As organizations grow increasingly complex, so too does their propensity for risk.
Whether it is the risk of a natural disaster, cyber-attack, or human error, companies are increasingly susceptible to disruptions that can cause serious financial and operational damage.
The good news is that by implementing a contingency planning process, organizations can identify and mitigate many types of risks.
Contingency planning involves creating a plan of action that will be taken in the event of an unexpected disruption. How the plan is executed will depend on the specific type of disruption that occurs, plus the readiness and capabilities of the organization.
What is a contingency plan, simplified?
So what exactly is a contingency plan, and why is it so important for your business to have one? Most organizations discuss contingencies in complex terms, which makes it hard to understand. We’ll keep it simple.
In as few words as possible: a contingency plan is a course of action which is designed to help your business respond effectively to a significant future event or situation (that may or may not happen). With a contingency plan in place, your team will know exactly which steps to take if this future event were to actually occur, and they’ll be able to complete their tasks significantly more effectively in the specific prescribed failure mode you prepare them for.
If the last few years have taught us anything, it’s that the world is unpredictable, and anything can happen. Be honest: who had a global pandemic planned into their risk management strategy?
What should you plan for?
Since every business is different, every contingency plan will also be different. That said, contingency plans share a few things in common. Here are the three main categories you should consider:
- Natural disasters
- Human errors
- Technical issues
These three areas cover the majority of what could go wrong in your business. Whether your website crashes, a bushfire comes into town, or an employee has sent the wrong invoice to a client, if you have a solid contingency plan in place, all you’ll need to do is whip out your standard procedure and follow the preassigned steps.
While we like to think our world is invincible, it’s not.
First, consider the area your business is based in. Do you have incredibly snowy winters that may result in a snowstorm? Are you in an earthquake zone? Is a tsunami a possibility? What happens if a second global pandemic breaks out and all your staff are off sick?
Natural disasters can cause all sorts of disruptions to business, from power problems to building damage. And the effects can be long-lasting, with some businesses never recovering from a major event.
That’s why it’s important for companies to have a plan in place for dealing with natural disasters. This might include having backup power (as with technical issues), having a list of employees who can work remotely, or preparing to relocate your business if necessary.
By planning for the worst, companies can minimize the damage caused by a natural disaster and ensure that their business survives.
We’re all human, and we all make mistakes; sometimes these mistakes can have serious consequences for our organizations.
Human errors generally fall into two categories: accidental and intentional.
Accidental errors can include things like misfiling documents, entering the wrong data into a system, or sending an email to the wrong person. Perhaps an employee undercharged a client by a few thousand dollars, or emailed private information to the wrong address. These errors occur often, but aren’t make-or-break..
Intentional errors, on the other hand, are caused by employees who deliberately sabotage their company or commit fraud. Examples of intentional errors might include deleting important files, planting viruses, or embezzling company funds. Intentional errors can be very damaging to organizations and can result in lost jobs, decreased profits, and even criminal charges.
Regardless of whether an error is accidental or intentional, it’s important for organizations to have a plan in place to deal with it. This might include having a designated backup person who can take over if the original employee is unavailable, or setting up protocols for how to handle sensitive information if it is accidentally released.
Having a contingency plan in place can help minimize the damage caused by human error, and can help organizations get back up and running quickly if something goes wrong.
On the other hand, sometimes it’s the technology that goes wrong, rather than the people.
Technical issues can include anything from a power outage to a system crash. They can also include less obvious things like data loss or underlying electrical issues.
No matter what the cause, when your computer systems are down, your business is likely to come to a standstill. This is why it’s important for organizations to have a plan in place for dealing with technical issues.
Your contingency plan might include things like having backup power supplies, having alternate systems ready to go, or having procedures in place for dealing with data loss.
You may also want to consider having a plan for dealing with customers or clients who are affected by the technical issues. This might include things like providing them with information about what is happening and when the systems will be back up and running, or offering them a discount on future services.
What goes in the plan
At this point, you’ve outlined all the potential risks that could cause major issues in your business. Now it’s time to put actionable steps next to them.
The main steps that need to be included in your plan are: risk analysis, contingency prioritization, scenario building, contingency plan development and monitoring, evaluating and updating.
So, what do each of these steps look like?
What risk elements actually exist and how likely are they to occur? While yes, a snowstorm can happen anywhere, but if your business is based in Queensland, Australia the chances are incredibly low, whereas a bushfire is a much more likely scenario to focus on.
Of everything you’ve listed under your risk analysis, which of these risks are you going to plan for? No company has infinite resources; you have to prioritize based on likely events. Estimate the probability that each event will occur, and what will cause the most damage to your business if it were to occur.
What are the possible outcomes that may result if this risk were to take place? Follow consequences down the line, from the initial disruption to the effect on your customer trust.
Monitoring, Evaluating and Updating
Things change, and it’s important to stay up to date. You may not have had an ‘out of office, work from home’ plan before 2020, but as the world moves online and workers demand more freedom, it’s important to update your contingency plan with a scenario like this to ensure your business is ready for anything.
While creating your plan, you may come across some issues that have immediate fixes. For example, if your business was to experience a power outage, you might lose sales and customers if you don’t have a backup plan already in place.
A good rule of thumb here is if your contingency plan has higher than a 1% risk of occurrence in the next year, and takes less than 1% of your monthly budget to fix immediately, do it.
In the power outage example, an immediate solution to this issue would be to purchase a generator and the man-hours necessary to keep your power running should a blackout occur. This could take the place of training, writing emergency manuals, and more.
In summary: contingency planning
Without a contingency plan you’re opening yourself up to unnecessary risks.
Naturally, how extreme you want to go in your plan is up to you. But remember, there’s a lot more to worry about than rainstorms or tornadoes.
What are you going to do if your main supplier suddenly goes bankrupt? What happens when the flu goes rampant in the office and 70% of your employees are out sick? Understanding the most likely failure cases for your business is the first step to inoculating yourself against them, and being able to respond effectively to otherwise unforeseen issues.
A contingency plan is so much more than just the major crises and natural disasters. A good plan will be put in place to help with the more commonplace problems such as data loss, business relationship mishaps and invoicing errors.
To put it simply, your contingency plan is your plan B. When something goes wrong in your business, you’ve got manageable steps to fall back on and get you back on track.