What Is A Contingency Plan & How Do You Create One? (2024)

A contingency plan is a “plan B” that helps a business address specific situations or incidents that may or may not be out of its control. A contingency plan is the way that your team should react if there is something that interrupts the normal course of business. Contingency plans are often found as part of emergency planning, disaster recovery and risk management. It’s important to know how you want to proceed when the situation prevents you from running things as business as usual.

Contingency Planning vs. Crisis Management

Contingency planning is the process of creating a backup plan or several possible plans. This differs from crisis management, which is the actual response to a crisis. The actual response often utilizes one of the contingency plans created but addresses the incident in real time.

Contingency Planning vs. Risk Management

Contingency planning and risk management are closely related but different processes. Contingency planning addresses the “what if” situations and develops a plan that will work around those situations. Risk management is a proactive approach that companies use to prevent loss or disasters. So rather than being reactive like a contingency plan, a risk management plan looks to stop adverse events from happening in the first place.

Businesses need to be agile to remain successful in a variety of market and work conditions. Here are some benefits of contingency planning that you should consider:

• Saves time: Management is not stopping to develop a plan. All they need to do is assess the situation and implement the contingency plan.
• Saves money: Downtime for a business is costly. Contingency plans limit the costs of being forced on the sideline.
• Quick recovery time: Contingency plans redirect everyone so what they are doing is productive despite the adverse incident.
• Minimizes damages: A contingency plan can reduce the effects of a disastrous situation that would otherwise lead to massive damages to the business’s property and equipment.
• Avoid negative press: When things go wrong, the press can get wind of it, which can be negative publicity for the company. Contingency plans keep the business running with minimal impact on operations.

Let’s look at some examples to illustrate better why contingency plans are necessary and how businesses reacted.

Example 1. A Pandemic Hits

The Covid-19 pandemic forced many businesses to come up with a contingency plan on the fly. Many white-collar jobs were sent home for employees to do their job from the safety of their homes. Other businesses, such as restaurants, had to pivot to expanding their take-out operations and slowly opening up dining experiences.

Example 2. A Supplier Has a Delayed Shipment

Many businesses rely on a supply chain to provide certain materials in order to create and deliver their products. When there is an issue with the supply chain, the business must be prepared to deal with it. This could mean shifting a marketing focus on other products not affected or anticipating delivery delays and notifying customers of the issues and perhaps offering them a promotion for their patience.

Example 3. Majority of Staff Calls In Sick on the Same Day

When a bug is going around, it can be challenging to keep it from affecting your entire staff. If it happens that everyone gets sick on the same day, you need to have a plan in place to address the issue. This could mean having a temporary staffing agency already vetted out for help or having the employees who are on duty do double duty, taking on additional tasks to get the job done.

Creating a contingency plan doesn’t need to be difficult. Follow these seven steps to develop your contingency plan, from creating a policy state and implementing preventive controls to testing and training employees and maintaining your contingency plan.

Here’s how to create a contingency plan in seven steps:

Step 1. Create a Policy Statement

A policy statement is the outline of the authorization that exists to develop a contingency plan. This might be something as simply stating a possible scenario and noting that owners have put this plan in place.

Step 2. Conduct a Business Impact Analysis

This step digs into what would happen if no contingency plan existed. It prioritizes the systems that are imperative to the business functions.

Step 3. Implement Preventative Controls

This step is designed to mitigate any adverse scenario’s impact on the business. The goal is to reduce the costs associated with running the business on a contingency plan basis.

Step 4. Develop Contingency Strategies

These are recovery strategies that help the business ensure that it will recover quickly and efficiently after a disruption occurs. Contingency strategies may be specific to the type of disruption that happens.

Step 5. Write Out the Contingency Plan

This step takes the strategies and writes out an action plan that is designed to overcome the disruption. It is a detailed response that allows the business operation to continue to work.

Step 6. Test and Train Employees

Every contingency plan should be shared with employees well in advance of needing to enact the plan. Employees should be trained on what to do in specific scenarios and help keep the business operations running as smoothly as possible.

Step 7. Maintain the Plan

Keep the plan updated based on current systems and organizational changes. You don’t want to implement the plan and then run into a hiccup because a key employee is no longer with the firm or the system doesn’t allow you to do what you want to do.