Strategy April 27, 2020

How to draw up a business contingency plan

 

In all aspects of life, predicting what is around the corner is near impossible. However, in business it is vital that we try. We have no crystal balls to predict exactly what the future holds, but it is highly likely to have an unexpected or undesirable event occur at some point down the line.

Whether it’s a natural disaster, a data breach or some form of political, economic, cultural or health-related event, any disruptive events - whether global or more localised - will always have an impact on business. While it’s impossible to completely prevent these unexpected events from happening, we can significantly minimise the impact they have on a business by creating a good contingency plan.

Learn how scenario planning can help you to make better, more informed business decisions

Creating a contingency plan doesn’t only make business continuity easier in the event of a crisis - it could also be the difference between your business going under or surviving. Whether you have no continuity plan in place at all or you have an existing plan that needs to be improved, here’s everything you need to know about contingency planning.


What is a business contingency plan?

A contingency plan is a formal, documented strategy that sets out the course of action that an organisation - plus its management and staff - should take in the case of a future event that is disruptive to the business.

This type of backup plan is a proactive strategy: a roadmap that can define your response to a potential future event, as well as providing a blueprint for a disaster recovery plan. This is different from a crisis management plan, which is created more as a reaction to something that has happened.

Having a contingency plan drawn up is a good idea for any business. Not only will it help your company react quickly to an unexpected event, but it will also help to minimise the damage such an event can cause, keeping business operations running as smoothly as possible throughout.


How to create a business contingency plan

There are five steps to successfully mitigate the impact of unexpected events for your business.

Step 1: Establish risks

Risk assessment - for both your own business and your supply chain - should be the first step in putting together any contingency plan.

As a team, identify the key risks to your business. This should be a two-step process:

  1. Identify critical business functions and resources. These could include your employees, your IT system, your telephone system, specific tangible or intangible assets, your supply chain and more. This list should encompass the functions and resources that your business requires to operate - elements that would be huge pain points if they were to be disrupted. This exercise will allow you to prioritise the areas that are most important.
  2. Identify potential threats to these functions and resources. The next step is to identify any potential threats that could jeopardise these critical elements of your business. This may include things like the loss of a key member of the team, a cybersecurity attack, a natural disaster or any other threat. It is likely that the list of threats you come up with is long, so it may not be possible to create a contingency plan for every single one. However, if you prepare for the most detrimental events, the chances are that those plans can also - at least partially - be applied to lesser threats.

When carrying out your risk assessment, be sure to include members of every area of the business. That way, you will be sure that you are mitigating the biggest risks across the entire business, not just a single department.


Step 2: Prioritise risks based on potential impact

Once you have determined the key risks to your business, it is time to determine both the likelihood of each happening, as well as the potential impact it would have. In this way, you can spend more time focusing on contingency plans for the most likely events, and focus less on those that are very unlikely to happen.

You may like: What is a business continuity plan?

If your workplace is on a flood plain, for example, it would be wise to spend time planning what the business would do in the event of a significant flood - as opposed to spending time and resources on putting in contingency plans for earthquakes if an earthquake is highly unlikely.

The above example demonstrates an area where it is easy to prioritise, but it won’t all be this simple. To determine the likelihood of each event happening - as well as the impact it would have - many businesses will use a risk impact/probability chart. This will allow you to compare the impact of a particular risk against the likelihood of it happening, giving you more clarity on which risks (those that score highly on both axes) you should focus on.


Step 3: Develop contingency plans

Risks identified, it’s time to create a detailed plan for how to deal with each eventuality. A good place to start is by asking a series of questions:

Who or what within the organisation will be affected?

  • How will they be affected?
  • Who else may be impacted?
  • How can you minimise these impacts?

Documenting exactly who you will need to contact should the unexpected happen will save you valuable time and hassle if it does happen. As well as your employees, this will likely include your customers, banks, suppliers, service providers and insurers.

Your plan should not only include who should be contacted, but also who within your organisation is responsible for doing so. Details like these are easy to decide in advance, giving you far less stress at the time should the worst case scenario happen.

This level of detail should be applied to every aspect of your contingency plan: always ask yourself what needs to be done to keep the business running, who needs to do what, and whether there is an order in which things need to happen.

Logistics should also be part of your plan. If key machinery or equipment is suddenly unusable, what alternatives do you have? Are there emergency call-out arrangements? Is there a solution you can implement in advance?

For further support in future-proofing your business, join Vistage today

Finally, don’t forget to factor in the issue of insurance. If the biggest threats to your business are insurable, it is vital to check that you have adequate insurance cover in place. While insurance can protect against obvious threats like fire, flooding and theft, it can also cover events like the death of a key person, or the legal costs of protecting your intellectual property. Bear in mind, too, that some insurers may offer a reduction in your premium if you have a contingency plan in place.


Step 4: Distribute your contingency plans

There is no point in creating contingency plans and then simply filing them away and forgetting about them. As COVID-19 has shown, situations can develop rapidly, and it’s vital that everyone in your organisation is prepared.

Instead, communicate these plans with everybody who needs to know the details. Your plans should include the names and contact details of who - both inside and outside of your business - will be involved when certain events occur.

As such, it is vital that these people themselves know about their expected role before the event occurs, so that they can be prepared if a situation arises. You should also ensure that everybody knows where your business contingency plan can be found, so they can refamiliarise themselves with it whenever needed, and so that it is easily accessible at all times.


Step 5: Maintain your contingency plans

Both the world and your own business will be subject to regular change. From technological advancements to climate change, from personnel changes to major operational shifts within the company, it is important that your contingency plan accurately reflects any new developments that could affect its efficacy.

By keeping your contingency plan relevant and up to date - as well as informing your team of any changes that are made - you’ll ensure that you are in the best possible position for anything the future may throw at you.


Conclusion

A good contingency plan is effectively a roadmap. Just as a map helps us to reach hard-to-find destinations, a good contingency plan will help you to navigate your way through dangerous and uncharted territory. How efficiently you do that will depend on the quality of your plan.

The more time and effort you put into creating a good contingency plan, the better your chances of keeping your business going - no matter what life throws at you.


Vistage’s executive coaches and experienced Vistage members can provide help and advice about how to approach contingency planning. Find out more about joining Vistage today.

Image via Adobe Stock (Lemau Studio) and Unsplash

CTA_Leaders Guide to expanding overseas

Our gift to you...

Apply now for your personal leadership consultation with a Vistage Chair. They'll help you assess areas of strength of your business and identify areas of potential growth.

Apply Now

    Subscribe to Vistage Insights