Strategy April 27, 2020

What is a business contingency plan?

What is a business contingency plan

If current events have taught us anything, it’s that nobody can predict what’s around the corner. However, in business, it’s crucial that we try. Although there’s no way of knowing exactly what the future holds, it’s guaranteed that at some point something unexpected or undesirable will definitely come along.

As we know all too well; whether political, economic, cultural or health-related; world events - as well as localised ones - will always have an impact on business. While it’s impossible to change this fact, there is a way to significantly minimise the impact on your business: contingency planning.

A contingency plan is a proactive strategy, different from a crisis management plan, which is more of a reaction to something that happened. A contingency plan sets out your company’s response to disruptive events, so you’re prepared if, and when, they arrive.

In the midst of an event or crisis, an effective contingency plan could be the difference between your business going under or surviving. Whether you have no plan at all or an existing one that needs to be improved, here's what you need to know about contingency planning...

Risk assessment

Contingency planning is a proactive strategy. That’s why you need it in place before something goes wrong, and it’s why a good one will ensure you’re as prepared as possible for almost every situation. With this in mind, the first stage of planning needs to be risk assessment. 

What are your critical business functions? Could you still operate without your supply chain, your telephone system, your IT? Narrowing down your pain points will allow you to prioritise the areas that are most important. 

The next step is identifying potential threats which could jeopardise these functions. This might include things like the sudden loss of a key person, your cyber security being compromised or a natural disaster. 

It’s likely the list of threats will be long, so it may not be possible to create a contingency plan for each and every one. However, if you plan for the most detrimental events, the chances are those plans can also (at least partially) be applied to lesser threats.

Once you’ve narrowed down your risks, you need to determine the likelihood of each one happening as well as the impact it would have. A good tool to use for this is a risk impact/ probability chart. Comparing the impact of a particular risk against the likelihood of it happening will help you clarify exactly which risks your plans should focus on: those which score highly on both axes.

Planning the details

After you’ve identified your biggest risks, it’s time to create a detailed plan for how to deal with each eventuality. A good place to start is by asking: who or what within your organisation will be affected? How will they be affected? Who else will be impacted? How can you minimise these impacts?

When the unexpected happens, knowing exactly who you need to contact will save you valuable time. That’s why it’s vital that your plan includes a comprehensive list of all the people and organisations you’ll need to get in touch with. 

As well as your employees, this is likely to include your customers, banks, suppliers, and insurers. Whose responsibility is it to communicate with each of these contacts? Again, these details are not something you should be wasting time on in the midst of a crisis. Knowing who needs to be contacted, by whom, will save you time and stress when the worst case scenario happens.


This level of detail needs to be applied to every aspect of your contingency plan. Always ask: what needs to be done to keep your business running? Who needs to do what? Is there an order in which things need to happen?

What about logistics? If key machinery or equipment is suddenly unusable, what alternatives do you have in place? If your business operations rely on certain pieces of equipment, do you have emergency call-out arrangements? Covering these kinds of details in your plan will minimise the impact of a serious incident. Instead of panicking and scrabbling to find a last-minute solution, you can simply turn to your plan for the answers. 

"It’s paramount that you make sure you have adequate insurance cover."

Another important factor to consider when creating your plan is the issue of insurance. It may be that your single biggest risk is an insurable one, so it’s paramount that you make sure you have adequate insurance cover. 

Insurance provides protection against the most obvious threats such as fire, flooding, and theft, but it can also provide cover for the death of a key person or the legal costs of protecting your intellectual property. It’s also worth noting that insurance companies may offer a reduction in your premium if you have a contingency plan in place.

Communicating and maintaining the plan

Once you’ve developed your contingency plans, filing them away under ‘rainy day’ and forgetting about them is not a good idea. Instead, your plans should be communicated with everyone who needs to know the details. 

If certain employees need to undertake certain responsibilities when an incident takes place, they need to know before the fact. If they don’t know what they’re supposed to do and when, there’s little point in having a plan. 

"It’s important you keep it relevant and up to date."

It’s also crucial that your plan is regularly revisited, and, if necessary, revised. Changes in government policy, technological advancements and operational changes could make your plan less effective, so it’s important you keep it relevant and up to date.

A contingency plan is effectively a roadmap. Just like a map helps us reach difficult to find destinations, a good contingency plan will help you navigate your way out of dangerous and uncharted territory. How efficiently you do that depends on the quality of your plan. The more time and effort you put into creating a detailed, accurate plan, the better your chances of keeping your business going - no matter what life throws at you.

Vistage’s executive coaches, or Chairs, can provide help and advice about how to approach contingency planning. Find out more.

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Images via Adobe Stock (Lemau Studio) and Unsplash


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