Contingency Planning

Why is it important?

• In business, always expect the unexpected

Why is it a part of the way businesses manage risk?

• Risk Management:

  • Identifying and dealing with the risks threatening a business

• Contingency planning:

  • Planning for unforeseen events

• Crisis management:

  • Handling potentially dangerous events for a business

What is Risk in a business?

• The possibility of loss or business damage

• A threat that may prevent or hinder the ability to achieve business objectives

• The chance that the hoped-for outcome will not occur (e.g. a new product launch)

Different ways businesses deal with risk:

• Ignore it (wait and see)

• Reduce the probability of risk

• Share or deflect the risk (e.g. insurance)

• Make contingency plans- prepare for it

• Treat risk as an opportunity- particularly if it also affects other competitors

Examples of Common Approaches to Day-to-Day Risk Management:

• Marketing:

  • Avoid over-reliance on customers or products

  • Develop multiple distribution channels

  • Test marketing for new products

• Operations:

  • Hold spare capacity

  • Quality assurance and control

• Finance:

  • Insurance against bad debts

  • Investment appraisal techniques

• People:

  • Key man insurance- Protect against loss of key staff

  • Rigorous recruitment and selection procedures

Contingency planning is part of risk management:

• Identify what and how things can and might go wrong

• Understanding the potential effects if things go wrong

• Devising plans to cope with the threats

• Putting in place strategies to deal with the risks before they happen

What is contingency planning?

• Contingency planning involves:

  • Preparing for predictable and quantifiable problems

  • Preparing for unexpected and unwelcome events

• Aim:

  • Minimised the impact of foreseeable events and planned for how the business would resume normal operations after the crisis

Evaluating the Need for Contingency Planning:

• Risks vary in terms of their:

• Contingency planning is not required for every eventuality

• However, risks of strategic significance cannot be ignored