5 Steps Your Contingency Planning Should Include

5 Steps Your Contingency Planning Should Include

4m Read

For millennia, lighthouses have guided ships safely out to sea or into harbor. They’ve served as crucial navigational tools to avoid disasters. 

While you may not be a sailor, you still need lighthouses (metaphorically speaking). After all, you have an organization to run. And you need a strategy to steer clear of storms. 

Enter contingency planning — your tool to prepare for not only potential disasters (like the COVID-19 pandemic) but also commonplace problems, such as facility staffing shortages. 

Used correctly, contingency planning gives your organization a robust backup if things go wrong. Ultimately, that backup plan ensures your business can pivot safely, minimize negative impact, and even capitalize on emerging opportunities. 

In this article, we’ll cover what contingency planning is and the benefits of the process. We’ll also cover five steps your organization’s contingency planning should include.

financial forecasting plate

What is contingency planning?

“One thing that makes it possible to be an optimist is if you have a contingency plan for when all hell breaks loose.” – Randy Pausch, a renowned computer science educator

A contingency plan is a plan organizations make for an unexpected scenario. Contingency planning enables you to explore and prepare for any possible future.

The risk management function of the organization typically handles contingency planning. Senior leadership and stakeholders participate in strategic decision-making as well. 

When we think of contingency plans, we often think of response strategies for tornadoes, floods, fires, earthquakes, and other natural disasters. Perhaps the most famous contingency plan is National Response Scenario Number One, America’s planned response to a nuclear attack. 

Contingency planning involves planning for worst-case disasters, especially for an individual business, utility company, university, or healthcare organization. Such organizations face a variety of risks, some of which leaders may not even anticipate. Nobody can predict how external events and market conditions will unfold with absolute precision. Internally, things could turn unexpectedly, as well. 

So, you must plan around the uncertain future by establishing a process to follow should a risk event occur. As research published by the Project Management Institute notes, “contingency planning involves defining action steps to be taken if an identified risk event should occur.” It gives your organization a blueprint for handling unusual or unexpected events

financial forecasting plate

Source: UT Dallas

Benefits of contingency planning

During troubling times, we hear people discuss the light at the end of the tunnel. But what if you had a tool to get to the end of the tunnel faster? 

Well, you do. Think of contingency planning as that tool. 

Contingency plans not only can guide you out of trouble and safely to shore, like a lighthouse, but they also can propel your organization to a brighter future (as long as you have the right approach). 

When done correctly, the benefits of contingency planning extend far beyond being ready for a disaster. Contingency planning can: 

  1. Promote assessment of strengths, weaknesses, and opportunities. 
  2. Test unlimited sets of scenarios and help you prioritize risks.
  3. Avert panic and enable rational, data-driven decision-making. 
  4. Minimize operational losses during worst-case and unexpected scenarios.
  5. Improve your ability to adapt and maximize opportunities. 
  6. Improve trust with team members and stakeholders. 
  7. Enable the organization to emerge from disaster stronger. 

In short, contingency planning makes your organization proactive. Contingency planning is an essential part of risk management and strategic management. It can better enable you to adapt and survive if external and internal conditions get challenging. It can also give you the potential to capitalize on new opportunities.

How to Do Contingency Planning: 5 Steps You Need

Contingency planning is unique to each organization. For example, the risks faced by a private university differ from what a telecom company might face. So, contingency planning for the two organizations will vary. 

With that said, the framework remains the same. Here, we’ll cover five steps your contingency plan must include. For each action, we’ll use an example for clarity and to highlight the use of contingency planning. 

1. Risk assessment

Break this down as follows: 

  • Identify mission-critical operations
  • Identify threats and risks to those operations
  • Analyze the impact of each threat and risk

Example of risk assessment

Research is a vital part of a private Midwestern university’s operation. With the COVID-19 pandemic ongoing, the university recognizes the pandemic’s potential to harm or impact the most critical asset of research operations: the humans who do the research. Impact analysis shows that COVID-19 contingency planning for research teams has to be the highest priority.

financial forecasting plate

Source: UT Dallas

2. Scenario analysis

The future is full of possibilities good, bad, and unexpected. Through scenario analysis, you can test unlimited sets of assumptions and scenarios. Based on those results, you can develop financial and strategic plans that allow you to adapt and navigate successfully when disruption comes. 

Example of scenario analysis

An internet provider experienced cash flow issues during the 2008-2009 financial crisis, as economic difficulties impacted payments. To avoid future disruption to cash flows, the internet provider tests all sorts of scenarios.

Their scenario analysis shows them that a more extensive credit line and a 2% rate increase can help avoid future cash flow problems. A larger credit line offers a cushion, while a 2% rate increase boosts cash reserves (while not hurting customer retention rates). 

3. Trigger analysis

What events would necessitate you to activate your contingency plan? Any contingency plan can have multiple triggers, so cover all your bases. 

Example of trigger analysis

A telecom company does contingency planning for staffing shortages. They identify trigger events that could cause a minor staffing disruption, such as a field technician unexpectedly quitting. They also identify trigger events that could cause significant disruption, such as the flooding of offices. 

4. Plan development

Your contingency plan’s success hinges on communication, resource optimization, decision-making, and the ability to adapt. When forming your contingency plan, you should:

  • Analyze how to best allocate resources
  • Identify gaps to successfully implementing a contingency plan
  • Layout step by step actions for all contingencies
  • Communicate responsibilities for everyone involved
  • Test, refine, and test again (this is an iterative process)

Example of plan development

A university wants to implement a contingency plan for closures during the COVID-19 pandemic. They establish a plan that goes as follows:

  • Assign: The university notifies all departments and stakeholders of what needs to be done. For instance, the health services department oversees facility cleaning, while the student services department handles communications with students. The finance department enacts plans to ensure cash flow during the closure. 
  • Alert: The university notifies staff, students, and the general public that they will be going remote. To assist with questions, quick communication options, such as phone hotlines, email contacts, live chats, and more are provided. 
  • Inform: The university notifies staff and students of the next steps, including options for staying on campus. A clear timeline ensures clarity and reduces panic. 
  • Act: The university takes action to ensure the plan goes as planned. For instance, they put needed resources in place, such as more COVID-19 testing stations. They also bolster remote learning technologies to ensure a smooth transition. 

5. Return to Full Operations

Set goals, guidelines, and actions for a return to normalcy, even if the issue hasn’t fully resolved itself. This requires a willingness to adapt. It also requires you to make strategic decisions based on what’s best for your unique scenario. 

Example of a Return to Full Operations

A cable company returns to full capacity following the early days of the Coronavirus pandemic. But full capacity doesn’t look the same. 

To ensure their customers and staff stay healthy, the cable company implements a remote working strategy and social distancing measures. To further reduce interactions, they improve self-installment options, create equipment drop-off and pick-up boxes, and add video chat to their customer support channel.

To assist customers struggling with finances, they implement more flexible payment options and downgrading to cheaper services. To maintain healthy cash flows, the cable company also takes out a Paycheck Protection Program loan and reduces office costs.

financial forecasting plate

Source: UT Dallas

Win the future with contingency planning

Contingency planning gives you a backup plan if things go wrong. Formulating a contingency plan involves risk analysis, contingency prioritization, scenario building, contingency plan development, and continuous monitoring and improvement. 

With so much that goes into contingency planning, it’s vital that your organization develops a shared understanding of risks and understands the actions you need to take. To do that, you must see the impact of various scenarios. 

This is why you need a powerful contingency planning tool. Because the fact is, spreadsheets aren’t sophisticated enough for building contingency plans. You’ll be left with an incomplete view of the scenarios. Or worse, you’ll end up with bad data from spreadsheet errors, which could lead to disastrous decision-making.

With Synario, you can test countless amounts of scenarios quickly and easily. This way, you can clarify what events pose the greatest risk and what decisions can help avoid disaster. You can also uncover emerging opportunities that you may have missed before.  

Synario helps you do this through features such as: 

  • A simple toggle feature: Change inputs without altering the underlying model.
  • Patented layering technology: Test multiple variables at once.
  • Automated object orientation and financial statements: Limit errors and increase efficiency.
  • Pre-mapped algorithms: Our solution can also be quickly customized to run limitless ‘what-if’ analyses.

All these features make your contingency planning more thorough, efficient, and effective. This will bring your organization greater clarity and direction when planning around uncertainty. Isn’t that what you want?