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Why Does Your Company Need A Contingency Plan?

Person sat a a desk signing a document

As the saying goes, expect the unexpected. If every company owner knew what was around the corner, there would be no business failures, but unfortunately, this isn’t the case.

Whether your company is suffering from a system outage or has had an influx of interest in one particular product, you can feel as though the whole thing is falling apart.

So, how can you prepare for the unexpected? This is where contingency planning comes in.

Think of it as a Plan B for your company. You might never use it, but it’s good to have it there if you need it.

How to create a contingency plan that works for your business

Essentially, you need to answer your company's “What if?” questions.

What if there’s a fire in the building next door? What if a large client goes out of business? Or what if your supplier goes out of business?

The answers to these questions will form the basis of your contingency plans. They might not necessarily happen, but if they do, they could affect the day-to-day running of your company.

The 4 steps of contingency planning

Step 1- Identify your critical business functions

During this step, you need to identify all the critical areas that keep your company running. In other words, if any of these fail, it could spell disaster for your day-to-day running.

These are the areas that define the success of the business. In other words, you need to keep them running, so you must be prepared for anything that could cause them to fail.

Step 2 - Assess different scenarios

After identifying the different areas of the business that need to keep running, you need to start thinking about the scenarios that could bring them to a halt.

Whether that’s an increase in product popularity leading to insufficient stock coverage in the storefront or your website server going down, so you can’t complete any online orders. These scenarios can be both positive and negative, but you need to include them because they can both have an impact on your business and how you operate.

If you’re unsure about the scenarios that could affect certain areas of the business, speak to the people who work in them. For example, if you’re unsure how an increased footfall will affect the storefront, talk to the cashiers and floor managers to gain a different insight.

This step is likely to result in a long list of threats to your business, which you can then list in order of how likely they are to occur and how significant their impact will be if they do occur.

Step 3 - Create a contingency for each threat

Now you have your list of threats in order, you can start from the top and work down. By doing it in this order, you’ll be dealing with the most severe threats that are most likely to impact your business operations.

This step can be broken down into four additional steps:

  1. Outline the scenario - what exactly does it look like, and how will you know it has happened?
  2. Determine the probability of it happening - if your storefront has gone five years without a large theft, what are the chances of it happening in the next five years?
  3. Explain how you will prepare for the threat - if you are launching a new high-end luxury item, will you need additional security? What will this look like in practice?
  4. Detail what the response will be if the threat happens - if the theft happens, will the authorities be called? Will you have to notify your insurance company?

Once you’ve developed your plan, you’ll need to distribute it to the stakeholders involved. Using the storefront theft example, this could involve giving the floor manager a copy of the plan and informing cashiers of their roles, if any.

Step 4 - Maintain your plan

As your company changes over time and your business operations are updated, so should your contingency plans.

For example, if you close your storefront and move everything online, do you need a plan for physical theft? It’s likely this will have to be updated to account for fraudulent transactions.

When maintaining your plans, repeat steps 1-3 to ensure everything is accurate and up-to-date. However, because this is time-consuming, it can be essential to schedule it so that it’s not rushed and everything can be fully thought through.

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