information intended to avoid or minimize the impact on critical activities in the event of a disruption. While they can vary based on business function and the nature of risk, the general structure is as shown:

Instructions

Scenario response plans are designed to allow both first responders as well as managers to understand the risk natures and response measures appropriate to their context. They must provide logical and user-friendly response guidelines and information capture formats to support pragmatic incident management during a risk scenario.

Policies that are part of instructions must be designed considering the level of experience and capability of those implementing the plan. Clarity and comprehensive details are important when crisis management experience is limited.

Consistency must be maintained in formats and structure so that personnel moving between projects become familiar with how the plan is laid out and how it works.

Management Tools

• Decision Authority Matrix : response plans must include references to the decision authority matrix. This guides incident managers in determining what permissions they have, as well as whom they should contact to receive authority to make more impactful or strategic decisions:

• Crisis management team commander
• Crisis team coordinator
• Physical security manager
• Technical security manager
• Special response team leader
• Administrative manager
• Intelligence/information officer
• Liaison officer (Liaison with authorities and govt. bodies)
• Communications Officer
• Public relations officer
• Legal counsel
• Health and Safety officer
• Finance and investment relations
• Alert states and triggers : Since the difference between a problem and a crisis can be subjective, those less experienced need clear guidelines in identifying and managing crisis events. This also ensures managers don’t ignore a real crisis event, or conversely do not mobilize resources that far exceed requirements. While alert states are generally defined as a part of a broader risk management plan, scenario response plans can use threat-specific simplified versions. Incident managers must also be provided training and instructions on how to sensibly and effectively escalate a risk management posture to reflect threat indicators or rising levels of threat.
• Immediate resource mapping : providing succinct resource mapping ensures managers are quickly directed to the most appropriate and reliable internal and external resources to help them best manage a crisis. Resource mapping should identify both usable and unavailable resource options to avoid time wasted in pursuing those that are unreliable or unavailable. Immediate resource mapping may cover a range of service areas, including but not limited to: – Critical commercial support (utilities, power, medical, security, legal, etc.) – Emergency materials and resources – Transportation services – Medical, including stress and trauma support – Evacuation support and repatriation services – Legal services – Firefighting and emergency services – Security and guard services – Liaison and interpreter support
• Interface policies and plans : having separate interface plans can ensure more accurate and timely information flow between the company and external groups, improving decision-making and overall event awareness for a project team, as well as corporate officers.

Education and Advisory

Education and advisory help create the conditions where individuals and groups feel confident to meet the unique challenges of a risk scenario. The following forms of education and training help develop the skills and capabilities of an organization’s crisis leaders:

• Formal Instructions – focused training course for crisis leaders on risk and security management issues conducted in modules or as a condensed package.
• Mentoring Programs – trained crisis leaders can mentor less experienced team members to enable cross-pollination of skills and knowledge. This can be conducted in either formal or semiformal setups.
• Shadowing and transitioning – crisis leaders may delegate or transition responsibilities over a defined period to ensure that new crisis leader incumbents have a period of indoctrination before fully assuming responsibilities.
• Tabletop Exercises – management leadership exercises and discussions can be used to run a crisis management team, and individuals, through their paces as a low-cost, high-value training medium.
• Discussion groups – working groups or forums can provide a valuable medium whereby information and ideas are shared, and friction points or shortfalls are identified and resolved.
• Instructional manuals – can be used (often in conjunction with other education and training mediums) to educate crisis leaders on their role, as well as how an organization will function and respond to a crisis.
• Web-based training – can be used to meet the needs of a dispersed crisis management team.
• Train the trainer – internal capability can be enhanced by improving the knowledge and capabilities of the instructor while also creating a pyramid effect of capability within a wider group.
• Activation exercises – can be used to determine the ability of individuals and the crisis management team to effectively respond to a crisis event. This tests both the mechanisms for activation, as well as the competence of individuals and the wider group in terms of response.

There is no miracle answer for how crisis leadership should work, nor is there a way to predict or assess whether the individual or group leadership approach used was the most effective one. Establishing a solid platform from which good decisions can be made should be the principal goal of companies and organizations.

Data collection

In the event of a crisis, verbal as well as written communication is crucial to deliver clear and factual information for effective decision-making and resource mobilization.

Scenario response plans must thus include data collection forms that match the risk types determined during risk analysis. This could include templates that provide a simple, quick, and effective method for both untrained and experienced professionals to disseminate information.

Response guidelines

Since scenario response plans apply to a wide range of audiences, when formulating guidelines, companies must consider the needs of the lowest level of responder competence. Such guidelines should be well thought out from the point of view of a first responder and make use of logical methodologies and considerations for bringing a crisis event under control.

In general, guidelines should be clear, simple, and as succinct as possible. They must provide a checklist of actions to take and options to consider during a crisis. Tabulations must be used wherever possible so that responders can quickly move to the section pertinent to a specific event they are dealing with, rather than having to sift through volumes of non-applicable information during an emergency.

4. Test and update regularly

To be effective, BCPs must be maintained in a ready state that accurately reflects current requirements, procedures, organizational structure, and policies. Changing business needs, technology upgrades, or new internal or external policies can bring new challenges.

BCPs must be a part of the organization’s change management process to ensure that contingency measures are revised as required. This includes maintenance, producing ongoing updates to security plans, security assessment reports, and plans of action and milestone documents.

While the frequency of periodic reviews must be defined, significant changes should also trigger a review of elements of the plan that could be impacted. At a minimum, plan reviews should focus on the following elements:

• Operational requirements
• Security requirements
• Technical procedures
• Hardware, software, and equipment (types, specifications, and amount).
• Names and contact information of team members.
• Names and contact information of vendors, including alternate and offsite vendors.
• External point of contact in case of emergency.
• Alternate and offsite facility requirements.
• Vital records – both electronic and hardcopy formats.

Changes made to the plan, strategies, and policies should be routed through a designated coordinator, who should communicate changes to relevant stakeholders. The coordinator must record plan modifications using a record of changes, which lists the page number, change comment, and date of change:

The designated coordinator must enforce strict version control by requesting old plans or plan pages in exchange for new plans or plan pages. While this is easily achieved in the soft form of documents, ensuring updates to hard copies can be difficult but critical.

While certain changes to BCP may be quite visible, others will require additional analysis. The goal is to ensure that the plan accurately reflects recovery priorities and concurrent changes.

5. Make BCP a part of the organization’s culture

Business leaders must see the value of having a strong BCP in place and look at the big picture – not just the cost of the plan but the potential costs incurred if no plan is put in place. Through a combination of awareness and training, BCP must be made a part of the organization’s culture.

Some of the mechanisms to raise awareness include:

• Involving staff in the development of the organization’s contingency planning strategy.
• Written and oral briefings.
• Learning from internal and external incidents.
• Discussion based exercises.

It is equally important to make contingency awareness a part of the induction process for new employees.

Example of high-level contingency planning in supply chain

Supply chains today involve complex dynamics and are made up of thousands of interconnected parts and participating members. The pandemic has shown how fault-prone and vulnerable they can be.

When participating members of the chain interact autonomously, it can result in numerous states on the local as well as the supply chain level that require active risk management strategies.

Take the petroleum supply chain, which is divided into two major areas: upstream and downstream. The upstream comprises crude oil exploration, production, and transportation while the downstream involves product refining, transport, storage, distribution, and retail:

The importance of contingency planning in the downstream petroleum supply chain is well understood and implemented. In Portugal, for example, the major petroleum companies, their suppliers, clients’ facilities, systems, and processes are intrinsically interlinked to form an extended petroleum supply chain as shown:

The system uses a concept known as the Supply Chain Event Management (SCEM) [5] to trigger contingency planning, some real case examples of which are as presented:

Thus, contingency planning helps companies better prepare to navigate a turbulent world where adverse events can range from ordinary, predictable risks to black swan events such as the pandemic. Having a good contingency plan is about preparing today for tomorrow’s problems.

1. “The resilience imperative: Succeeding in uncertain times”. McKinsey & Company, https://www.mckinsey.com/capabilities/risk-and-resilience/our-insights/the-resilience-imperative-succeeding-in-uncertain-times Accessed 15 Sep 2024.

2. “Global chip shortage”. Wikipedia, https://en.wikipedia.org/wiki/Global_chip_shortage Accessed 15 Sepn 2024.

3. “Business Continuity Management”. Michael Blyth, https://www.amazon.com/Business-Continuity-Management-Building-Effective/dp/0470430346 Accessed 15 Sep 2024.

4. “Gasoline explained Where our gasoline comes from”. U.S. Energy Information Administration, https://www.eia.gov/energyexplained/gasoline/where-our-gasoline-comes-from.php Accessed 16 Sep 2024.

5. “Supply Chain Event Management”. Lorena Andrea, Bearzotti Erica, Fernández Armando, Guarnaschelli Hector, Enrique Salomone, Omar Chiotti , https://www.researchgate.net/publication/221916126_Supply_Chain_Event_Management_System Accessed 17 Sep 2024.

6. “Contingency Planning: A literature review”. Leão José Fernandes and Francisco Saldanha da Gama, https://www.researchgate.net/publication/230807504_Contingency_planning_-_a_literature_review Accessed 17 Sep 2024.

7. “The Business Process Analysis (BPA) and a Business Impact Analysis (BIA) Users Guide”. Federal Emergency Management Agency, https://www.fema.gov/sites/default/files/2020-07/fema_BPA-BIA-Users-Guide_070119.pdf Accessed 19 Sep 2024.

8. “Contingency plan examples: A step-by-step guide to help your business prepare for the unexpected”. IBM, https://www.ibm.com/blog/contingency-plan-examples/ Accessed 19 Sep 2024.

9. “Business Continuity Management: Global Best Practices”. Andrew N Hiles, https://www.amazon.com/Business-Continuity-Management-Global-Practices/dp/1931332355 Accessed 19 Sep 2024.

10. “Business Continuity Management Toolkit”. HM Government, https://assets.publishing.service.gov.uk/media/5a7b283de5274a34770e9d01/Business_Continuity_Managment_Toolkit.pdf Accessed 20 Sep 2024.

11. “About CLC”. CLC, https://www.clc.pt/clc/ Accessed 20 Sep 2024.

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What Is Contingency Planning? [+ Examples]

Updated: January 13, 2023

Published: April 30, 2021

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.

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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.

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