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  • What is a contingency plan? A guide to ...

What is a contingency plan? A guide to contingency planning

Julia Martins contributor headshot

A business contingency plan is a backup strategy for your team or organization. It lays out how you’ll respond if unforeseen events knock your plans off track—like how you’ll pivot if you lose a key client, or what you’ll do if your software service goes down for more than three hours. Get step-by-step instructions to create an effective contingency plan, so if the unexpected happens, your team can spring into action and get things back on track.

No one wants Plan A to fail—but having a strong plan B in place is the best way to be prepared for any situation. With a solid backup plan, you can effectively respond to unforeseen events effectively and get back on track as quickly as possible. 

A contingency plan is a proactive strategy to help you address negative developments and ensure business continuity. In this article, learn how to create a contingency plan for unexpected events and build recovery strategies to ensure your business remains healthy.

What is contingency planning?

What is a contingency plan .

A contingency plan is a strategy for how your organization will respond to important or business-critical events that knock your original plans off track. Executed correctly, a business contingency plan can mitigate risk and help you get back to business as usual—as quickly as possible. 

You might be familiar with contingency plans to respond to natural disasters—businesses and governments typically create contingency plans for disaster recovery after floods, earthquakes, or tornadoes. 

But contingency plans are just as important for business risks. For example, you might create a contingency plan outlining what you will do if your primary competitors merge or how you’ll pivot if you lose a key client. You could even create a contingency plan for smaller occurrences that would have a big impact—like your software service going down for more than three hours.

Contingency planning vs risk management

Project risk management is the process of identifying, monitoring, and addressing project-level risks. Apply project risk management at the beginning of the project planning process to prepare for any risks that might come up. To do so, create a risk register to identify and monitor potential project risks. If a risk does happen, you can use your risk register to proactively target that risk and resolve it as quickly as possible. 

A contingency plan is similar to a project risk management plan or a crisis management plan because it also helps you identify and resolve risks. However, a business contingency plan should cover risks that span multiple projects or even risks that could affect multiple departments. To create a contingency plan, identify and prepare for large, business-level risks.

Contingency planning vs crisis management

Contingency planning is a proactive approach that prepares organizations for potential emergencies by implementing pre-planned risk mitigation strategies. It involves identifying threats and crafting strategies in advance. 

Crisis management , on the other hand, is reactive, focusing on immediate response and damage control when a crisis occurs. While contingency planning sets the stage for effective handling of emergencies, crisis management involves real-time decision-making and project management during an actual crisis. Both are important for organizations and businesses to maintain their stability and resilience.

Contingency plan examples

There are a variety of reasons you’d want to set up a contingency plan. Rather than building one contingency plan, you should build one plan for each type of large-scale risk or disaster that might strike. 

Business contingency plan

A business contingency plan is a specialized strategy that organizations develop to respond to particular, unforeseen events that threaten to disrupt regular operations. It's kind of like a business continuity plan, but there's one key difference. 

While business continuity plans aim to ensure the uninterrupted operation of the entire business during a crisis, a business contingency plan zeroes in on procedures and solutions for specific critical incidents, such as data breaches, supply chain interruptions, or key staff unavailability. 

A business contingency plan could include:

Strategies to ensure minimal operational disruption during crises, such as unexpected market shifts, regulatory compliance changes, or severe staff shortages.

Partnerships with external agencies that can provide support in scenarios like environmental hazards or public health emergencies.

A comprehensive communication strategy with internal and external stakeholders to provide clear, timely information flow during crises like brand reputation threats or legal challenges.

Environmental contingency plan

While severe earthquakes aren’t particularly common, being unprepared when “the big one” strikes could prove to be catastrophic. This is why governments and businesses in regions prone to earthquakes create preparedness initiatives and contingency plans.

A government contingency plan for an earthquake could include things like: 

The names and information of the people designated to handle certain tasks in advance to ensure the emergency response is quick and concise

Ways to educate the public on how to respond when an earthquake hits

A timeline for emergency responders.

Technology contingency plan

If your business is particularly data-heavy, for example, ensuring the safety and cybersecurity of your information systems is critical. Whether a power surge damages your servers or a hacker attempts to infiltrate your network, you’ll want to have an emergency response in place.

A business’s contingency plan for a data breach could involve: 

Steps to take and key team members to notify in order to get data adequately secured once more

The names and information of stakeholders to contact to discuss the impact of the data breach and the plan to protect their investment

A timeline to document what is being done to address the breach and what will need to be done to prevent data breaches in the future

Supply chain contingency plan

Businesses that are integral parts of the supply chain, such as manufacturing entities, retail companies, and logistics providers, need an effective supply chain contingency plan to continue functioning smoothly under unforeseen circumstances.

These plans hedge against supply chain disruptions caused by events like natural disasters or technological outages and help organizations reduce downtime and ensure real-time operational capabilities. 

A supply chain contingency plan could include:

Secure critical data and systems while promptly notifying key team members, such as IT staff and management, for immediate action.

A predetermined list of essential stakeholders, including suppliers, customers, investors, and authorities, should be contacted to inform them about the disruption and steps being taken.

A detailed timeline is essential for documenting the immediate response and outlining long-term strategies to prevent future disruptions in the supply chain.

Pandemic contingency plan

In the face of a global health crisis, a pandemic contingency plan is vital for organizations in healthcare, retail, and manufacturing. This plan focuses on mitigation strategies to minimize operational disruptions and ensure the safety of employees while maintaining business continuity. 

A pandemic response plan could include:

A comprehensive health and safety protocol for employees, which integrates regular health screenings, detailed risk analysis, and emergency medical support as key components.

Flexible work arrangements and protocols for remote operations and digital communication.

A list of key personnel and communication channels for immediate response and coordination.

Regularly reviewing and adapting the pandemic contingency plan as part of an ongoing disaster recovery plan to address evolving challenges and lessons learned.

How to create a contingency plan

You can create a contingency plan at various levels of your organization. For example, if you're a team lead, you could create a contingency plan for your team or department. Alternatively, company executives should create business contingency plans for situations that could impact the entire organization. 

As you create your contingency plan, make sure you evaluate the likelihood and severity of each risk. Then, once you’ve created your plan—or plans—get it approved by your manager or department head. That way, if a negative event does occur, your team can leap to action and quickly resolve the risk without having to wait for approvals.

1. Make a list of risks

Before you can resolve risks, you first need to identify them. Start by making a list of any and all risks that might impact your company. Remember: there are different levels of contingency planning—you could be planning at the business, department, or program level. Make sure your contingency plans are aligned with the scope and magnitude of the risks you’re responsible for addressing. 

A contingency plan is a large-scale effort, so hold a brainstorming session with relevant stakeholders to identify and discuss potential risks. If you aren’t sure who should be included in your brainstorming session, create a stakeholder analysis map to identify who should be involved.

2. Weigh risks based on severity and likelihood

You don’t need to create a contingency plan for every risk you lay out. Once you outline risks and potential threats, work with your stakeholders to identify the potential impact of each risk. 

Evaluate each risk based on two metrics: the severity of the impact if the risk were to happen and the likelihood of the risk occurring. During the risk assessment phase, assign each risk a severity and likelihood—we recommend using high, medium, and low. 

3. Identify important risks

Once you’ve assigned severity and likelihood to each risk, it’s up to you and your stakeholders to decide which risks are most important to address. For example, you should definitely create a contingency plan for a risk that’s high likelihood and high severity, whereas you probably don’t need to create a contingency plan for a risk that’s low likelihood and low severity. 

You and your stakeholders should decide where to draw the line.

4. Conduct a business impact analysis

A business impact analysis (BIA) is a deep dive into your operations to identify exactly which systems keep your operations ticking. A BIA will help you predict what impact a specific risk could have on your business and, in turn, the response you and your team should take if that risk were to occur. 

Understanding the severity and likelihood of each risk will help you determine exactly how you will need to proceed to minimize the impact of the threat to your business. 

For example, what are you going to do about risks that have low severity but high likelihood? What about risks that are high in severity, but relatively low in likelihood? 

Determining exactly what makes your business tick will help you create a contingency plan for every risk, no matter the likelihood or severity.  

[inline illustration] Business impact analysis for a contingency plan (example)

5. Create contingency plans for the biggest risks

Create a contingency plan for each risk you’ve identified as important. As part of that contingency plan, describe the risk and brainstorm what your team will do if the risk comes to pass. Each plan should include all of the steps you need to take to return to business as usual.

Your contingency plan should include information about:

The triggers that will set this plan into motion

The immediate response

Who should be involved and informed?

Key responsibilities, including a RACI chart if necessary

The timeline of your response (i.e. immediate things to do vs. longer-term things to do)

[inline illustration] 5 steps to include in your contingency plan (infographic)

For example, let’s say you’ve identified a potential staff shortage as a likely and severe risk. This would significantly impact normal operations, so you want to create a contingency plan to prepare for it. Each person on your team has a very particular skill set, and it would be difficult to manage team responsibilities if more than one person left at the same time. Your contingency plan might include who can cover certain projects or processes while you hire a backfill, or how to improve team documentation to prevent siloed skillsets. 

6. Get approval for contingency plans

Make sure relevant company leaders know about the plan and agree with your course of action. This is especially relevant if you’re creating team- or department-level plans. By creating a contingency plan, you’re empowering your team to respond quickly to a risk, but you want to make sure that course of action is the right one. Plus, pre-approval will allow you to set the plan in motion with confidence—knowing you’re on the right track—and without having to ask for approvals beforehand.

7. Share your contingency plans

Once you’ve created your contingency plans, share them with the right people. Make sure everyone knows what you’ll do, so if and when the time comes, you can act as quickly and seamlessly as possible. Keep your contingency plans in a central source of truth so everyone can easily access them if necessary.

Creating a project in a work management platform is a great way of distributing the plan and ensuring everyone has a step-by-step guide for how to enact it.

8. Monitor contingency plans

Review your contingency plan frequently to make sure it’s still accurate. Take into account new risks or new opportunities, like new hires or a changing business landscape. If a new executive leader joins the team, make sure to surface the contingency plan for their review as well. 

9. Create new contingency plans (if necessary)

It’s great if you’ve created contingency plans for all the risks you found, but make sure you’re constantly monitoring for new risks. If you discover a new risk, and it has a high enough severity or likelihood, create a new contingency plan for that risk. Likewise, you may look back on your plans and realize that some of the scenarios you once worried about aren’t likely to happen or, if they do, they won’t impact your team as much.

Common contingency planning pitfalls—and how to avoid them

A contingency plan is a powerful tool to help you get back to normal business functions quickly. To ensure your contingency planning process is as smooth as possible, watch out for common pitfalls, like: 

Lack of buy-in

It takes a lot of work to create a contingency plan, so before you get started, ensure you have support from executive stakeholders. As you create your plan, continuously check in with your sponsors to ensure you’ve addressed key risks and that your action plan is solid. By doing so, you can ensure your stakeholders see your contingency plan as something they can get behind.

Bias against “Plan B” thinking

Some company cultures don’t like to think of Plan B—they like to throw everything they have at Plan A and hope it works. But thinking this way can actually expose your team to more risks than if you proactively create a Plan B.

Think of it like checking the weather before going sailing so you don’t accidentally get caught in a storm. Nine times out of ten, a clear sunny day won’t suddenly turn stormy, but it’s always better to be prepared. Creating a contingency plan can help you ensure that, if a negative event does occur, your company will be ready to face it and bounce back as quickly as possible. 

One-and-done contingency plans

It takes a lot of work to put a contingency plan together. Sometimes when you’ve finished, it can be tempting to consider it a job well done and forget about it. But make sure you schedule regular reminders (maybe once or twice a year) to review and update your contingency plan if necessary. If new risks pop up, or if your business operations change, updating your contingency plan can ensure you have the best response to negative events.  

[inline illustration] The easiest ways to prevent contingency plan pitfalls (infographic)

You’ve created a contingency plan—now what?

A contingency plan can be a lot of work to create, but if you ever need to use it, you’ll be glad you made one. In addition to creating a strong contingency plan, make sure you keep your plan up-to-date.

Being proactive can help you mitigate risks before they happen—so make sure to communicate your contingency plan to the team members who will be responsible for carrying them out if a risk does happen. Don’t leave your contingency plan in a document to collect dust—after creating it, you should use it if need be!

Once you’ve created the plan, make sure you store it in a central location that everyone can access, like a work management platform . If it does come time to use one of your contingency plans, storing them in a centrally accessible location can help your team quickly turn plans into action.

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Illustration with collage of pictograms of face profile, leaf, cloud

Businesses need a plan to get back on track when a disaster interrupts daily operations. Contingency plans, also known as “business continuity plans,” “emergency response plans” and “disaster recovery plans” help organizations recover after a disruption.  

Whether they’re preparing for a global outbreak of a deadly virus, crisis management around a data breach or the loss of an important client, contingency plans help organizations bounce back after a negative event.

Companies create many kinds of recovery strategies for everything, from the merger of key competitors to the insolvency of the bank that processes its employee payroll. In India, the government was busy designing a contingency plan as a drier-than-expected monsoon season approached.¹ Meanwhile, in Hong Kong, a large bank was preparing a plan b in case a host of new sanctions were levied as the result of a recent geopolitical development.²

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Here are five steps companies use to create effective business contingency plans.

The contingency planning process begins with a risk assessment to gauge the potential impact of each risk. Typically, business leaders and employees conduct risk analysis.

Team members begin with a brainstorming session where they discuss potential risks, courses of action and the company’s overall preparedness. During this stage, it’s important to be clear about the scope of the project and invite all relevant stakeholders to give input. Companies don’t need to create a risk management plan for every threat they face, just the ones deemed highly likely and with the potential to interrupt business operations.

Effective business impact analysis (BIA) is critical to understanding different business functions and how they will react to unexpected events. For example, while a shortage in micro-processors might be devastating to a part of a business that deals with the manufacture of gaming consoles, it likely has little to no impact on the same company’s HR department.

To assess the urgency of creating an action plan for this specific threat, the company would need to know how much of its revenue was being generated from the part of the business threatened by the microprocessor shortage. If gaming consoles are a high percentage of their revenue, they will put a strong plan in place soon.

A well-developed BIA helps stakeholders assess risk and better understand which parts of their business are most critical to daily operations.

After identifying the risks their company faces, determining the likelihood and severity of each risk and conducting a BIA, business leaders can follow a simple, three-step process to build their backup plan.

Identify the triggers that set their plan into action: For example, if a hurricane is approaching, at what point does the approaching storm trigger the contingency plan? When it’s 50 miles away or a 100? They must make clear decisions so the teams they put in charge of execution know when to start their work.

Design an appropriate response: The threat the business prepared for arrives. Teams must know exactly what’s expected of them so the company can recover quickly. Compile clear, accessible instructions, protocols that are easy to follow and a way for everyone to communicate with each other.

Delegate responsibility clearly and fairly: Like any other initiative, contingency planning requires effective project management to succeed. In the case of an existential threat such as a natural disaster, everyone involved in helping the company recover must know their role and be properly trained to perform it.

For example, in the case of a fire, it wouldn’t be fair to expect employees untrained in firefighting to pick up a hose. However, with the right training, they might conduct headcounts or go floor-to-floor to ensure that other employees have evacuated.

One way to improve workflow among teams when designing a plan is to create a RACI chart . RACI stands for responsible, accountable, consulted and informed and is a widely used process to help teams and individuals delegate responsibility and react to crises in real time.

While it can be hard to justify the importance of putting financial resources into something that might never happen, these past few years have taught us the value of good contingency planning. Think of all the supply chain problems, critical shortages of personal protective equipment and financial havoc wreaked by the pandemic. What would have been different if organizations had had effective contingency plans in place?

Cost and uncertainty are significant barriers when convincing business leaders of the importance of making an investment in contingency planning. Since all costs for contingency plans are estimated—there’s no way of knowing precisely how events will disrupt a business—decision-makers are understandably hesitant.

Different industries have different ways of approaching this problem. In the construction industry, it’s common to set aside 10% of the overall budget of a project for contingencies. Other industries use different methods.

One popular method estimates risks according to a percentage of how likely they are to occur. By this method, if there’s a 25% risk of an event occurring that will result in USD 200,000 in recovery costs, the company must set aside 25%—or USD 50,000—to be in compliance with their contingency plan.

Markets and industries are constantly shifting, so the reality that a contingency plan faces when it is triggered might be different than the one it was created for. For example, after the 9/11 terror attacks, many of the contingency plans that the US government had in place were suddenly irrelevant because they had been prepared decades before.

To avoid a similar disconnect between plans and threats, businesses need to constantly test and reassess the plans they’ve made. For example, IBM’s guidelines mandate that plans should be tested at least once annually and improved upon as necessary.³ If new risks are discovered and their severity and likelihood is deemed high enough, the old plans might be scrapped altogether.

When businesses are hit with an unexpected disruption, a strong contingency plan gives much-needed structure to the recovery process. Disruptive events cause chaos and decision-makers and employees are often left scrambling to understand what is happening and how best to respond to it. Having a strong plan to turn to can help restore confidence and show the way forward.

Here are a few benefits business leaders who create strong contingency plans can expect:

Businesses that create strong plans recover faster from a disruptive event than businesses that don’t. When a negative event occurs, the faster the business recovers and gets back to business-as-usual, the lower the risk to the company, its customers and its employees.

A good contingency plan minimizes the damage to a company—both reputational and financial. For example, while a data breach will undoubtedly damage a bank’s reputation, as well as its bottom line, how the bank responds will play a critical role in whether its customers decide to continue doing business with it.

Many organizations use a strong contingency plan to show employees and customers that they take preparation seriously. By planning for a wide range of potentially damaging events, business leaders can show investors, customers and workers that they’ve taken the necessary steps to minimize risk.

Many plans focus on natural disasters such as floods, earthquakes or fires. Others deal with data breaches, unexpected network downtime or the loss of a key employee such as a CEO or founder. Here are a few examples of contingency plan templates that deal with broadly different scenarios across a range of industries.

Severity and likelihood of risk: The manufacturers have been following the news in a region where they source specific airplane parts and have deemed the likelihood of disruption there “high.” They initially conduct a search for another supplier but quickly learn that it takes months—even years—to find one. Since the part is necessary for the construction of all their airplanes, they label the severity of this disruption “high” as well.

Trigger: Suppliers make the manufacturer aware that they will soon run out of the needed part due to a disruptive geo-political event in its country of origin.

Response: The manufacturer begins the search for a new supplier of the much-needed part in a more stable country.

Severity and likelihood of risk: The managers of a bank know of a vulnerability in their app that they are working to fix. If the app is hacked and their information systems are compromised, they are likely to lose vital customer data. They rate the likelihood of this event as “high” since, as a financial institution, they are a desirable target.

They also know from watching their competitors face similar situations that the potential for disruption to their business in an event like this is great. They rate the severity of this risk as “high” as well.

Trigger: IT makes the bank’s managers aware that the bank’s app has been hacked and their customers’ data is no longer secure.

Response: The app is immediately shut down and customers are notified that their data has been compromised. They are made aware of the steps that the bank is taking to ensure that they have access to their money and that their personal information is not available to anyone on the dark web. An on-call team of specially trained security experts come in to restore the bank's systems and secure customer information.

Severity and likelihood of risk: The plant’s managers know that severe flooding might spread un-treated water into the city’s streets and public waterways. Both the severity of this risk and its likelihood given the impending storm are deemed “high. ”

Trigger: The hurricane’s path turns toward the city and approaches to less than 100 miles away with wind speeds higher than the threshold rated “safe.” The plant’s contingency plan is put into action.

Response: All necessary workers are recalled to the plant 24/7 and measures are taken to treat as much of the water as possible before the hurricane arrives. According to their plan, whatever is left over will be pumped into holding tanks that are designed to withstand a hurricane. When windspeeds rise to a certain velocity, the plant itself is shut down and all workers evacuated.

Help your business respond quickly to changing conditions with IBM Maximo, an integrated cloud-based solution that harnesses the power of artificial intelligence (AI), Internet of Things (IoT) and advanced analytics to maximize performance and minimize costs and downtime.

Learn more about the process of disaster recovery planning and Disaster-Recovery-as-a-Service.

Discover how global supply chains responded to the COVID-19 pandemic and are developing better ways to balance efficiency and resilience.

See how businesses are leveraging AI and other emerging technologies to maintain business continuity amid disruption and uncertainty.

Explore the business continuity measures IBM takes to help prevent or reduce the impact of potential threats.

Unlock the full potential of your enterprise assets with IBM Maximo Application Suite by unifying maintenance, inspection and reliability systems into one platform. It’s an integrated cloud-based solution that harnesses the power of AI, IoT and advanced analytics to maximize asset performance, extend asset lifecycles, minimize operational costs and reduce downtime.

1  “ El Nino contingency plan being readied for farmers and output ” (link resides outside ibm.com), Elara Securities Pvt Ltd., 27 April 2023.

2  “ HKMA has prepared contingency plans in case of severe sanctions ” (link resides outside ibm.com), UBS Global Research and Evidence Lab, 5 May 2022.

3  “ IBM business continuity management position paper ”, IBM Global Technology Services thought leadership white paper, September 2019.

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What Is a Business Contingency Plan?

Small Business Contingency Plans Explained

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A business contingency plan is a course of action that will be taken if an unexpected event occurs that could disrupt the business. It's a backup plan that ensures the business can continue to operate despite an adverse event.

A business contingency plan is a “plan B” or blueprint for how to keep your business running in the event of a natural disaster, major technical issue, or other unforeseen disruption. A contingency plan identifies potential risks to your business and outlines steps your management team and employees can take if confronted with one of those risks. It helps protect the health and safety of your workers after an event has occurred, while also minimizing business interruptions that can result in financial losses. A well-thought-out plan can mean the difference between staying in business and shutting down.

  • Alternate term : Continuity plan

Do You Need a Business Contingency Plan?

Every business should have a contingency plan so it can resume its operations as soon as possible after a disruptive event occurs. 

A plan will save you time and money since you've already decided what resources you need and actions to take to keep your business going. It can also alleviate some of the stress you're likely to feel when disaster strikes. 

Rather than fretting about what you should do, you can simply follow the steps you've laid out ahead of time.

How to Create a Business Contingency Plan

The first step in creating a contingency plan is to determine what risks are most likely to impact your business and the functions they will impact. Think about how your business normally operates and the types of events that could disrupt its major activities. Your risks depend on the nature of your business and your geographical location. For instance, hurricanes and earthquakes are risks in some areas but not others. Here are examples of events that could cause disruptions:

  • Physical damage by fire, windstorm, or other peril to a building that your business occupies
  • Damage to machinery or breakdown of equipment
  • An extended utility outage (electricity, water, gas, or telecommunications)
  • Resignation or extended absence of key employees
  • Damage to your computer system or a data breach
  • Interruption of your supply chain
  • Blocked access to your business location

Some of these events could also have legal implications. For example, all 50 states, along with D.C. and U.S. territories, have laws requiring businesses to notify individuals whose personally identifiable information has been stolen or released in a data breach.

Run an Impact Analysis

The next step is to conduct a business impact analysis so you can predict the potential outcomes of a disruption of one of your business functions or processes. An analysis can help you estimate the operational and financial impacts of a disruption. It can also help you gather the information you will need to develop recovery strategies. Here are examples of the potential operational and financial impact from the disruption of business functions and processes:

  • Lost or delayed sales or income
  • Increased expenses, such as overtime, outsourcing, and expediting costs
  • Regulatory fines
  • Contractual penalties or loss of contractual bonuses
  • Customer dissatisfaction or defection
  • Delay of new business plans  

When estimating the impact of events, be sure to consider timing and duration. 

A hurricane, structure fire, or data breach may have a greater effect on your income or costs if it occurs during your busy season than when business is normally slow. Likewise, a disruption that lasts for a day will have less impact than one that extends for a week or a month.

You can use the results of your impact analysis to rank your risks in order of priority. Risks with the greatest potential impact should be listed first.

One of the easiest ways to write a contingency plan is to use a template, which is provided by several state and local websites including, for example, the one for Cambridge, Massachusetts .

Plan for Continuity

Once you've analyzed your risks and estimated their impacts, you can begin writing your contingency plan. You'll need a plan for each of the risks you've identified. For example, suppose your manufacturing business is highly dependent on a grinding machine. If the machine became inoperable due to physical damage or a malfunction, your business might have to shut down temporarily. You draft a contingency plan outlining steps you will follow if your machine becomes unusable. Your plan, in turn, might include contact information for two companies that rent machines similar to yours.

When writing your contingency plan, be sure to identify specific people who will need to take action. For instance, suppose your firm employs a highly-skilled salesperson named Susan, who generates 50% of your firm's sales. If Susan left your firm or was unable to work for an extended period, your sales would plummet. You know a retired salesperson (Jim) who could step in for Susan temporarily. However, before you include Jim in your plan, you should explain the roles and responsibilities you'd expect him to fulfill and obtain his consent.

Once you've completed your contingency plan, be sure to share it with your managers and staff who will be responsible for implementing it. Ask them for their feedback, as they may think of a potential risk or impact you didn't consider.

Contingency Plan Example

Here's an example of how a company might use a contingency plan.

Tom owns Tasty Treats, a manufacturer of frozen prepared meals. The firm generates 60% of its revenue from sales of frozen pizza, all of which is made at a central location. Tom worries that his business could be severely impacted if a catastrophe occurs at the pizza manufacturing facility and he's forced to shut it down. Tom thinks his biggest risks are fire, windstorm, equipment breakdown, and an extended power outage, and that all have a high probability of occurring. He drafts a detailed contingency plan. Here are the highlights.

Ready.gov. " Business Impact Analysis ." Accessed Jan. 28, 2021. 

National Conference of State Legislatures. " Security Breach Notification Laws ." Accessed Jan. 28, 2021. 

contingency plan of the business

The Easy Guide to Creating a Business Contingency Plan

Updated on: 2 November 2022

How to avoid disasters? Be prepared for them. 

When things are going well, you often forget to plan for the bad times. But when disaster strikes, you could lose everything in a heartbeat.

An earthquake can bring your whole shop to the ground, your biggest client can choose your competitor over you, your system suddenly can crash making you lose important data etc. There are endless possibilities of disasters if you really think about it. 

That’s why lack of a plan can be a disaster of its own. 

Let’s see why you need a business contingency plan and how to create one in a few simple steps.  

What is a Business Contingency Plan? 

But first, let’s define what a contingency plan is. 

A contingency plan is a proactive strategy that describes the course of actions or steps the management and staff of an organization need to take in response to an event that could happen in the future. It plays a significant role in business continuity , risk management and disaster recovery. 

It helps you stay prepared for unforeseen events and minimize their impact. It also outlines a plan for carrying out the normal business operations after the event has occurred.  

It’s also known in names such as plan B, backup plan, and disaster recovery plan. In case your primary plan doesn’t work, it’s time to execute the plan B.

Benefits of a Contingency Plan 

Without a contingency plan you’re opening yourself to unnecessary risks. Here are some important benefits of a contingency plan that you cannot look away from. 

  • Helps react quickly to negative events. As a contingency plan lists the actions that need to be taken, everyone can focus on what to do without wasting time panicking.
  • Having a contingency plan in place allows you to minimize damage that could happen from a disaster and minimize the loss of production. For example if you have emergency generators set up, even during a blackout, your team can work seamlessly. 

How to Make a Contingency Plan 

An effective contingency plan is based on good research and brainstorming. Here are the steps you need to follow in a contingency planning process. 

Step 1: List down the key risks

Identify the major events that could have a negative impact on the course of your business and on the key resources, such as employees, machines, IT systems etc. 

Involve other team heads, subject experts, and even outsiders like business consultants to get a deeper understanding of things that may cause problems and jeopardize the direction.

Use a mind map to organize and categorize the information you gather from the brainstorming session with the staff. You can easily share this with everyone in the organization to get their input as well.

Mind Map for Risk Identification

Step 2: Prioritize the Risks Based on Their Impact 

Once you have created a list of all the possible risks that could occur in different areas of your business, start prioritizing them based on the threat they pose. 

The risk impact probability chart is a handy tool you can use here. It helps you evaluate and prioritize risks based on the severity of their impact and the probability of them occurring.

Risk Probability and Impact Matrix

Step 3: Create Contingency Plans for Each Event

In this step you’ll create separate plans that outline the actions you need to take in case the risks you identified earlier occur. 

Consider what needs to be done in order to resume normal operations after the impact of  the event. 

Here you’ll need to clarify employee responsibilities, timelines that highlight when things should be done and completed after the event, restoring and communications processes and the steps you need to have taken in advance to prevent losses when the event has taken place (i.e. insurance coverage). 

You can use a visual format here to highlight the course of actions. It would be easier for everyone to comprehend.

Business Contingency Plan Example

Step 4: Share and Maintain the Plan 

Once you have completed the contingency plans , make sure that they are quickly accessible to all employees and stakeholders. 

Review your contingency plans from time to time and update them as needed. And it’s a best practice to inform your employees of the changes as well, as it may include updates to their roles and responsibilities.  

What’s Your Take on Contingency Plans?

That is how you make a detailed contingency plan. List down the major incidents that could harm your business operations, prioritize them based on their impact and probability, create an action plan explaining what you should do in case they occur, and review and update them frequently. 

What is the contingency planning process at your organization? Let us know in the comments section below.

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

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What Is Contingency Planning? [+ Examples]

Flori Needle

Published: January 13, 2023

The COVID-19 pandemic has shown, more than ever, the importance of being prepared with a contingency plan for the unexpected, especially when it comes to business continuity.

business professional creating a business contingency plan

While some unexpected interruptions can be due to situations outside of your control, some issues arise that may be caused by internal errors. Unexpected problems can also be positive, like a sudden influx of interest in a new product.

Download Now: Free Contingency Plan Template

Regardless of the scenario, it's essential to prepare for everything, and contingency planning helps you do so. This post will explain what contingency planning is, outline the steps you can follow to create your own plan, and give examples that you can use for inspiration.

  • Contingency Planning
  • Business Contingency Plan
  • Making a Contingency Plan
  • Contingency Plan Timeline
  • Contingency Plan Example

Contingency Plan Definition

What is a contingency plan? Simply put, a contingency plan is an action plan designed to help organizations respond to a potential future incident. Think of it as a backup plan, or plan B to guide organizations through a worst-case scenario.

Contingency plans are helpful for all types of organizations, from businesses to non-profits, to government organizations. While these scenarios may never come to fruition, it’s important to have a plan in place so that your team isn’t panicking or scrambling to deal with an unfavorable event at the last minute.

What is contingency planning?

Contingency planning is a proactive process of creating a strategy to help you prepare for any scenario that can affect your business, regardless of the likelihood of its occurrence.

These plans shouldn't focus solely on situations that may harm your business. For example, you may experience a significant increase in revenue during a specific period due to changes in market behavior. This is a good scenario, but you will still need to adapt your operations to scale and appropriately meet the new demands of your growing audience.

Contingency Planning vs. Crisis Management

Contingency planning is also different from crisis management , as it is not a reaction to something that has already happened but more so a plan for if and when something may happen. However, a contingency plan can help you with crisis management when issues arise.

Contingency Planning vs. Risk Management

Risk management is the identification, mitigation, and assessment of potential risks that may affect your organization. This process helps an organization prevent losses before they occur and aids in assessing whether or not certain risks are worth taking. Contingency planning can be a component of risk management since that process helps organizations survive these potential risks.

To ensure your business is prepared for everything, it's crucial to understand how to create a contingency plan.

What is a business contingency plan?

A business contingency plan is a strategy that outlines the steps your business’ teams will take in the event of a crisis occurring. It is essentially the backup plan that goes into action when the worst-case scenario occurs. The goal of your contingency plan is to help your business stay up and running after an issue arises.

Business Continuity Plan vs. Contingency Plan

Although their names vary by few letters, business continuity and contingency plans are different concepts. Continuity is the ability of your business to continue functioning after an incident that has disrupted operations occurs. A contingency plan is an action plan that goes into place if an incident were to happen.

Contingency plans can significantly impact whether your business can achieve continuity. Being able to react and take action during a crisis can dictate whether or not your business can emerge from the other side and continue normal business operations.

You can think of it like this: your continuity plans contain five sections: program administration, governance, business impact analysis, strategies and requirements, and training and testing. If your business also uses contingency plans, it could be part of the strategies and requirements section, which dictates how your business will respond to a crisis if it occurs.

Contingency Planning: How to Make a Business Contingency Plan

Creating a contingency plan is responding to the question of "What if?"

What if your storefront floods? Or what if your supplier goes out of business? The responses to the what-ifs are contingency plans. These scenarios aren't necessarily going to happen, but if there is a possibility that they'll affect your business, you're prepared if they do.

Below we'll discuss the steps that go into contingency planning.

Contingency Planning in 7 Steps

1. identify critical business functions..

This first step is the most important aspect of your planning, as it sets the tone for why your plans need to exist in the first place.

During this phase, identify all critical areas essential to keeping your business up and running every day. As these operations are imperative to success, you need to have plans to ensure that these operations continue, regardless of whatever scenarios arise.

You can think of it like this: these critical areas keep your business up and running on a day-to-day basis. Other areas are important, but these are the main functions that keep you afloat. Given this, you want to be prepared for anything and everything that may happen that can affect the critical areas, whether positive or negative. Contingency planning is exactly that.

Identifying these areas helps you move on to the next step as you begin brainstorming possible scenarios that can impact them.

2. Conduct a scenario assessment.

Once you've identified the critical operations of your business, you'll want to conduct a scenario assessment to identify situations that will affect these functions and put stress on your day-to-day operations.

For example, if your business operates out of a storefront, keeping your storefront up and running is a critical area of your business's success. Maybe you launch a new product that attracts more interest than you thought, and you need to deal with higher in-store traffic and a lack of products to satisfy the market. While it is a positive situation that will draw in more revenue, it can still have negative repercussions for your business if you don't deal with it when it happens.

You can think of this stage as similar to a risk assessment, but the possibilities are positive and negative. It may be helpful to meet with people who work in these critical areas and understand what they think may cause interruptions to their job duties and barriers to their success. Ask them how they feel situations will impact them and how they would deal with each scenario.

If you come up with a long list of threats, you can prioritize them based on their likelihood of occurring and how significant their impact would be on your business.

3. Create contingency plans for each scenario.

During this phase, you'll create contingency plans. Begin with the highest priority "threats," or those most likely to occur and most likely to cause significant stress to your business.

Outline the scenarios, people to inform, and the roles and responsibilities involved parties will have when they respond. We'll go over an example below, but a helpful template to follow can be:

  • Outlining the scenario,
  • Determine the probability of it occurring,
  • Explain how you'll prepare ahead of time,
  • Detail what the response will be if and when it happens.

Once you've created your plans, distribute them to key stakeholders in each scenario, so everyone understands what they are responsible for and can prepare ahead of time.

4. Get your plan approved.

Once you’ve come up with a desired plan of action, it’s time to get approval from stakeholders and management. If you’re creating both department-level and company-wide plans, this is especially important. Your plan won’t be a success unless there is buy-in from key members of your team and management. Once all parties agree that the course of action described in the contingency plan works for everyone, you can move forward with confidence.

5. Share the plan with your team.

Once your plan is approved, it’s time to distribute it. Putting it in a shared folder accessible to everyone creates transparency and makes it readily available if the time comes.

Make sure the parties involved know what they’re responsible for in the plan, that way you can execute the plan seamlessly should the worst-case scenario occur.

6. Test your plans.

As with all plans, it's essential to continuously test (more on that in the next section) and update them over time. As businesses scale and change, your business needs will likely change, and specific scenarios will no longer have as significant of an impact. There may also be new scenarios to plan for that you hadn't anticipated or thought of when you were a smaller operation.

It can be helpful to create a timeline that you'll use to spend dedicated periods reviewing your plans, testing them, and communicating with the necessary stakeholders about any changes you've made to the plans.

7. Update your plan as needed.

Consider your contingency plan a work in progress. You’ll need to adapt it as new risks arise and to ensure it still makes sense for your business needs. Whenever a new manager or executive joins the team, be sure to share it with them as needed so they know what (if anything) is expected of them.

Contingency Planning Timeline

As planning is always an involved process, you may be wondering how much time you should devote to each step. Let's discuss a timeline below.

Week One: Identify Key Operations

Give yourself about a week to identify the operational areas essential for business function. You likely already know what these areas are, but you want to do enough research to identify them all.

Weeks Two & Three: Brainstorm Scenarios

Take two to three weeks to brainstorm the scenarios you're going to create plans for. Spend as much time as possible speaking to the necessary stakeholders to understand their ideas about the scenarios and how they'd like them dealt with. You'll want to conduct probability assessments and market research to understand if your competitors have ever dealt with something similar. You want to make sure you have all the necessary information before drafting your plan, so this step should be the longest.

Week Four: Draft Plan

Give yourself a week to draft your plans. The first two steps should give you all the information you need, so the third step is simply fine-tuning your research and creating the final plan. You can also share what you've created with your stakeholders and iterate on what you have based on their feedback.

The final step to creating your plan, maintaining and testing, is a continuous effort. As mentioned above, your business will likely be impacted by different things at different times, so it's always important to review plans and ensure they still relate to your needs. For example, maybe you plan to do quarterly reviews and training so new hires, and existing employees, are all on the same page.

Contingency Planning Example

business contingency plan steps

It may be helpful to have an example of a contingency plan, so we'll go over one below. The examples are of a positive and negative situation, so you can get a sense of how a plan applies to both.

Contingency plan example

Contingency Planning Mistakes to Avoid

Even with the best intentions, your contingency plan may get off to a rocky start. Here are some common mistakes to avoid when creating one of your own.

Not securing executive buy-in first.

Before you can get your team or department onboard, you must get buy-in from the executive team. Otherwise, you risk creating a doomed plan from the start.

Get their feedback on potential risks and other factors that may impact guidelines in the plan. Having executive support from the start ensures the plan put forth is approved and also can motivate those at the department level to buy-in as well.

Failure to cover multiple scenarios.

When assessing potential risks and scenarios, it’s important not to cut corners or slack. Scenario planning is key to your contingency plan’s success. All potential risks should be taken into account. You can rank them by likelihood, but you should by no means leave less likely events out. Otherwise, you leave yourself vulnerable should the event happen.

Think about how many businesses were affected by supply chain issues during the pandemic. Most probably never predicted such a catastrophe, but the ones that had a plan in place for such an obstacle were better prepared.

Set it and forget it.

It’s really easy to get comfortable once your contingency plan is in place — after all, if you did your due diligence from the start, you’re ready to tackle any obstacle thrown your way.

Unfortunately, it’s not a one-and-done process. A contingency plan should be looked at as a living document and updated as needed. Your business needs will change over time and so will its obstacles and risks.

Create Business Contingency Plan

All in all, contingency plans help you prepare for a host of what-if scenarios, whether they happen or not. As you never want to be caught in a challenging situation, being prepared is the best thing you can do to ensure your business continues to succeed, regardless of whatever happens along the way.

As the saying goes, better safe than sorry .

Editor's note: This post was originally published in November 2021 and has been updated for comprehensiveness.

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What is a contingency plan & how to develop one.

Vivian Tejeda

ClickUp Contributor

July 13, 2023

In business, the only constant is inconsistency. 

Whether it’s natural disasters, cybersecurity breaches, or supply chain disruptions, unexpected events can strike at any time. And this isn’t simply alarmist talk—obviously, business risks can pop up anywhere, but you can avoid so much with a general backup plan.  

It’s why developing a contingency plan is essential for every organization. However, it takes knowing what to include, how to create proactive measures, and how to have this plan ready at any time so you maintain normal operations.

And that’s where this guide comes in. 💪

Let’s walk through the process of contingency planning to help your team navigate unforeseen challenges with confidence. Here’s how to start safeguarding your business against the unpredictable.

What is a Contingency Plan?

Benefits of having a contingency plan, how to create a business contingency plan: a step-by-step guide, elements of a contingency plan, contingency plan examples, get your team prepared with a contingency plan.

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A contingency plan is a proactive strategy designed to help businesses prepare for potential risks and disruptions. It outlines the necessary steps to lower potential damage, ensure your business operations continue, and that an organization can recover from its biggest risks or unexpected adverse situations.

Business contingency plans understand the key risks that could derail an entire project or business continuity. Typically, contingency planning relies on business impact analysis to determine the biggest risks and potential setbacks . This allows companies to proactively create a backup option from an original plan.

From weather-related disasters to data breaches, contingency planning makes all the difference when the unexpected occurs. There are plenty of reasons to create contingency plans—for obvious and not-so-obvious reasons.

Here are some of the benefits of contingency planning you might not realize:

1. It keeps damage and losses in check

Having a solid contingency plan means you’re ready to tackle whatever curveballs life throws at your business. And the best part? It minimizes the impact these surprises can have on your business. For example, it could be financial, operational, or reputational risk management to keep damage and losses to a minimum.

With detailed contingency plans in place, you set yourself up to stay strong, no matter what.

2. It allows companies to keep business as usual—even when it’s not

A lot of businesses operate on the model that everything runs perfectly—minus a few hiccups here and there. But how do organizations plan around unpredictable disasters from weather or other emergencies that could break your supply chain?

You could panic—or have some relief knowing the contingency plans you created have a detailed backup plan to maintain business continuity—so everything remains running smoothly. Contingency planning allows you to adapt to whatever comes your way and keep serving your customers with minimal interruption.

Now that’s what you call stability.

3. It helps businesses bounce back in no time

Let’s be real—the faster you recover from an unexpected event, the better. Your contingency planning process helps you identify what you need to do to get back on track ASAP.

The result? You save time and resources and avoid any extra headaches that might come from a prolonged disruption—including losing that customer base you’ve worked so hard to grow. 

4. It makes it easier to win over customers and keep them

Here’s the thing—your customers and key stakeholders want to know you’ve got their backs. When you’ve got a business contingency plan at the ready, you show customers you’re serious about maintaining top-notch service and reliability. 

It’s a rock-solid way to build trust, foster customer loyalty, and show that your business operates no matter the situation—so you can focus solely on what matters most.

Ready to build your own contingency plans? Follow these seven steps to ensure your business is prepared for the unexpected. 

1. Assemble a contingency planning team

Gather a diverse group of employees and stakeholders who understand your business and provide valuable insights into potential risks and solutions. 

This team should include representatives from different departments and levels of responsibility, ensuring a well-rounded perspective. Remember, a diverse team spots potential blind spots better and brings creative problem-solving ideas to the table.

2. Leave no stone unturned

Identify possible disruptions—natural disasters, cybersecurity breaches, personnel issues, or other hazards—and assess their potential impact on your business. Take a deep dive into your operations and consider both internal and external threats. 

Consult with your team and external experts if needed, and create a comprehensive list of risks that could affect your business continuity.

3. Tackle the biggest fish first

Rank the identified risks according to their potential consequences and the likelihood of them actually happening. Focus on high-impact, high-probability events for your contingency plan.

This prioritization process will help you allocate resources effectively and ensure you’re tackling the most critical threats first. Remember, it’s essential to strike a balance between addressing immediate threats and preparing for longer-term risks.

4. Plan for action—not a reaction

For each risk, create a detailed plan outlining the steps your business will take to mitigate the threat and minimize its impact. These response strategies should be clear, actionable, and tailored to the specific risk at hand . 

clickup contingency plan template

Better yet, don’t start from scratch. ClickUp provides a done-for-you contingency template that you can fill in and share with your whole team. As you continue to flesh out your contingency plan, consider both short-term and long-term solutions, and make sure your plan is flexible enough to adapt to changing circumstances. The more specific your action plans , the better prepared your team will be.

5. Establish communication and keep the lines open

Determine how the information will be shared and establish guidelines for coordinating response efforts among team members and stakeholders. This might involve setting up dedicated communication channels, designating points of contact, or implementing a centralized reporting system. 

It might even be worth adding it to your onboarding process for employees. The goal is to ensure that everyone involved in executing the contingency plan is on the same page.

6. Train employees and raise awareness

Educate your employees about the risks you’ve identified and make sure they’re familiar with the contingency plan. Conduct regular training sessions and drills to keep everyone prepared. 

Make sure your team understands their role in the plan and is equipped with the skills and knowledge necessary to execute their responsibilities. Who is doing what? What are the expectations?

An informed and well-trained team is your strongest asset in navigating unexpected challenges.

7. Regularly review and update the contingency plan: Stay ahead of the curve

Stay proactive by periodically reviewing your contingency plan and making necessary updates based on changes in your business environment, new risks, or lessons learned from past incidents . 

Schedule routine check-ins to reassess potential risks, evaluate the effectiveness of your response strategies, and make any necessary adjustments. A contingency plan is a living document—keep it fresh and relevant to stay prepared for whatever comes your way.

Creating comprehensive contingency plans takes several crucial elements—think of them as the building blocks for a solid foundation of preparedness. Let’s explore each of these components in detail:

Risk assessment and identification: Know your threats

First things first, you need to dive deep into your business processes and identify potential threats that could disrupt your operations. 

Consider everything from natural occurring disasters and cyberattacks to personnel changes and to issues with supply chains. Once you’ve compiled a list of risks, assess their potential impact on your business to determine the severity of each threat.

Risk management is all about knowing the likelihood of anything and everything that could pause your operations. Here are some common reasons for developing contingency plans :

  • Natural disaster recovery (e.g., floods, earthquakes, hurricanes, tornadoes)
  • Pandemics or widespread health crises
  • Supply chain disruptions or shortages
  • Cybersecurity breaches or data theft
  • Technological failures or system outages
  • Regulatory changes or legal issues
  • Economic downturns or market fluctuations
  • Competitor actions or industry shifts
  • Workplace accidents or safety incidents
  • Acts of terrorism or civil unrest
  • Damage to facilities or equipment (e.g., fires, vandalism)
  • Intellectual property disputes or theft
  • Loss of major clients or contracts
  • Reputation-damaging events (e.g., product recalls, public relations crises)
  • Environmental hazards or accidents (e.g., chemical spills, pollution incidents)

Risk Assessment Whiteboard Template by ClickUp

Try the ClickUp Risk Assessment Whiteboard Template to collaboratively plan around all of the potential issues that could harm your operations. A visual whiteboard allows everyone to participate and clearly see the risks and strategies to address them in one space. Now, your contingency plan will look better than ever.

Prioritization of risks: Focus on what matters most

Not all risks are created equal. To make the most of your contingency planning efforts, prioritize risks based on their likelihood as well as what their consequences could be. 

Focus on addressing high-impact, high-probability events first, then work your way down the list to make sure you’re tackling the most critical threats head-on to have a solid Plan B.

ClickUp Prioritization Matrix Template

The ClickUp Prioritization Matrix Template aids in prioritizing tasks and projects based on their impact on users and the effort required to implement them. It’s a useful tool for assessing operational workflows and improvements, with prioritization made easy using the 3×3 matrix.

Response strategies and action plans: Be proactive—not reactive

For each identified risk, develop a clear and actionable plan outlining the steps your business will take to minimize the threat and its impact. 

Remember, it’s essential to be proactive rather than reactive—having well-defined response strategies in place will help you act swiftly and decisively when faced with unexpected challenges.

Using the Cybersecurity Action Plan Template by ClickUp to create an organized and detailed cybersecurity implementation plan

For IT teams, contingency plans must include how you’ll address any cybersecurity threats. The ClickUp Cybersecurity Action Plan Template helps IT departments add crucial details to a contingency plan.

Communication and coordination: Keep everyone in the loop

Here’s an important note to keep in mind: A contingency plan is only effective if everyone involved knows about it and understands their role. 

Outline how information will be shared during an emergency, and establish protocols for coordinating efforts among team members and stakeholders. For example, HR software with clear communication and seamless coordination features can be vital for a successful response to any crisis.

ClickUp Communication Plan Template

If you need help setting up your internal or external communication process during a crisis, the ClickUp Communication Plan Template is a must. This template provides simple steps to build an effective communication plan with easily customizable sections throughout the Doc so your contingency plan is as thorough as possible.

Training and awareness: Empower your team

Educate your employees about potential risks and the contingency plan itself. 

Run regular training sessions and drills to make sure everyone is familiar with their responsibilities and prepared to act when the time comes. An informed and well-trained team is your strongest asset when navigating unexpected challenges.

ClickUp Process and Procedures Template

Get a head-start with the ClickUp Company Process and Procedures Template to easily document and organize your contingency planning guide for the organization. This template will give you the bones of a solid plan to get employee buy-in and knowledge of what to specifically do if circumstances change.

Plan maintenance and updates: Keep it fresh and relevant

Lastly, don’t let your contingency plan collect dust. Regularly review and revise it as needed to make sure it remains up-to-date and aligned with your current business environment. 

Schedule periodic check-ins to assess potential risks, evaluate the effectiveness of your response strategies, and make any necessary adjustments. A contingency plan is a living document—keep it fresh and relevant to stay prepared for whatever comes your way. 🚀

clickup business continuity plan template

Don’t make planning any more difficult than it has to—use the ClickUp Business Continuity Plan Template and rest assured you’ve included everything. Add reassessment plans to go back and edit contingency plans based on new threats or risk you could encounter and review each year.

Toyota’s Swift Response to the 2011 Tsunami

In 2011 a devastating earthquake and tsunami hit Japan, causing widespread destruction and significantly impacting businesses across the country. Toyota, a global leader in the automotive industry, was no exception. Supply chains suffered massive disruptions due to damaged infrastructure and affected suppliers.

However, Toyota’s business contingency plan played a crucial role in minimizing the impact of the disaster on the company. They already discovered the possible risks associated with natural disasters and put measures in place to address them with a solid backup plan.

The company’s business continuity planning played a huge role in quickly bouncing back. Here are some of the best examples of their plan: 

Shifting production to alternative locations

Toyota’s “plan B” included an emergency response process to shift production to other facilities. When the tsunami struck, Toyota quickly relocated some manufacturing operations to unaffected plants, both within Japan and overseas.

These types of proactive measures helped maintain production levels and ensured that the company could continue to meet customer demands during the crisis.

Tapping into alternative suppliers

The event also affected many suppliers that Toyota relied on for parts and materials. To minimize the impact on supply chains, the company leveraged its extensive network of global suppliers, turning to alternative sources to procure the necessary components. 

This diversification strategy allowed Toyota to maintain its production schedules and minimize late deliveries of customer vehicles. 

Implementing recovery efforts

In the aftermath of the crisis, Toyota swiftly mobilized its resources to support recovery efforts. They worked closely with affected suppliers to help them restore their operations, provided financial assistance, and shared their expertise in disaster recovery. 

By getting ahead of “what ifs”, Toyota demonstrated the power of effective contingency planning in the event of a major disaster.

Remember, a good offense is the best defense. That’s why contingency planning pushes you to be proactive in managing risks . By identifying potential threats and addressing them before they escalate—and keeping your plan updated—you’ll always be ready to respond effectively. It’s like having a secret weapon in your back pocket.

Whether you use one of ClickUp’s templates or create something from scratch, a contingency plan is about so much more than just preparing for the unexpected. It’s about minimizing damage, ensuring business continuity, bouncing back quickly, building trust, and being proactive.

Use ClickUp as your central space for communication, planning, and organizing essential documents. Additionally, you can rely on Whiteboards to collaboratively organize your response plans.

When you put it all together with ClickUp, you’ve got a recipe for a resilient, agile, and successful organization that takes on anything life throws its way. Give ClickUp a try today for free !

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business contingency plan

An overview of business contingency plans

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Natural disasters, data hacking, theft—your organization has likely prepared for major catastrophes.

Less significant events can also be majorly disruptive—say your biggest customer suddenly switching to a competitor or your entire sales staff getting food poisoning at their annual retreat.

Many circumstances have the potential to disrupt, or worse, shut down your business. A business contingency plan can save the day. Follow the steps below to develop a business contingency plan that will help you stay prepared for the worst.

What is a contingency plan?

A contingency plan is a roadmap created by management to help an organization respond to an event that may or may not happen in the future—whether it’s a large-scale event like a natural disaster or a small-scale roadblock like employee theft.

The purpose of a business contingency plan is to maintain business continuity during and after a disruptive event. A contingency plan can also help organizations recover from disasters, manage risk, avoid negative publicity, and handle employee injuries.

By developing a contingency plan, your business can react faster to unexpected events. The faster your organization is able to get back up and running, the less impact you'll see on profits and revenue.

How to write a contingency plan

There are many factors to consider when building a contingency plan. These four steps are a good place to start preparing for the unexpected.

1. Identify the risks

Before you can prepare for a disaster, you need to understand what types of disasters you’re preparing for. Think about all the possible risks to your organization, including natural disasters, sudden changes to revenue or personnel, or security threats.

2. Prioritize the risks

Make sure you spend your time and resources preparing for events that have a high chance of occurring as you write and develop your contingency plan. For example, you may have listed earthquakes as a possible risk. However, if your area doesn't experience many earthquakes, you wouldn’t want to spend all your time preparing for this event. If your area is prone to flooding, you should spend more of your resources preparing for floods.

To determine which risks are more likely to occur, use a risk impact scale . This will help you to estimate the likelihood that an event will occur and determine where to focus your efforts.

risk impact scale

3. Develop contingency plans

Once you’ve created a prioritized list, it’s time to put together a plan to mitigate those risks. As you write a contingency plan, it should include visuals or a step-by-step guide that outlines what to do once the event has happened and how to keep your business running. Include a list of everyone, both inside and outside of the organization, who needs to be contacted should the event occur, along with up-to-date contact information.

You can also create a list of ways to minimize the risk of these events now and start acting on it. 

4. Maintain the plan

Maintenance of your contingency plan is arguably the most important part of the process because it’s where the work happens to ensure you’re always ready.

Review your plan frequently. Personnel, operational, and technological changes can make the plan inefficient, which means you may need to make some changes.  

You’ll want to communicate the plan to everyone who could potentially be affected and clearly define what everyone's roles and responsibilities will be during a time of crisis. 

Buniness contingency plan example

To help you prepare for the unexpected, get started with these business contingency plan examples below. 

business contingency plan example

Ready to get started? Business contingency plans help you prepare your organization to handle anything unexpected. Give your employees a realistic plan for how they should handle any problem that arises. 

risk management process

Learn the 5 steps to an effective risk management process.

About Lucidchart

Lucidchart, a cloud-based intelligent diagramming application, is a core component of Lucid Software's Visual Collaboration Suite. This intuitive, cloud-based solution empowers teams to collaborate in real-time to build flowcharts, mockups, UML diagrams, customer journey maps, and more. Lucidchart propels teams forward to build the future faster. Lucid is proud to serve top businesses around the world, including customers such as Google, GE, and NBC Universal, and 99% of the Fortune 500. Lucid partners with industry leaders, including Google, Atlassian, and Microsoft. Since its founding, Lucid has received numerous awards for its products, business, and workplace culture. For more information, visit lucidchart.com.

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Why Having a Contingency Plan Is So Important — and How to Develop an Effective One Let's discuss the importance of contingency planning, what a comprehensive contingency plan should include and how to implement one effectively.

By Greg Davis • Apr 27, 2023

Opinions expressed by Entrepreneur contributors are their own.

In today's ever-changing business environment, business owners, entrepreneurs and franchise owners need to be prepared for the unexpected. Contingency planning is a critical component of business growth, enabling organizations to minimize disruptions and recover quickly from unforeseen events.

In this article, we will discuss the importance of contingency planning, the key elements of a comprehensive plan and how to implement a contingency plan effectively. By taking proactive steps to prepare for potential challenges, businesses can build resilience and ensure continued growth and success.

Related: 4 Ways to Prepare Now so Your Business Survives the Unexpected Later

Why contingency planning matters

Disruptions can come in many forms, from natural disasters to cybersecurity breaches, equipment failures or even changes in the competitive landscape. Without proper planning, these events can have a devastating impact on a business's operations, finances and reputation. Contingency planning helps businesses minimize the impact of disruptions, maintain operational continuity and recover more quickly from setbacks. This resilience is crucial for business growth, as it enables organizations to adapt to changing conditions and capitalize on new opportunities.

Elements of a comprehensive contingency plan

Developing an effective contingency plan involves several key steps:

Step 1: Identify potential risks and vulnerabilities

The first step in creating a contingency plan is to identify potential risks and vulnerabilities that could impact your business. This includes both internal and external factors, such as natural disasters , equipment or network failures, supply chain disruptions, cybersecurity breaches, changes in the landscape or the loss of key personnel. By identifying potential threats, businesses can better understand their exposure and develop targeted strategies to address these risks.

Step 2: Develop response strategies

Once potential risks have been identified, businesses should develop response strategies to mitigate the impact of these events. This may involve developing alternative suppliers, establishing backup systems or processes or implementing new security measures. Response strategies should be tailored to the specific risks faced by the business and should take into account factors such as the likelihood of the event occurring, the potential impact on operations and the resources required to implement the strategy.

Step 3: Establish a communication plan

In the event of a disruption, clear communication is essential to ensure that all stakeholders, including employees, customers and suppliers, are aware of the situation and know what steps are being taken to address the issue. A comprehensive communication plan should outline how the information will be shared, who will be responsible for providing updates and what channels will be used to communicate with different stakeholders.

Step 4: Train employees and build awareness

For a contingency plan to be effective, employees need to be aware of the potential risks facing the business and understand their roles and responsibilities in the event of a disruption. This may involve training employees in new processes or procedures, providing guidance on emergency response protocols or conducting regular drills to ensure that all team members are prepared to act quickly and effectively in the event of a crisis.

Step 5: Review and update the plan regularly

As the business environment continues to evolve, it is essential that contingency plans are regularly reviewed and updated to reflect changes in the company's operations, industry dynamics or the broader economic landscape. This may involve conducting periodic risk assessments, updating response strategies or refining communication protocols to ensure that the plan remains relevant and effective.

Related: 5 Reasons Why You Should Create an Emergency Response Program for Your Business

Implementing a contingency plan

With a comprehensive contingency plan in place, businesses can take steps to minimize the impact of disruptions and maintain operational continuity . Key steps in the implementation process include:

Developing an action plan

An action plan should outline the specific steps that will be taken to address each identified risk, including timelines, resources and responsibilities. This plan should be clear, concise and easily accessible to all team members, ensuring that everyone understands their role in the event of a disruption .

Allocating resources

Contingency planning may require the allocation of resources, such as budget, personnel or equipment, to implement response strategies effectively. Businesses should prioritize resources based on the likelihood and potential impact of each identified risk, ensuring that the most critical vulnerabilities are addressed first.

Testing and refining the plan

Once the plan has been developed, it is essential to test its effectiveness through simulation exercises, drills or other means. This will help identify any weaknesses or gaps in the plan and enable the business to refine its strategies accordingly. Regular testing also helps ensure that employees are familiar with the plan and prepared to act in the event of a disruption.

Monitoring the environment and adapting

Contingency planning is an ongoing process that requires businesses to monitor changes in their operating environment and adapt their strategies accordingly. This may involve updating the plan to address new risks, adjusting response strategies in light of changing circumstances, or reallocating resources as needed. By staying attuned to the evolving business landscape, organizations can remain agile and resilient in the face of uncertainty .

Contingency planning is a critical component of business growth, enabling organizations to navigate the unexpected and maintain operational continuity in the face of disruptions. By identifying potential risks, developing targeted response strategies and implementing a comprehensive plan, businesses can build resilience and drive continued success. As the business environment continues to evolve, contingency planning will remain a vital tool for business owners, entrepreneurs and franchise owners seeking to capitalize on new opportunities and protect their organizations from unforeseen challenges .

Related: How to Create a Disaster Plan for Your Business

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Mastering Contingency Planning: Expert Strategies, Proven Best Practices, and Testing Techniques for Optimal Results

By Joe Weller | May 9, 2023

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Successful organizations must understand potential risks and have contingency plans in place to address them. We’ve assembled expert tips on effective contingency planning and offer practical insights on how to test those contingency plans.

Included on this page, you’ll find the benefits of contingency planning , steps to take to create a contingency plan, examples of contingency plans , and information on a range of exercises your team can do to test its contingency plans.

What Is a Contingency Plan?

A contingency plan is a proactive strategy that outlines the actions a person or entity will take in response to a potential future event. Businesses often develop contingency plans to prepare for risks and mitigate their impact on the business.

What Is Business Contingency Planning?

Business contingency planning is work an organization does to determine how it responds to future events that might affect the business. The goal is to prepare an organization to respond to negative events and mitigate their impact on the business.

A business contingency plan is a written document that outlines an organization’s contingency planning efforts. It typically includes a comprehensive assessment of possible risks to the business and corresponding measures the organization has planned to mitigate these risks, such as legal and budget contingency.

Why Is a Business Contingency Plan Important?

A business contingency plan is crucial for any organization, as it helps them respond quickly and effectively to negative events. With a solid contingency plan in place, companies can minimize damages and continue to thrive even amid challenges.

While an organization might develop a contingency plan for risks to individual projects or general risks to the enterprise as a whole, business contingency plans refer specifically to general risks to the enterprise. This document details all of the most important risks that a business or organization faces.

In recent years, the importance of business contingency plans has increased significantly. With the rise of climate change, natural disasters have become more frequent and disruptive, underscoring the need for organizations to have effective contingency plans. In addition, the ever-growing threat of cybercrime has further highlighted the importance of contingency planning, as businesses increasingly rely on technology to operate.

Luis Contreras

“Before, you might have said, ‘What are the odds of a 100-year flood?’” says Luis Contreras, President and Principal Consultant for AzTech International , a California consultancy that helps organizations manage large, complex projects. “Well, they are happening more often now. ‘What are the odds of a cyber incident?’ Well, they're happening more often.”

Erika Andresen

Many organizations take steps in their risk management programs to try to completely eliminate certain risks. However, it’s almost impossible for any organization to completely eliminate the chance of a risk happening, says Erika Andresen,  a business continuity and resilience expert, author, and founder of EaaS Consulting . Business contingency planning is important, she says, “because your risk management will fail at a certain point.”

The Benefits of a Contingency Plan

Contingency plans offer several benefits to organizations. They enable organizations to respond promptly and effectively to unexpected events, minimize damages, and facilitate a quick recovery. With a contingency plan in place, organizations can take proactive measures to mitigate risks.

Here are some of the primary benefits of having a contingency plan in place:

  • Improves Event Responsiveness: By having a clear plan in place, there is no confusion and individuals know how to react without blindly searching for direction. This enables the organization to take swift and effective action, minimizing response times and ensuring continuity of operations.

Andrew Lokenauth

  • Facilitates Quick Recovery: Organizations with good contingency plans bounce back quickly from negative events. For example, a severe storm or power outage might have a huge effect on a state or metropolitan area, but businesses that have backup generators and other contingency plans can often resume operations quickly. “It's resilience — it's how your company stays a company,” Andresen says. “That's how the company is able to grow and thrive. You've figured out that you're going to have a risk that is going to impact your operations. And then you worked and took the extra step to put in policies and procedures to get yourself back up and running with minimal disruption.”
  • Decentralizes and Disseminates Important Information: Business contingency planning forces organization leaders to gather people to assess the organization’s potential response to various events. This work necessitates the sharing of important information about the company and its operations, resulting in more people knowing how to assist in the company’s response. Accessible, decentralized information is invaluable in a crisis event or when top leaders in a company suddenly leave.“If you have a company with one or two top leaders, then it makes it even more important,” says Lokenauth. “If one person has all the knowledge, when something happens to that one person, how does the company function?”
  • Gives the Company Confidence in Its Operations: When you create effective contingency plans, you boost the confidence of everyone in the company. You instill a sense of trust that the company will respond well in an emergency. Moreover, you enhance confidence in the company’s overall preparedness, foresight, and integrity.

What Does a Contingency Plan Cover?

A contingency plan covers the important risks the organization is monitoring and any possible triggers to those risks. It also outlines the specific actions organization staff will take to respond to them.

A contingency plan often includes the following components:

  • Triggering Events: Identify the events that can make a risk event more likely to happen, such as weather patterns or market conditions.
  • Response Details: Outline specific actions the organization will take in response to a risk event, including preventive measures and mitigation strategies.
  • Organizational Responsibilities: Detail the roles and responsibilities of key personnel within the organization, such as the crisis management team and first responders. This might include a RACI chart that outlines who is responsible, accountable, consulted, or informed about specific response actions.
  • Key Contacts: Include contact information for key people or organizations that will be involved in the response efforts, such as emergency services, suppliers, and customers.
  • Outside Experts: Identify outside experts or consultants the organization might need to engage for help when responding to the risk event, such as legal advisors, public relations firms, or technical specialists.
  • Response Timeline: Include a timeline that details when certain responses need to happen, such as when to activate the crisis management team, notify stakeholders, or implement recovery measures.

Learn more about important components and how to write an effective contingency plan in this all-inclusive guide to writing contingency plans.

How to Develop a Contingency Plan

Developing a contingency plan begins with identifying and assessing potential risks. Next, teams outline an appropriate response to each risk, including specific actions that need to be taken and who will be responsible for executing those actions.

Steps in Business Contingency Planning

To develop an effective contingency plan, businesses need to follow some critical steps. The process starts with identifying and assessing potential risks and creating a response plan. Teams should then be trained on the plan and continually monitor potential risks.

These are the important steps to creating an effective contingency plan:

  • Identify and Assess Risks: Identify potential risks that could have the most significant impact on your organization. This assessment might involve conducting a business risk analysis to evaluate potential threats, vulnerabilities, and consequences. Learn more about this step in the contingency planning process in this comprehensive guide to risk mitigation .
  • Identify Resources: Identify what resources your organization already has that can help with contingency responses. This might include people, tools, or services that can be used to respond quickly to an unexpected event. Gather and coordinate those resources.
  • Create Contingency Plans: Create a contingency plan for each risk that your organization has identified as critical. This plan should outline specific actions that need to be taken, who will be responsible for those actions, and a timeline for executing the plan.
  • Seek Input and Secure Approvals: Get input from stakeholders and people within your organization on your draft contingency plans. Once you’ve gathered feedback, finalize plans and get approval from the organization’s leaders.
  • Share Your Plans: Communicate your contingency plans to all relevant stakeholders within your organization. This includes making sure that everyone understands what the plans are, what their role is in executing the plans, and any necessary training or resources required to implement them.
  • Perform Training Exercises: Train all relevant staff members on the contingency plans, and make sure they understand their roles in executing them. To test the effectiveness of the plans, perform exercises or drills that simulate potential risk events.
  • Monitor Risks and Contingency Plans: ​​Regularly review and assess business risks to ensure that your contingency plans remain effective and relevant. Evaluate whether the current plan provides the best response to potential risks and consider making updates or modifications as necessary.
  • Create New or Adjusted Contingency Plans as Needed: If your monitoring indicates that your contingency plans require adjustments, take action and promptly update them.

Business Contingency Planning Grid Template

Sample Business Contingency Planning Grid Template

Download a Sample Business Contingency Planning Grid Template for  Excel | Microsoft Word

Download a Business Contingency Planning Grid Template for  Excel | Microsoft Word

Download this business contingency planning grid template to assist your team in identifying potential risks to consider in your organization’s business contingency planning. This template provides a comprehensive list of broad risk categories and specific risks within those categories. By using this tool, you can evaluate which risks are relevant to your organization and develop appropriate contingency plans.

Contingency Planning for IT

Contingency planning in IT follows the same basic steps as other organizations. However, it often begins with a contingency planning policy statement , which outlines an organization’s broad approach to contingency planning.

What to Include in a Contingency Planning Policy Statement

A contingency planning policy statement is a document that outlines how an organization will perform contingency planning. It includes details on objectives, roles and responsibilities, resource and training requirements, testing schedules, and data backup and storage plans.

A contingency planning policy statement should include the following components:

  • Objectives: Describe the organization's overall contingency planning objectives — for example, what types of risks the organization is preparing to address and how the organization's contingency planning efforts align with its overall business goals.
  • Roles and Responsibilities: Outline the specific roles and responsibilities for performing contingency planning within the organization. This should include both high-level positions and specific individuals who will be responsible for carrying out different components of the plan.
  • Organizational Functions and Departments: Identify which organizational functions and departments will be responsible for performing contingency planning. This helps ensure that all relevant areas of the organization are involved in the planning process.
  • Resource Requirements: Determine the resources needed to support contingency planning efforts, including funding, personnel, equipment, and other necessary resources.
  • Employee Training Requirements: Develop a plan for training employees on their roles and responsibilities in the event of a contingency situation. This might include both general training on contingency planning concepts and specific training on the organization's specific plan.
  • Schedules of Exercises and Tests: Establish a schedule for conducting exercises and tests of contingency plans to ensure that they are effective.
  • Procedures for Maintaining and Updating: Develop procedures for maintaining and updating contingency plans over time, including regular reviews and updates to reflect changes in the organization's risk landscape or other relevant factors.
  • Data Backup and Storage: Determine how the organization will back up and store all electronic data to ensure that critical information is not lost in the event of a contingency situation.

A Contingency Plan Model for IT

The National Institute of Standards and Technology (NIST) has created SP 800-34, a popular contingency plan guide for IT. The guide outlines the steps and considerations that organizations should take when developing, implementing, and maintaining an effective contingency plan.

The SP 800-34 guide covers the entire contingency planning process, from risk assessment to plan testing and maintenance. It is widely used as a reference by government agencies, private organizations, and security professionals.

IT Preventive Controls

Any organization’s IT contingency plan should include preventive controls. These are measures an organization can take to prevent interruptions to information services or technology.

 Here are some basic IT preventive controls recommended by the NIST for federal information systems:

  • Uninterruptible power supplies (UPS): To provide short-term backup power to all components, appropriate for the size of your system.
  • Fuel-powered generators: To provide power over the longer term.
  • Air-conditioning systems: Establish adequate capacity to prevent failure of components that malfunction when overheated.
  • Fire and smoke detectors: Install in appropriate locations.
  • Fire suppression systems: Install to minimize potential damages.
  • Water sensors: Place in the ceiling and floor of rooms where computer equipment is located.
  • Containers for backup media and vital non-digital records: Ensure they are heat resistant and waterproof.
  • Master system shutdown switch: Make available for emergencies.
  • Off-site storage areas: Use them for backup media, system documentation, and important non-digital records.
  • Technical security controls: This includes management of cryptographic keys.
  • Frequent scheduled backups of data: This includes information on where the backups are stored, onsite and offsite.

Examples of Contingency Plans

Contingency plan examples can help your team understand what to consider in creating a plan and the important components to include.

You can learn more about contingency planning and download blank and example contingency plans.

Business Contingency Planning Best Practices

To improve your organization’s business contingency planning, experts recommend following a number of best practices, such as performing an effective risk assessment, training employees on the plan, and conducting exercises to test the plan.

These are some best practices to follow for effective business contingency planning:

  • Perform Good Risk Assessment and Analysis: Your team should identify the most critical risks through a thorough risk assessment. This includes analyzing the potential impact of each risk and determining which risks require a comprehensive contingency response.
  • Ensure All Team Members Are Aware of Contingency Plans: Contingency plans will not be effective if the employees in your organization are not aware or have only a vague understanding of them. Incorporate contingency planning into employee training and orientation programs, and communicate regular reminders and updates on the plans through team meetings, newsletters, and other internal communication channels.
  • Train Staff and Conduct Regular Drills: Your organization should train all employees responsible for specific tasks in the plan. Conducting exercises or drills where employees simulate a risk event scenario can help teams identify potential gaps or issues in the plan and improve its effectiveness. Many organizations will complete a business continuity or contingency plan, then “put it on a shelf and say, ‘OK, I did it.’ No, you didn’t,” says Andresen. “You haven't done it. You don’t know what’s in it. You don’t have the muscle memory for what the procedures are. When the disaster happens, you don’t want to be saying, ‘Hold on, let me flip through the pages.’ That's another integral part to business continuity planning or contingency planning: to train the plan and exercise the plan. That’s how you figure out if the plan works.”
  • Continually Review Plans and Make Necessary Adjustments: Drills and exercises are crucial to contingency planning, as they allow organizations to identify which contingency are ineffective and need to be revised. It is essential to modify plans when necessary, whether due to changing risks or other factors. After conducting a drill on a contingency plan, Andresen advises, “Go back and relook at the plan and say, ‘OK, we did this well. This didn't work. This needs to be improved.’” By doing so, teams can ensure that their contingency plans actually work. “This is why this needs to be revisited continuously so that the plan is not just a heavy paperweight,” says Andresen. “Don't break your arm patting yourself on the back that you've accomplished making the plan — actually do something with it.”

Types of Exercises to Test Your Contingency Plan

Conducting a variety of drills and exercises for contingency plans is essential for organizations that want to be prepared for any potential risks. The following chart outlines different types of exercises that can test and improve your contingency plans.

Common Contingency Planning Pitfalls to Avoid

To achieve effective contingency planning, it is important to be aware of common challenges and pitfalls. One such challenge: organizations not allocating sufficient resources to planning and executing responses that are part of the plans.

These are some of the most common challenges and pitfalls to avoid:

  • Lack of Resources Devoted to Contingency Planning and Actions: To create effective contingency plans, organizations must allocate staff time and resources for both planning and response. This includes significant resources to execute the actions required in response to a risk event. Neglecting these necessary resources can result in ineffective contingency plans and costly responses to risks.
  • Lack of Buy-in From Organizational Leaders: Lack of buy-in from organizational leaders often results in a lack of resources. Leaders who don’t value contingency planning might not provide the necessary funding, time, or attention to ensure the plans are effective. This can result in plans that are incomplete, inadequate, or not tested or updated regularly. “Every level of employee is going to look at leadership and see if they take this seriously,” Andresen says. “Is this some simple extra duty? If leadership is saying, ‘No, this is really important, and this is why this is important,’ they get the employees behind that. Then the employees are going to take it seriously.”
  • Bias Against Plan B Thinking: Contingency planning assumes that at some point, an organization’s mission is going to fail. Unfortunately, some organizational leaders have a bias against this, as they perceive it as thinking about a Plan B. However, these leaders must work to understand that having contingency plans is vital for the organization’s future and doesn’t reflect a lack of confidence in Plan A.
  • One-and-Done Contingency Plans: According to Andresen, organizations often develop contingency plans because they are deemed useful or someone within the organization encourages their development. However, these contingency plans are often completed, then disregarded. In order for contingency plans to be effective, organizations must share them widely, train their employees on them, and continuously adapt them to changing circumstances.

Effective vs. Ineffective Contingency Planning Example

The table below demonstrates the varying outcomes between a well-considered contingency plan and one that is less so. The consequences of these differing results can be significant for both the organization and the community.

Resource and Environment at Risk: An oil production facility has above-ground oil flowlines that run for 7,000 feet. The facility is located half a mile west of a major creek and six miles north of a river. The creek flows into the river, which flows into a town of 150,000 people located 12 miles away.

Contingency Plan Purpose: Detect and mitigate any significant oil leak from the facility's flowlines, with the goal of minimizing environmental damage. The plan places a special emphasis on preventing oil from reaching the nearby creek or river.

Business Contingency Plan vs. Business Continuity Plan

A business continuity plan and a business contingency plan share some similarities, but a business continuity plan primarily focuses on how an organization can continue operations during an emergency, whereas a contingency plan addresses a broader range of risks.

  • Business Continuity Plan: A business continuity plan outlines the steps an organization will take to maintain normal operations following a major and disruptive event, such as an earthquake, fire, or major data breach.
  • Business Contingency Plan: A business contingency plan covers a broader range of risks that an organization might face and outlines how the organization plans to respond. These risks can include potential major disruptions or events that might not directly affect operations but still require an effective response.

Business Contingency Plan vs. Project Risk Management Plan

Business contingency plans and project risk management plans both identify potential risks and determine ways to respond to them. The former focuses on risks to the entire organization, while the latter focuses on risks to a particular project.

In a project risk management plan , teams identify and assess possible risks to a specific project. It then determines how project leaders can respond to, eliminate, or mitigate those risks.

A business contingency plan identifies potential threats to an organization's ability to continue operating. It assesses risks that could temporarily or permanently halt operations, and then outlines plans to mitigate or eliminate those risks.

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What Is A Business Contingency Plan & How To Create One

Business Contingency Plan

It is the question that haunts business continuity professionals throughout their careers. Of course, there are a million possibilities that might occur at any time. But creating a business contingency plan at least helps you to prepare for the unknown.

Here, we take a look at the basics of business contingency planning , as well as how to create a plan for your own organization.

What is a business contingency plan?

A business contingency plan is a course of action that your organization would take if an unexpected event or situation occurs.

Sometimes a contingency can be positive—such as a surprise influx of money—but most often the term refers to a negative event that affects an organization’s reputation, financial health or ability to stay in business. Examples of a negative event include fire, flood, data breach and a major IT network failure.

Contingency plans are an important part of your overall business continuity strategy because they help ensure your organization is ready for anything. Many large businesses and government organizations create multiple sets of contingency plans so that a variety of potential threats are well-researched and their responses are fully practiced before a crisis hits.

Think of contingency planning as a proactive strategy, whereas crisis management—the other piece of the business continuity puzzle—is more of a reactive strategy. A contingency plan helps to ensure you are prepared for what may come; a crisis management plan empowers you to manage the response after the incident occurs.

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How do i create a business contingency plan.

Creating a contingency plan requires a bit of research and planning. However, working ahead on each plan will be worth it in the long run.

To create a contingency plan for your organization, follow this five-step framework:

1. Identify/prioritize your resources.

First, do a little research throughout your organization to identify and prioritize the resources that your organization cannot do without, such as employees, IT systems, and specific facilities and physical assets.

2. Pinpoint the key risks.

Next, identify the potential threats to these critical resources. Meet with employees, executives, IT and other key personnel to gain a holistic idea of the events that could impact your resources. If necessary, consider bringing in a consultant who specializes in identifying risk.

3. Draft your contingency plans.

Ideally, you would then write out a contingency plan for each of the identified risks. However, it’s best to start with the highest-priority threats—usually those that are most likely to occur and would have the biggest impact. Then, over time you can work toward drafting plans for each lower-priority risk.

As you draft each plan, ask yourself what steps would have to be taken for the organization to resume normal operations. Consider things like communications, employee activity, staff responsibilities and timelines (what needs to happen when). Then, create a step-by-step plan for each risk.

4. Distribute your plans.

Once each plan is completed and approved, ensure that every employee and stakeholder has easy access to it. For this important step, you might consider leveraging  an issue and crisis management app , which provides contingency plans and related documents directly to each employee on his or her mobile device.This approach replaces the traditional hard-copy ring-bound folders and ensures that each employee has access to the most recent plan immediately should the worst happen.

5. Maintain each plan.

Be sure to keep each plan updated as your organization goes through changes, such as hirings and firings and the adoption of new technologies. In addition, rehearse implementation with stakeholders on a regular basis to ensure that each team member knows their role.

What contingencies do you think are most likely to affect your organization? How are you currently preparing for them?

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What Is Contingency Planning? Creating a Contingency Plan

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Table of Contents

What is contingency planning, what is a contingency plan, contingency plan example, how to create a contingency plan, business contingency plans, project contingency plans.

Contingency plans are used by smart managers who are aware that there are always risks that can sideline any project or business. Without having a contingency plan in place, your organization won’t be well prepared for risk management .

The term contingency planning refers to the process of preparing a plan to respond to any risks or unexpected events that might affect an organization. Contingency planning starts with a thorough risk assessment to identify any risks and then develop a contingency plan to resolve them or at least mitigate their negative impact.

Contingency planning takes many shapes as it’s used for helping businesses and projects across industries. Even governments use contingency plans to prepare for disaster recovery or economic disruption, such as those caused by natural disasters.

A contingency plan is an action plan that’s meant to help organizations mitigate the negative effects of risks. In simple terms, a contingency plan is an action plan that organizations should execute when things don’t go as expected.

contingency plan of the business

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Action Plan Template

Use this free Action Plan Template for Excel to manage your projects better.

Now that we’ve briefly defined what contingency planning is, let’s take a look at a contingency plan example involving a manufacturing project.

Let’s imagine a business that’s planning to manufacture a batch of products for an important client. Both parties have signed a contract that requires the manufacturer to deliver the products at a certain date or there may be negative consequences as stated on the purchase agreement. To avoid this, the business leaders of this manufacturing company start building a contingency plan.

To keep this project contingency plan example simple, let’s focus on three key risks this company should prepare for.

  • Supply chain shortages: The supply chain is one of the most important business processes for this manufacturing company. Therefore, one of the most impactful risks is a raw material shortage which may occur if their main supplier is unable to deliver the materials they need on time. To prepare a contingency action for this risk, the business owners decide to reach out to other suppliers and place standing purchase orders which give them the opportunity to ask for a certain quantity of materials at some point in the future. If the risk of a supply chain shortage occurs, they’ll have multiple sources of raw materials available in case their main supplier can’t keep up with their demand levels.
  • Machinery breakdown: Another risk that might halt production is the malfunction of machinery. To prepare for this, business leaders hire extra maintenance personnel and order spare parts for their production line machinery as part of their contingency plan. If the risk of machinery breakdown becomes a reality, the organization will have the labor and resources that are needed to mitigate it.
  • The team is not meeting the schedule: If the manufacturing team members are failing to meet their goals on time for whatever reason, the manufacturing business will need to allocate more resources such as extra labor and equipment to complete the work faster. However, this contingency action will generate additional costs and reduce the profitability of the project.

ProjectManager has everything you need to build contingency plans to ensure your organization can respond effectively to risks. Use multiple planning tools such as Gantt charts, kanban boards and project calendars to assign work to your team and collaborate in real time. Plus, dashboards and reports let you track progress, costs and timelines. Get started today for free.

ProjectManager's Gantt chart

Like a project plan , a contingency plan requires a great deal of research and brainstorming. And like any good plan, there are steps to take to make sure you’re doing it right.

1. Identify Key Business Processes and Resources

To create an effective contingency plan you should first identify what are the key processes and resources that allow your organization to reach its business goals. This will help you understand what risks could be the most impactful to your organization. Research your company and list its crucial processes such as supply chain management or production planning as well as key resources, such as teams, tools, facilities, etc., then prioritize that list from most important to least important.

2. Identify the Risks

Now, identify all the risks that might affect your organization based on the processes and resources you’ve previously identified. Figure out where you’re vulnerable by brainstorming with employees, executives and stakeholders to get a full picture of what events could compromise your key business processes and resources; hire an outside consultant, if necessary. Once you’ve identified all the risks, you should use a risk log to track them later.

3. Analyze Risks Using a Risk Matrix

Once you’ve identified all the risks that might affect your processes and resources, you’ll need to establish the likelihood and level of impact for each of those risks by using a risk assessment matrix . This allows you to determine which risks should be prioritized.

4. Think About Risk Mitigation Strategies

Now, write a risk mitigation strategy for each risk that you identified in the above steps. Start with the risks that have a higher probability and higher impact, as those are the most critical to your business. As time permits you can create a plan for everything on your list.

5. Draft a Contingency Plan

Contingency plans should be simple and easy to understand for the different members of your audience, such as employees, executives and any other internal stakeholder. The main goal of a contingency plan is to ensure your team members know how to proceed if project risks occur so they can resume normal business operations.

6. Share the Plan

When you’ve written the contingency plan and it’s been approved, the next step is to ensure everyone in the organization has a copy. A contingency plan, no matter how thorough, isn’t effective if it hasn’t been properly communicated .

7. Revisit the Plan

A contingency plan isn’t chiseled in stone. It must be revisited, revised and maintained to reflect changes to the organization. As new employees, technologies and resources enter the picture, the contingency plan must be updated to handle them.

Contingency Plan Template

We’ve created an action plan template for Excel to help you as you go through the contingency planning process. With this template, you can list down tasks, resources, costs, due dates among other important details of your contingency plan.

contingency plan of the business

A business contingency plan is an action plan that is used to respond to future events that might or might not affect a company in the future. In most cases, a contingency plan is devised to respond to a negative event that can tarnish a company’s reputation or even its business continuity. However, there are positive contingency plans, such as what to do if the organization receives an unexpected sum of money or other project resources .

The contingency plan is a proactive strategy, different from a risk response plan , which is more of a reaction to a risk event. A business contingency plan is set up to account for those disruptive events, so you’re prepared if and when they arrive.

While any organization is going to plan for its product or service to work successfully in the marketplace, that marketplace is anything but stable. That’s why every company needs a business contingency plan to be ready for both positive and negative risk management.

In project management, contingency planning is often part of risk management. Any project manager knows that a project plan is only an outline. Sometimes, unexpected changes and risks cause projects to extend beyond those lines. The more a manager can prepare for those risks, the more effective his project will be.

But risk management isn’t the same as contingency planning. Risk management is a project management knowledge area that consists of a set of tools and techniques that are used by project managers to create a risk management plan.

A risk management plan is a comprehensive document that covers everything about identifying, assessing, avoiding and mitigating risks.

On the other hand, a contingency plan is about developing risk management strategies to take when an actual issue occurs, similar to a risk response plan. Creating a contingency plan in project management can be as simple as asking, “What if…?” and then outlining the steps to your plan as you answer that question.

Using ProjectManager to Create a Contingency Plan

ProjectManager has the project planning and risk management tools you need to make a reliable contingency plan that can quickly be executed in a dire situation.

Use Task Lists to Outline the Elements

Use our task list feature to outline all the elements of a contingency plan. Since a contingency plan likely wouldn’t have any hard deadlines at first, this is a good way to list all the necessary tasks and resources. You can add comments and files to each task, so everyone will know what to do when the time comes.

Task list in ProjectManager

Reference Dashboards to Monitor the Contingency Plan

Our dashboard gives you a bird’s eye view of all of the critical project metrics. It displays live data so you’re getting a real-time look at how your project is progressing. This live information can help you spot issues and resolve them to make sure that your contingency plan is a success. Which, given that it’s your plan B, is tantamount.

ProjectManager’s dashboard view, which shows six key metrics on a project

If you’re planning a project, include a contingency plan, and if you’re working on a contingency plan then have the right tools to get it done right. ProjectManager is online project management software that helps you create a shareable contingency plan, and then, if you need to, execute it, track its progress and make certain to resolve whatever problems it’s addressing. You can do this all in real time! What are you waiting for? Check out ProjectManager with this free 30-day trial today!

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A practical guide to creating a contingency plan

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The vast majority of failed projects and bankrupt companies had a plan and followed it. So why do these projects and companies end up failing?

Unexpected things happen that companies don’t plan for, and many fail to adapt in time.

The key: having a sound contingency plan. A contingency plan is all about expecting the unexpected and preparing to deal with worst-case scenarios ahead of time. This article will cover why you need a contingency plan, and walk you through step-by-step instructions for creating one. We’ll also provide a contingency planning template you can implement and use on monday.com immediately.

What is a contingency plan?

A contingency plan is a predefined set of actions that you will implement in response to specific future events that put your project or business at risk.

A simple example of a contingency plan is to back up all your website data. That way, if your website gets hacked, it will be easy to restore the data after regaining access and changing passwords.

Without that backup, the team might have to recreate the entire website from memory or build a website from scratch . That’s a significant expense and can mean several extra days (or weeks!) of downtime.

A contingency plan is about managing and lowering risk and setting yourself up for speedy disaster recovery.

What are the two types of contingencies in project management?

monday.com makes budget contingency planning visual

There are two types of contingencies that you should plan for: budget contingency & schedule contingency.

  • Budget contingency is an additional amount of money that you allocate to your budget, so you can cover extra costs that might come up as the project progresses. If you don’t have a contingency budget, you might run into an unexpected cost that could send you over budget and risk the profit margin of your project.
  • Schedule contingency is an additional amount of time that you bake into your project schedule, to allow for any unexpected delays or hiccups in your project progress. Without schedule contingency, you risk running over your project deadlines and disappointing stakeholders.

Contingency plan examples

Here are a few examples of how contingency planning could help save the day, no matter what happens:

Project contingency plan

Imagine that a key team member unexpectedly leaves the project. If you were contingency planning for this scenario, you might outline the following steps you could follow if you lost a key project team member:

  • Identify who will take over the tasks of the departing team member, and what tasks still need doing
  • Assess if any additional resources will be needed (such as an additional part-time project member from another team)
  • Provide training sessions for other team members to ensure they can step in effectively
  • Notify any stakeholders about the change and how it will be managed to minimize disruption and offer reassurance.

Business continuity plan

How about if a natural disaster disrupted operations at your primary office location? Could your business cope? With a continuity plan in place, you’ll turn things around quickly:

  • Make sure all your employees have access to the necessary tools and systems so that they can work remotely if necessary
  • Regularly back up all essential data to the cloud, and have a data recovery plan in place, in the event of loss of the hardware in your primary office
  • Identify backup office space or plan for remote work options if the primary location becomes inaccessible
  • Define communication channels that you’ll use in the event of a major disruption so that you can reach your employees to provide updates and instructions on how to proceed

Supply chain contingency plan

Do all your logistics depend on a few key suppliers? Then you should have a supply chain contingency plan in place, in case of unexpected production or shipping delays.

  • Have more than one supplier for critical components, so this becomes less of a business risk.
  • Maintain a buffer stock of your essential components, so that production won’t be held up by supplier delays
  • Find a shipping company that offers expedited shipping options in case you have an urgent need
  • Update your supplier contract to include penalties for delays and a procedure for resolving any disputes

Why contingency planning is important

contingency planning is easier with monday.com boards

Murphy’s Law specifies that anything that can go wrong will go wrong. And any experienced project planner knows how true that is! Contingency planning can make or break your business:

It helps mitigate risk.

Contingency planning helps to identify potential risks and get ahead of them with a proactive plan. That way, even when things go wrong, you can minimize the disruption to operations and reduce your financial losses.

It makes your business more resilient.

Having a contingency plan in place enables you to respond to the unforeseen more effectively, adapt to changing conditions, and recover from setbacks more efficiently.

It keeps you compliant.

In many industries, contingency planning is mandated by regulatory requirements, so you’ll need these plans in place to avoid penalties and maintain good legal standing.

It increases customer trust.

Customers trust businesses that handle disruptions effectively. The ability to respond quickly and effectively when things go wrong will help build your reputation for great customer service.

Looking for a tool to make contingency planning easier? With monday.com, you can store all your contingency plans in a central location, communicate changes with stakeholders, and create automated workflows in response to unexpected events.

What are the characteristics of a good contingency plan?

Your contingency plan should include the following components:

List of risks

Begin by making a thorough identification of potential risks that could realistically occur. Depending on what kind of contingency plan you’re putting together, these could be all the risks that could impact your business, or the risks that could delay or disrupt a specific project or product.

For example, in terms of business-level contingency planning, you could list out:

  • Natural disasters
  • Technological failures
  • Economic downturns
  • Supply chain disruptions
  • Sudden market changes

Response options

Your plan should then outline various responses that you could choose between, for each risk you’ve identified. These might be:

  • Actions to mitigate the risk
  • Ways to transfer the risk to another party (e.g. by buying insurance)
  • Ways to accept and manage the risk

Plan of action

For each risk and response option, you should then add in a plan of action, including:

  • Steps to take
  • Who is responsible for each step
  • Any resources you’ll need
  • Any need to coordinate with other stakeholders or third parties

Communication management protocols

You’ll also want to make sure that you have a plan in place to communicate effectively with all stakeholders, including:

  • Who needs to be notified
  • The channels you’ll use for communication
  • How often you’ll send out updates
  • Any useful templates to use for messages

Trigger points

Decide in advance when you’ll activate a specific contingency response. For instance, you might have a particular threshold beyond which you’ll move to a contingency plan — such as the severity level of a natural disaster. You should also define who has the authority to make these decisions, and how the decision will be made (by committee or by chain of command, for instance.)

Testing and review

To keep your plan up to date, you should schedule regular tests and reviews. For instance, for a natural disaster contingency plan, you might want to run a drill once a year, to practice your response procedures and make sure that everything works as it should.

How to create a contingency plan

Let’s cover the basic contingency planning process and detail how to get yours up and running.

1. Map out essential processes.

What processes are essential to your business and safely delivering your product or service to customers?

If you’re a manufacturing company that ships directly to consumers, a simplified process list might look something like this:

  • Getting raw materials from suppliers
  • Manufacturing process
  • Freight and shipping
  • Packaging and warehousing
  • Last-mile delivery

Looking at this list, you can see how vulnerable it is to natural disasters or even minor human errors.

Create an overview of every crucial process in your organization.

2. Create a list of risks for each process.

Once the process list is created, consider what might disrupt business continuity.

What can go wrong with each of these critical processes?

Let’s look at an example of what could go wrong with “last-mile delivery” …

  • The driver can deliver single or multiple packages to the wrong address.
  • The package can be damaged during delivery.
  • The package could get lost at a distribution center.
  • A truck full of packages could be involved in an accident.
  • A flood could cripple the road system in a specific area.
  • The driver could get delayed because a moose wants to lick salt splatter off the car (seriously, it’s a thing ).

And that’s only a preliminary list. Once you start thinking about it, you’ll realize how many things you rely on to avoid going wrong, even for fundamental processes.

Every business process is vulnerable to some sort of emergency or human error and requires a solid risk management process .

3. Evaluate the potential impact and likelihood of each risk.

Once the risks are identified, it’s essential to determine how they could impact your business.

Are they likely to happen? How large will the impact on your business if they do occur?

Most companies use “qualitative risk assessment” to do this.

PMI uses the following risk exposure assessment table — also called the probability impact matrix — to evaluate … the probability and impact of potential risks.

Risk impact probability table from PMI

( Image Source )

First, rate the severity of the impact on a scale from 1–100. Then, multiply with a percentage based on how likely it is to occur.

4. Calculate costs and contingency reserves, and identify issues to mitigate.

The quantitative risk assessment approach is less common — but more practical — to assess the potential cost of each risk.

How much would each risk potentially cost your business? To get a better overview, add these 4 columns to the risk register template :

  • Full potential loss from the event
  • Expected loss from the event
  • Cost of response (post-event)
  • Cost of mitigation (pre-event)

Quantitative risk register example in monday UI

This means you can make an educated decision when budgeting contingency reserves into project plans and yearly budgets.

During the risk analysis , estimate the potential costs of the adverse event.

EXAMPLE: if your online store goes down, multiply the average online sales revenue per hour with expected downtime. Make one pessimistic and one realistic estimate.

Your hosting service may also have a flat fee for restoring sites, which would be your response cost. If these costs are unreasonably high and the event is likely, estimate the costs of a mitigation effort. In this case, it could be a firewall and extra procedures, like 2-factor authentication, an important security system , for all employees.

Budget in those costs. An accurate budget is the first part of emergency response and prevention. Without enough cash, your team won’t be able to put any response plans into action.

5. Create a response plan for prioritized events.

Create a response plan for events by exploring the following questions:

  • What can be done ahead of time to minimize any adverse effects on the event? For example, backing up data, carrying extra stock, or having more employees on call.
  • What can be done immediately after the event to minimize the impact? For example, ordering more from a secondary supplier, rerouting another vehicle, or bringing in on-call staff.

The specifics depend on your company’s unique processes and situation.

6. Share the contingency plan.

A contingency plan only works if it’s used when things go wrong—and that means that everyone in your organization knows to reach for the plan in times of trouble. To make sure that happens:

  • Identify who needs to be aware of and involved in contingency planning.
  • Choose appropriate communication methods for each stakeholder group. For instance, department heads may need specific meetings to focus on their section of the plan. Key employees might need a training session.
  • Create the plan in an accessible, centralized location, such as a monday.com board. That way, everyone involved can access the plan, and you can keep it updated at all times.
  • Encourage feedback on the plan, such as running an employee survey to check understanding and seek ideas for changes and improvements.
  • Post reminders and updates on your shared internal communication channels.

7. Monitor and review the contingency plan.

If you want your contingency plans to protect your business, you have to keep them up to date. That means you’ll need to schedule regular reviews of the plan to check that it’s still relevant and aligned with your changing business.

Remember to communicate updates or revisions to all relevant stakeholders, and provide opportunities for additional training if needed.

Manage your contingency planning process with monday.com

Having your business contingency plan on paper is an excellent place to start. But it won’t translate to how your entire company will tackle a crisis.

That’s where monday.com comes in. Our flexible digital workspace gives you everything necessary to ensure everyone follows the contingency plan when they need to.

Use our pre-built contingency plan template to get you started 

Make sure that no employee is left clueless during a crisis. Our contingency plan template has everything you need to start the planning process.

With our pre-built template, you can feel confident you’re following best practice contingency planning, so your business will run smoothly even in the case of unexpected events.

Use integrations to notify someone of an event automatically 

use automation to keep stakeholders up to date on your contingency plan

With monday.com’s powerful integrations and automations, you can respond to unfavorable events more quickly.

For example, you can immediately create and assign a work item whenever a customer submits a bug report.

This approach helps avoid another potential problem: customer service failing to report bug reports to your development team.

Monitor project status at all times in dashboards to avoid bottlenecks and domino effects.

manage your contingency planning with monday.com dashboards

The best time to start acting is before a catastrophic event that puts your entire project or business at risk.

To do that, your management team needs a clear understanding of the project’s status at all times.

Use the 30,000-foot view every manager needs to avoid predictable project delays and failures and check that project controls are working properly.

Contingency plans are a must-have.

When starting a project or business, most people plan according to the status quo. Unfortunately, that’s a best-case scenario and not helpful in the real world.

A contingency plan helps you prepare for worst-case scenarios and keep your project afloat, should anything go wrong.

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Contingency planning: 4 steps to prepare for the unexpected

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What is contingency planning?

Why is contingency planning important, 4 steps to develop a contingency plan.

Most days at work are business as usual — you hope. Unfortunately, there are also days where nothing seems to go right. Sometimes, these hiccups are just part of running an organization. And some days, they can be a major disruption in your work.

Because your clients and customers are relying on you to deliver as promised, it’s critical that you have a backup plan in place. There’s no way to prevent all mishaps from occurring, but you can minimize their impact with a little strategic planning .

Rather than waiting for the worst-case scenario to play out, companies — and individuals — can put together a contingency plan. This helps to ensure that normal business operations continue as smoothly as possible.

Learn what a business contingency plan is, why you should have one, and how to start planning in this article.

Contingency planning is a part of a business’ risk management strategy. It’s how companies foresee potential disruptions to the business. 

Contingency planning is an action plan put in place to help individuals, teams, and organizations minimize disruption. In common terms, we think of this as “plan B.” Contingency plans are less about how to mitigate negative events and more about proactively developing problem-solving skills.

While traditionally, contingency planning have been an area of focus for managers and organizations, there are many benefits for individuals as well.

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To understand contingency planning, it’s best to take a broad view. Sure, when companies have a crisis management plan in place, everyone sleeps a little better at night. It’s nice to know that you’ll know what to do if something happens.

But in life — as well as in business — the only real constant is change. As Tina Gupta, VP of Talent and Employee Experience at WarnerMedia puts it , “Change is not something to solve for.” Fear of change and uncertainty leads people to hide from it, interpreting every bit of rough air as a sign of an impending crash.

When you embrace a future-minded perspective , you no longer have to be afraid of uncertainty. Contingency planning becomes a strategy to be proactive instead of reactive . It’s an exercise in looking for ways to thrive instead of survive. 

BetterUp calls this type of person a future-minded leader . Rather than running from potential threats or pretending everything is fine, they cultivate an agile mindset . These people combine optimism, pragmatism, and the ability to envision the future (or, what positive psychologists call prospection ).

Contingency planning example:

Let’s look at how WarnerMedia has been able to embrace contingency planning as a tool to build a psychologically safe environment.

Conducting a risk assessment

Before you can create a contingency plan, you need to identify the risks that may impact your business. The best way to do this is with the support of your team. Hold a brainstorming session where you can talk through recent experiences, upcoming initiatives, and common pitfalls.

This type of risk assessment can't protect you from being surprised. Tomorrow will hold unexpected events, many of which never happened before in your organization (months-long pandemic shutdowns anyone?) Instead think of this assessment as surfacing the things you can prepare for and opening up everyone's imagination to the range of possible obstacles and outcomes. This will prime the pump for awareness, a flexible mindset, and solution-seeking orientation.

Don’t make the mistake of limiting the meeting to just managers. Your entry-level employees and individual contributors will have a lot of insight as to what could happen — and how to handle it.

Companies often make strategic planning an annual event, but you should review your contingency plan more frequently. Risk assessment should ideally be a natural part of planning for every new initiative.

contingency-planning-team-writing-on-a-whiteboard

Here are 4 steps to develop a contingency plan for your team:

1. Identify the triggers

What are the risks? The first step in contingency planning is knowing which scenarios you’re preparing for. It’s impossible to predict everything, but chances are you can think of one (or ten) worst-case scenarios that would throw operations off.

Put these scenarios in order of likelihood. The most probable and important ones will form the backbone of your contingency plan.

2. Examine the situation

In your hypothetical scenario, what would be the most likely course of action? Write that down, but be sure to ask: is it the best course of action? If your new plan is significantly different from what you’ve done before, you’ll want to talk it over with your leaders.

Get your team involved in this stage of the process. One of the benefits of planning in advance is that you have time to brainstorm responses. If the disruption has happened before, ask them what they did to resolve it and what they wish they had done differently.

3. Determine who needs to know

Once you’ve created a viable plan, determine who the stakeholders are. Identify who needs to know as soon as plans change and who will be responsible for kicking plan B into gear. If anyone needs to authorize purchases, provide access to resources, or otherwise support the plan, make sure that they know as well. 

contingency-planning-team-having-a-discussion

4. Practice

If you can, do a practice run of your disaster recovery plan. The specifics will vary depending on the “disaster,” but running through the plan is a useful exercise. It will help you spot areas that you might not be able to predict in advance.

For example, when the coronavirus pandemic sent millions of workers into lockdown, companies that already had remote work policies in place were in the ideal position for the change. Companies that relied on brick-and-mortar workplaces had to quickly develop strategies to ensure remote team members had the technology and support they needed to work from home for an extended period of time. 

How to maintain a contingency plan

In general, it’s a good idea to review your contingency plan on (at minimum) an annual basis. However, there may be other events that might trigger a review of your recovery strategies.

There are three main parts to your plan: the trigger (or unexpected event), the planned course of action, and the people involved. If any of these change, you’ll want to update your plan. 

For example, moving to a new system, platform, or workflow would cause a change in both your Plan As and Plan Bs. If you hire for a new role that sits between functions, that may change the people involved.

Final thoughts

Your business continuity plan isn’t just an exercise in preparedness. It’s an opportunity to help your teams learn how to become more agile and creative problem solvers.

Everyone, from a project management team developing a contingency plan for rolling out a new sales incentive, an IT team planning for a new system to go live, or a manager coaching an employee through creating a contingency plan for meeting work deadlines, needs to develop this skill. In a time of uncertainty and constant change, thinking through possible problems and alternatives in advance is part of life. 

Gupta of WarnerMedia says that empowering her team through coaching has helped them "move from overwhelm to thriving through change." When they trust themselves, the company, and the plan, employees become more confident. They’re more willing to take risks and trust each other.

When things go awry, your plan won’t just minimize the potential impact. It will empower your team to thrive in uncertainty as they respond to whatever gets thrown their way.

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Contingent workforce management: what employers need to know, leaders are prioritizing well-being over leadership skills in the post-covid workplace, the secret to developing managers that help your business thrive, when the new normal is a no-show: why future-mindedness is the mindset organizations need now, meet the future-minded leader: your organization’s answer to uncertainty, how to build a high performance team, according to patty mccord, 4 reasons why you can't afford to skip out on succession planning, building the human transformation company: the principles that shape our future, similar articles, struggling with control issues coaching can help, how to excel at life planning (a life planning template), 10 characteristics for becoming a successful entrepreneur, do more than survive — thrive in turbulent seasons, strategic planning: read this before it's that time again, how to use strategic foresight to stay ahead of the curve, stay connected with betterup, get our newsletter, event invites, plus product insights and research..

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What Is a Contingency?

  • How It Works

Types of Contingency Plans

Special considerations, banks and contingencies, the bottom line.

  • Corporate Finance

What Are Contingencies and Contingency Plans? Definition and Examples

contingency plan of the business

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

contingency plan of the business

A contingency is a potential occurrence of a negative event in the future, such as an economic recession, natural disaster, fraudulent activity, terrorist attack, or a pandemic.

Although contingencies can be prepared for, the nature and scope of such negative events are typically unknowable in advance. Companies and investors plan for various contingencies through analysis and implementing protective measures.

In finance, managers often attempt to identify and plan using predictive models for possible contingencies that they believe may occur. Financial managers tend to err on the conservative side to mitigate risk, assuming slightly worse-than-expected outcomes.

A contingency plan might include arranging a company's affairs so that it can weather negative outcomes with the least distress possible.

Key Takeaways

  • A contingency is a potentially negative event that may occur in the future, such as an economic recession, natural disaster, or fraudulent activity.
  • Companies and investors plan for various contingencies through analysis and implementing protective measures.
  • A thorough contingency plan minimizes loss and damage caused by an unforeseen negative event.
  • Contingency plans can include the purchase of options or insurance for investment portfolios.
  • Banks must set aside a percentage of capital for negative contingencies, such as a recession, to protect the bank against losses.

How a Contingency Works

To plan for contingencies, financial managers may often also recommend setting aside significant reserves of cash so that the company has strong liquidity, even if it meets with a period of poor sales or unexpected expenses.

Managers may seek to proactively open credit lines while a company is in a strong financial position to ensure access to borrowing in less favorable times. For example, pending litigation would be considered a contingent liability . Contingency plans typically include insurance policies that cover losses that may arise during and after a negative event.

However, insurance policies may not cover all of the costs or every scenario. For example, business interruption insurance doesn't usually cover pandemics, which many businesses suffered through as a result of the coronavirus pandemic.

The Federal government had to step in and pass the  Coronavirus Aid, Relief, and Economic Security (CARES) Act , which provided financial relief to businesses, families, and local governments to stem the economic hardship caused by the pandemic. In particular, the Paycheck Protection Program (PPP) offered $349 billion in aid to small businesses to help them maintain their payroll and expenses.

Insurance companies might also limit coverage or put exclusions in place for an act of God, which is an exogenous event, meaning outside of human control, such as a flood or an earthquake. Also, insurance can't replace the customers that were lost to competitors due to an event, particularly if it was an internal systems issue such as a data breach.

As a result, businesses need to have contingency plans established to help minimize the lost revenue and increased costs that are involved when business operations have been disrupted. Typically, business consultants are hired to ensure contingency plans consider a large number of possible scenarios and provide advice on how to best execute the plan.

Contingency plans are utilized by corporations, governments, investors, and central banks, such as the Fed. Contingencies can involve real estate transactions, commodities, investments, currency exchange rates, and geopolitical risks.

Protecting Assets

Contingencies might also include contingent assets , which are benefits (rather than losses) that accrue to a company or individual given the resolution of some uncertain event in the future. A favorable ruling in a lawsuit or an inheritance would be an example of contingent assets.

Contingency plans might involve purchasing insurance policies that pay cash or a benefit if a particular contingency occurs. For example, property insurance might be purchased to protect against fire or wind damage.

Investment Positions

Investors protect themselves from contingencies that could lead to financial losses related to investing. Investors might employ various hedging strategies such as stop-loss orders, which exit a position at a specific price level.

Hedging can also involve using options strategies, which is akin to buying insurance whereby the strategies earn money as an investment position loses money from a negative event.

The money earned from the options strategy completely or partially offsets the losses from the investment. However, these strategies come at a cost, usually in the form of a premium, which is an upfront cash payment.

Investors also employ asset diversification , which is the process of investing in various types of investments. Asset diversification helps to minimize risk if one asset class, such as stocks, declines in value.

Contingent Immunization

Contingent immunization is a type of contingency plan used in fixed-income investing. It involves the fund manager switching to a defensive position if the portfolio drops below a predetermined value.

Business Continuity and Recovery

As part of a contingency plan for disasters, such as a pandemic, companies need to plan ahead to ensure that the business can operate during and after an event. This type of contingency plan is often called a business continuity plan (BCP) or a business recovery plan.

Typically, a business continuity team is formed to plan for any possible contingencies and manage the continuity and recovery plan during a disruption . Businesses need to identify their critical business functions and perform an analysis of how an event might impact the company's operations and processes.

The contingency plan would include implementing the recovery of critical business functions such as systems, production, and employee access to technology such as computers.

For example, a contingency plan for a pandemic would include developing a remote work strategy to help prevent the spread of disease and provide employees with secure access to their work.

As a result, companies would need to invest in technology, which could include providing laptops and video-conferencing access to employees, creating cloud-based data storage, and facilitating access to company-wide communications such as email and internal data.

Cybersecurity

With any type of disaster, cybercriminals often try to take advantage of a crisis to hack into a company’s systems and steal data or disrupt business operations. Contingency plans are used to outline the procedures for cybersecurity teams to protect an organization from threats and malicious attacks.

A contingency plan should also prepare for the loss of intellectual property through theft or destruction. As a result, backups of critical files and computer programs, as well as key company patents, should be maintained in a secure off-site location.

Contingency plans need to prepare for the possibility of operational mishaps, theft, and fraud. A company should have an emergency public relations response relating to possible events that have the ability to severely damage the company’s reputation and its ability to conduct business.

How a company is reorganized after a negative event should be included in a contingency plan. It should have procedures outlining what needs to be done to return the company to normal operations and limit any further damage from the event.

For example, financial services firm Cantor Fitzgerald was able to resume operation in just days after being crippled by the 9/11 terrorist attacks due to having a comprehensive contingency plan in place.

Benefits of a Contingency Plan

A thorough contingency plan minimizes loss and damage caused by an unforeseen negative event. For example, a brokerage company may have a backup power generator to ensure that trades can be executed in the event of a power failure, preventing possible financial loss.

A contingency plan can also reduce the risk of a public relations disaster. A company that effectively communicates how negative events are to be navigated and responded to is less likely to suffer reputation damage.

A contingency plan often allows a company affected by a negative event to keep operating. For example, a company may have a provision in place for possible industrial action, such as a strike, so obligations to customers are not compromised.

Companies that have a contingency plan in place may obtain better insurance rates and credit availability because they are seen to have reduced business risks.

As a result of the financial crisis of 2008 and the Great Recession , regulations were implemented requiring bank stress tests to be performed to test how a bank might handle various negative contingencies. The stress tests project how much a bank would lose—if a negative economic event occurred—to determine if the bank has enough capital or funds set aside to survive the event.

Banks are required to have a specific percentage of capital reserves on hand, depending on the total risk-weighted assets  (RWAs). These assets, which are typically loans, have various risk weightings applied to them.

For example, a bank's mortgage portfolio might receive a 50% weighting, meaning the bank—in a negative scenario—should have enough capital that's valued at 50% of the outstanding mortgage loans.

The capital, called Tier-1 capital , can include equity shares or shareholders' equity and retained earnings, which are accumulated savings of prior years' profits. Although there are various components that go into the tier-capital ratio requirement, the ratio has to be at least 6% of the total risk-weighted assets.

Let's say as an example, Bank XYZ has $3 million in retained earnings and $4 million in shareholders' equity, meaning the total tier-1 capital is $7 million. Bank XYZ has risk-weighted assets of $70 million. As a result, the bank's tier-1 capital ratio is 10% ($7 million/$70 million). Since the capital requirement is 6%, the bank is considered well-capitalized when compared to the minimum requirement.

Of course, we won't know if the banking sector's contingency plan will be adequate until another recession occurs, which is a limitation of these plans since it's difficult to plan for every contingency.

Why Is an Environmental Contingency Plan Important?

Businesses that are at risk for environmental accidents–particularly spills of hazardous materials–should always have a plan in place detailing their response actions. Being prepared can help minimize the total damage done to the environment, minimize accident-related costs, and limit liability.

What Is Contingency Theory?

Contingency theory is an approach to management that suggests the best way to run an organization is dependent, or contingent, on that particular situation. In other words, a specific management style can work well in one company and fail completely in another one.

What Are the Steps in Creating a Contingency Plan?

To create a contingency plan, first, identify the key risks to your business and order them in regard to the likelihood of occurring and severity. Next, conduct a business impact analysis (BIA). From there, start shaping your plan, which should include preventive controls, an incidence response plan, a disaster recovery plan, and a business continuity plan. Make sure to provide training to employees, frequent testing, and updating of your plan.

A contingency is a potentially negative future event or circumstance, such as a global pandemic, natural disaster, or terrorist attack. By designing plans that take contingencies into account, companies, governments, and individuals are able to limit the damage done by such events.

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Contingency Planning

Last updated 12 May 2018

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The aim of contingency planning is to minimise the impact of a significant foreseeable event and to plan for how the business will resume normal operations after the event.

Contingency planning involves:

  • Preparing for predictable and quantifiable problems
  • Preparing for unexpected and unwelcome events

How Contingency Planning Relates to Risk Management

Contingency planning is one of the three approaches a business can take to manage risk. These are:

  • Risk management: i dentifying and dealing with the risks threatening a business
  • Contingency planning: p lanning for unforeseen events
  • Crisis management: h andling potentially dangerous events for a business

What is Involved in Contingency Planning?

The process of contingency planning involves:

  • Identifying 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

Almost by definition, contingency planning should focus on the most important risks; those that have the potential for significant business disruption or damage. Risks vary in terms of their significance to the business

Contingency planning is not required for every eventuality. However, risks of strategic significance cannot be ignored

What do we mean by “risk” in business? Risk can be:

  • The possibility of loss or business damage
  • A threat that may prevent or hinder the ability to achieve business objectives
  • The chance that a hoped-for outcome will not occur (e.g. customers do not respond well to a new product launch)

 Risk is ever-present in business and there are a variety of possible responses to it:

  • Ignore it (wait and see)
  • Share/deflect the risk (e.g. take-out insurance)
  • Make contingency plans - prepare for it
  • Embrace risk as an opportunity- particularly if it also affects other competitors

 Some examples of how action can be taken to reduce risk include:

  • Avoid over-reliance on customers or products
  • Develop multiple distribution channels
  • Test marketing for new products
  • Hold spare capacity
  • Rigorous quality assurance & control procedures & culture
  • Insurance against bad debts
  • Investment appraisal techniques
  • Key man insurance – protect against loss of key staff
  • Rigorous recruitment & selection procedures
  • Contingency Planning

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My Organization’s Business Continuity Program is Built… Now What?

Written by: Aidan Hallerman & Daniel J. Poucher

Key Takeaways:

  • Building out your BCP is not the end of the line – but it is a great first step.
  • A crisis management structure is key to a successful BCP.
  • Establish roles, responsibilities, and communication channels with an Incident Management structure.
  • Continue to adjust based on results and risk assessments.
  • Continued training and awareness are key to success.

Ensuring your organization possesses a proper, well-rounded Business Continuity Plan (BCP) is a great first step to ensuring structural and operational resilience in the face of varied threats – but what happens after the program is built? Establishing and maintaining a BCP is not enough to ensure stability during unforeseen disruptions; the real test lies in the continuous improvement of the plan and its subcomponents. Once a program is assembled, there are multiple channels of internal quarterly and role-based training, testing, as well as annual maintenance that can strengthen the contents of an organization’s BCP. These additional processes assist in increasing the efficacy of the plan overall, year over year.

Crisis Management Structure & Internal Plan Communication

A core tenet within a BCP should be response information to individual events or information that will collaborate to cover the full severity of a multi-stage incident. The development of Individualized Response Plans (IRPs) and Emergency Operation Plans (EOPs) are two such examples; separate documents that have their separate merits but can be combined to combat complex threats.

Organizations should create a formalized crisis management structure between multiple plans as a means of content communication. A separate plan or policy is not required, but it is important that different plans speak to one another at appropriate times of response, recovery, and restoration. Areas in need of enhancement can be found in examining not only the quality of a given plan – whether it is thorough enough to cover the topic it has been created for – but also whether it corresponds well with the other components of the overall BCP.

Develop an Incident Management Structure

Defining a structured Incident Management (IM) process should ensure what has been documented by the BCP for recovery pathways is implemented when facing true incidents. IM ensures that current documentation remains reflective and actionable for how and when a response will occur, as well as ensuring there is proper tracking of items, personnel responsibilities, communications, impacts, and executive level decisions.

Organizations should focus not only the content of a given BCP, but the chain of command that is listed within the plan’s established team’s responsibilities and roles. Designating clear and appropriate roles for organization’s employees will only assist in the effectiveness and speed of a plan’s recovery efforts. Even with the best on-paper response in place, a BCP is only as efficient as those in charge of following its contents.

Establishing set communication channels, creating collaboration opportunities by means of cross-training, and ensuring individuals are conscious of their responsibilities each assist in the formation of a more agile and responsible incident management team.

The total body of a given organization will benefit from exercising the formal IM process, via tabletop and disaster recovery testing, to be best equipped for fast paced decision-making during periods of crisis.

Incident Management

When an incident implicates the possible activation of the BCP and its teams, referencing defined escalation thresholds will be key. Escalation thresholds to any disaster will determine and ensure proper resources are deployed during a disaster; they should be based on objective criteria, such as the scope of impact, resource availability, and overall situational context.

A trigger point could be a sustained disruption that exceeds a predetermined duration, or a sudden increase in the number of stakeholders as an event moves forward in length of duration. Conversely, this ongoing adjustment process can be applied to the end of an incident; trigger points for de-escalation might include successful containment of an incident, or a significant reduction of its impact on the organization.

Overall, organizations would be most prudent in making sure any BCP escalation chain takes a tiered approach. A layered structure that takes personnel in a measured manner from routine operations to crisis management enables the organization to respond in a fashion that matches the information at the time of the incident, and provides an available set of ‘next steps’ with parameters and quantifiable means of alarm.

Regularly adjusting escalation thresholds based on lessons learned from previous incidents is also a crucial indicator of where edits can be made to the BCP. Incorporating feedback from post-incident evaluations and documentation will enhance the organization’s recovery timeline. Questions during an incident of when to report and when to incorporate outside assistance are eased by set demarcations of procedural, streamlined processes. A dynamic approach to escalation thresholds – one that accounts for the need to continuously tinker for proper calibration – ensures the organization remains agile and prepared.

Adjustments Based on Risk Assessment Results

As part of ongoing resilience efforts, organizations must conduct regular risk assessments to identify potential threats and vulnerabilities. These assessments provide valuable insights into emerging risks and help prioritize mitigation efforts. Upon analyzing risk assessment results, organizations should adjust their BCP to reflect changes. This may involve reallocating resources to address high-risk areas, updating response procedures to mitigate specific threats, or enhancing control environments to reduce the likelihood of disruptions. By strengthening control environments and implementing proactive measures, organizations can effectively move high or moderate-risk threats to lower levels, thereby minimizing their impact on business operations. Adjustments based on results ensure that the BCP remains aligned with current risk profiles and enables the organization to adapt to evolving threats with the most advantageous form of resilience.

Continued Training & Awareness

Continued training and awareness initiatives, such as role-based tabletop exercises, are essential for fostering employee preparedness and understanding within the Business Continuity Plan (BCP). Through these exercises, employees gain practical experience and insight into their specific roles and responsibilities during disruptions, allowing them to grasp their “individual piece of the puzzle” within the broader organizational response. This targeted training approach not only enhances individual readiness, but also promotes a cohesive and coordinated response across all levels of the organization.

By refining individualized plans, streamlining incident management structures, establishing clear escalation thresholds, documenting information comprehensively, adjusting content based on risk assessment results, and fostering continued training, organizations can make themselves as ready as possible for a business disruption. Through these combined, continually maintained efforts, organizations can empower their teams to understand their roles, adapt to threats, and contribute to a multi-layered response.

If your organization needs assistance with plan creation, testing, tabletop exercises, or any other part of the BCP process, reach out to our experts at Wolf today.

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Difference Between Business Continuity and Contingency Plan

• Categorized under Business | Difference Between Business Continuity and Contingency Plan

Minor and major disruptions must be avoided at all costs for business survival. Most events that can cripple business operations are non-predictable including terrorist attacks, cyber-attacks and natural disasters including floods, earthquakes and fires. These cost businesses money, time, customer loyalty and market share. Since no one can predict future events and the ability of businesses to resume normal business functions, companies must hence put in place measures to ensure that businesses continue running even after these unfortunate events occur. Among these measures include business continuity plans and contingency plans. 

What is Business Continuity?

This is the ability of businesses to carry out their normal activities and function after unplanned events have occurred. These events could be a pandemic, a business crisis, natural disasters or even workplace violence.  Businesses should not only plan and prepare for major disruptions that will completely affect business operations but also events that could adversely affect functions and services. 

 A business continuity plan may entail but is not limited to: 

  • The team that will manage emergency events
  • Measures to ensure services and customers are availed to customers
  • Employee support measures 
  • Technological measures to restore business functions
  • Where to relocate people and processes in case business locations cannot be used
  • Measures to ensure staffing levels are adequate in the case of an unprecedented event

Among events that a business continuity plan will guard against include;

  • Natural and local disasters- These include fires, electronic malfunction, earthquakes and floods
  • Network disruptions- This is important for businesses that need a reliable connectivity to operate
  • Cybersecurity- Due to the rise of cybersecurity threats, businesses should ensure all data is backed up 
  • Human error- Outages can be caused as a result of innocent mistakes and ignorance, and should be mitigated 

contingency plan of the business

What is Contingency Plan?

A contingency refers to activities or events that occur beyond the normal range of organizational operations. A contingency plan can, therefore, be defined as an actionable and defined plan that will be enacted if an identified business risk or unfortunate event occurs. Contingency plans are part of risk management and can be created for identified or non-identified risks. It can also be created to take advantage of strategic opportunities. 

A contingency plan is not only a need for large businesses as small to medium businesses can also be crippled by unforeseen events. They can also be tailored to specific departments. For instance, the need to protect, restore and use data in an organization may require an information services department contingency plan. 

Importance of contingency plans

  • Allow organizations to resume normal business functions as fast as possible after an unforeseen event has occurred
  • Minimizes consumer inconveniences
  • Identification of staffing needs in the context of recovery

A good contingency plan should include;

  • Natural disasters such as earthquakes, fires and hurricanes
  • Crisis including worksite injuries and accidents
  • Personnel such as strikes and employees deaths
  • Product issues such as plan relocations
  • Mismanagement such as accidental destruction and theft

The process of developing a contingency plan involves the identification of essential business operations and sectors and determining how these processes can be affected by the occurrence of unforeseen events. Actions that would be needed to return these to normal operations should be identified and documented, including the resources that would be needed for this. A good contingency plan incorporates each functional area in an organization  

Similarities between Business Continuity and Contingency plan

  • Both entail enforcing measures for businesses to operate even after unprecedented events have occurred

Differences between Business Continuity and Contingency plan

Business continuity refers to the ability of businesses to carry out their normal activities and function after unplanned events have occurred. On the other hand, a contingency plan refers to an actionable and defined plan that will be enacted if an identified business risk or unfortunate event occurs. 

While business continuity is based on the concept of business survival after the occurrence of unprecedented events, contingency planning is based on the concept of preparation of all types of disruptions and steps that should be followed when these disruptions occur. 

Business continuity vs. Contingency plan: Comparison Table

contingency plan of the business

 Summary of Business Continuity vs. Contingency Plan

Business continuity refers to the ability of businesses to carry out their normal activities and function after unplanned events have occurred. It is based on the concept of business survival after the occurrence of unprecedented events. On the other hand, a contingency plan refers to an actionable and defined plan that will be enacted if an identified business risk or unfortunate event occurs. It is based on the concept of preparation of all types of disruptions and steps that should be followed when these disruptions occur. 

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Cite APA 7 Njogu, T. (2020, July 14). Difference Between Business Continuity and Contingency Plan. Difference Between Similar Terms and Objects. http://www.differencebetween.net/business/difference-between-business-continuity-and-contingency-plan/. MLA 8 Njogu, Tabitha. "Difference Between Business Continuity and Contingency Plan." Difference Between Similar Terms and Objects, 14 July, 2020, http://www.differencebetween.net/business/difference-between-business-continuity-and-contingency-plan/.

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  • Business Continuity

23 Business Continuity Statistics You Need to Know

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Dale Shulmistra

  • July 14, 2023

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Today’s business continuity statistics reveal that small and mid-sized businesses (SMBs) have gotten better about embracing business continuity planning over the last few decades. Particularly following the attacks of September 11, 2001, and the ever-increasing reliance on business data, organizations have implemented stronger technologies and protocols to limit interruptions from unexpected disasters.

However,  statistics  suggest many organizations still face costly disruptions, due to a wide range of threats. And the year 2020 added an entirely new challenge as the COVID-19 pandemic threw many businesses into turmoil, forcing many to restructure their operations overnight, just to maintain continuity.

Here’s a breakdown of the most telling stats on business continuity and disaster recovery today.

1. A break in continuity can cost $10,000/hour at minimum

Even the smallest businesses heavily rely on data and connectivity. As a result, IT disruptions have become more expensive than ever. According to figures from Datto, just one hour of downtime can cost $10,000 for small businesses. For larger companies, those hourly costs can balloon to more than $5 million.

A break in continuity for even just a few hours can prove to be disastrous for small businesses. When big disruptions occur, such as fires, natural disasters and major cybersecurity events, it can be devastating for a business, creating conditions that make survival even more challenging. (Source: Datto)

2. 1 in 2 businesses have experienced an extended break in continuity

Unexpected disruptions are extremely common – they happen every day, at businesses of all sizes. In a survey highlighted by DataCore, 54% of businesses said they had experienced a downtime incident in the past five years that lasted at least eight hours. (Source: DataCore)

3. 9 in 10 small companies permanently close if they are slow to reopen

A break in continuity isn’t just costly. It can literally end a business if operations can’t be restarted quickly enough.

Data from FEMA shows that 90% of businesses fail within a year if they are unable to get back up and running within 5 days after a disaster. The longer recovery takes, the more likely a business will have to permanently shutter its doors. (Source: FEMA)

4. 28% of breaches affect small businesses

One of the most common causes of continuity interruptions is data breaches by outside attackers. And, it’s important to remember that these threat actors don’t just target the big guys. Many of them aim to intentionally disrupt SMBs, which tend to have weaker cybersecurity.

In 2020, 28% of breaches affected small businesses, according to data from Verizon’s Data Breach Investigations Report. Most breaches were linked to attacks on web applications (roughly 43%). Also, not surprisingly, 83% of these attacks were financially motivated. (Source: Verizon)

5. 100,000 small businesses were forced to close permanently during COVID-19

The COVID-19 pandemic presented one of the most challenging continuity challenges in living memory. Among the most shocking business continuity statistics: 100,000 small businesses in the U.S. were forced to close due to the pandemic.

While the pandemic is a type of disruption that no one could have predicted, it does underscore a fundamental requirement of all disaster recovery planning:  expect the unexpected . While some types of businesses did their best to adapt, many were not prepared or had no other viable options. (Source:  Washington Post )

6. 51% of companies don’t have a business continuity plan

A 2020 survey found that 51% of companies across the globe don’t have a business continuity plan. The COVID-19 pandemic demonstrated just how vulnerable a large percentage of businesses were, and a report by the Economic Times underscores the value of having a business continuity plan. This type of plan is a proven method for businesses to recover from disaster by outlining the critical steps and systems needed to maintain continuity. (Source: Mercer via Economic Times)

7. External threat actors make up 83% of threats

Statistics for 2023 found that 83% of attacks on businesses were perpetrated by external actors. That’s scary enough, but what’s perhaps more frightening is this means the other 17% are perpetrated by internal personnel or third parties that have authorized access to systems. All businesses should remember to factor in internal threats when creating their cybersecurity protocols and BCPs. (Source: Verizon)

8. 75% of companies have suffered supply chain disruption

A survey conducted in March 2020 found that 75% of companies suffered a supply disruption in the early days of the pandemic. Furthermore, an October survey found 90% of businesses, across all industries, believe the disruption of global supply chains will have long-lasting impacts on their businesses.

Today’s businesses are highly connected and interdependent on one another. Whether it’s a pandemic, a ransomware attack or an electrical grid failure (e.g. the state of Texas’s February 2021 disruption due to lack of planning for cold weather events), businesses need to be prepared for continuity when reliant upon other businesses for transportation, supplies or technologies they need. (Sources: Supply and Demand Chain Executive and Interos)

9. 33% of network folders are not protected at all

Sometimes, all it takes is one compromised folder—or even a single file—to cause a break in continuity. And the latest business continuity statistics suggest that businesses are not being careful enough with their file restrictions.

A recent survey found that approximately 33% of all folders used by a company are open to everyone. Worse yet, the survey found that nearly two-thirds of companies have more than 1,000  sensitive  files open to every user on the network. This lack of security is a disaster waiting to happen. Folder access should be configured on an “as needed” basis (i.e. the principle of “least privilege”). Not everyone in an organization needs the same access and permissions. Being too liberal with access control significantly increases the risk that a user will accidentally (or maliciously) create, edit, update or delete business-critical data. (Source: Varonis).

10. 45% of data breaches involve hacking

Data breaches are a problem that nearly all organizations face, and 45% of them suffer a breach due to successfully  being hacked . Businesses that don’t plan or put due diligence into protecting sensitive data could suffer massive losses. In industries such as healthcare and financial services, which face stringent data regulations like  HIPAA , organizations can also face steep fines and penalties. (Source: Verizon via Comparitech)

11. Majority of small businesses use or will use a cloud storage solution

SMBs continue to adopt cloud technology in various ways to support their business continuity objectives. According to the latest business continuity statistics, 84% of businesses currently store data and backups in the cloud, and an additional 8% plan to do so within the next year. (Source: Comparitech)

12. About 1% of hard drives failed in 2020

Hard drives can and do fail. And when they do, they can cause a massive operational disruption. In 2020, the average rate of hard drive failure was 0.93% (pretty consistent with 2019 failure rates which were 0.92%). This might not sound like a lot, but to a small business that relies heavily on its hard drives, just one crash could be disastrous. SMBs need to include  data backup  planning in their business continuity plans, as well as hardware replacement schedules, which prevent the risk of sudden drive failure and data loss. (Source: BackBlaze)

13. 45% experience downtime from hardware failure

This statistic underscores just how disruptive hardware failure can be for a business. And it’s not limited to just hard drives. Servers, network devices and other components are all at risk of failing unexpectedly. When this happens, it can bring your most critical operations to a screeching halt. (Source: Veritis)

14. Ransomware attacks cause 16.2 days of downtime

Ransomware has become one of the leading causes of operational downtime, affecting 1 in 5 small businesses, according to Datto. Companies that faced attacks suffered, on average, 16.2 days of downtime, according to ZDNet, and the costs associated with this downtime are increasing at an alarming rate. Also worrisome is the fact that cybercriminals essentially doubled the amount of ransom they asked for last year over the previous year.

As with most disaster scenarios,  data backup  remains the single greatest protection against ransomware, as it allows businesses to quickly recover lost data and restore systems back to their pre-infected state. (Source: ZDNet)

15. 1 in 3 organizations have been infected by malware

Malware in general is a persistent and ongoing problem that causes significant disruption for businesses. And it only continues to get worse as threat actors find new ways to exploit businesses for profit. Roughly a third of businesses have been infected with malware, corrupting data, crashing applications, bricking servers or causing other disruptions. (Source: DataCore)

16. 37% of SMBs have lost data in the cloud

Earlier in this post, we noted that the majority of SMBs are utilizing the cloud and, overall, this is a good thing. However, it doesn’t mean it completely solves the business continuity issues associated with cloud use. Thirty-seven percent of SMBs have reported losing data in the cloud, a statistic that highlights the need for cloud backup solutions like  Datto SaaS Protection , in conjunction with traditional BC/DR systems. (Source: Backupify)

17. 1 in 6 SMB executives don’t know their own recovery objectives

A survey by Infrascale conducted in 2020 found that one-sixth of SMB executives don’t know their own recovery time objectives (RTOs). Furthermore, 24% of those surveyed expect their data to be recovered in under 10 minutes after a disaster. One-third (29%) said they expect recovery within an hour, and 17% said one day.

Not surprisingly, these estimates often do not align with the actual recovery timelines that are possible with their implemented IT systems. Typically, the less insight that executives have about those systems, the greater the gap between their recovery estimates and the realistic outcomes. (Source: Infrascale via Small Business Trends)

18. 1 in 5 SMB executives doesn’t have a recovery plan

In the same study that reported statistics for #17, findings also indicated 1 in 5 of the SMB executives surveyed doesn’t have a recovery plan in place. Of those surveyed, 31% said they don’t have the right resources or budget. (Source: Infrascale)

19. Small businesses close at a much higher rate than large companies

A 2022 paper by the National Bureau of Economic Research found that smaller businesses are forced to close at a significantly higher rate than larger organizations, particularly “when facing a large aggregate negative shock such as a health crisis.” This was true prior to COVID-19, but it was exacerbated further by the pandemic. During Q2 of 2020, for example, large businesses experienced an increase in permanent closure rates of 1.3 percentage points specifically due to COVID-19. Meanwhile, the rate of increase was more than twice as high for small businesses: 3.3 percentage points. (Source: National Bureau of Economic Research)

20. 40% of IT decision-makers are increasing cybersecurity spending

A 2023 report by Datto revealed that businesses are actively increasing their cybersecurity spending in response to growing threats like ransomware. In a survey of nearly 2,913 IT decision-makers for SMBs, 40% said that their organizations are boosting their cybersecurity budget in the year ahead. In contrast, only 6% said they were decreasing their spending. (Source: Datto)

21. Phishing emails were the biggest concern in 2023

37% of IT managers reported said that phishing emails were a top threat to business continuity, according to Datto’s 2023 cybersecurity report. Collectively, it was the top concern among the nearly 3,000 IT managers surveyed, followed by malicious websites/ads (27%), weak passwords/access management (24%) and poor user practices (24%). The results are not surprising when you consider that phishing emails can get past even the strongest cybersecurity safeguards with user deception alone. (Source: Datto)

22. 74% of data breaches involved the human element

A 2023 analysis of 5,199 data breaches revealed that nearly 3 in 4 breaches involved the human element, such as social engineering attacks or human error. This is yet another business continuity statistic that explains why IT managers are so concerned about the threat of phishing emails and other user deception. (Source: Verizon)

23. 1 in 5 businesses fails within their first year

Data from the U.S. Bureau of Labor Statistics (BLS) shows that about 20% of U.S. businesses close within their first year of operations. While this figure represents closures from all causes, it underscores the challenges that small businesses face, particularly in their first year. New businesses  are especially vulnerable to the financial losses that can occur from a break in continuity.

Interestingly, the rate of failure for new businesses varies significantly by state and location. In the District of Columbia, 28% of businesses fail in their first year – the highest in the nation. In contrast, only 13% of businesses in California fail in their first year. (Source: BLS via LendingTree)

Frequently Asked Questions (FAQ)

1. what are the statistics for backup and recovery.

Globally, about 91% of organizations use some form of data backup, according to Statista. Research by Acronis found that 72% of IT users were forced to recover lost data from a backup at least once within the previous year. 33% said they had to restore a backup multiple times.

2. How many businesses have a business continuity plan?

An estimated 49% of businesses globally have a business continuity plan, according to a survey conducted by Mercer. This translates to approximately 163 million companies that have a BCP, compared to about 171 million that do not.

3. How often should a BCP be reviewed?

A business continuity plan should be reviewed at least once a year to ensure that the information within the plan is still accurate and up to date. It is also good practice to review the BCP whenever there are significant changes to the business’s operations, systems or processes.

4. What are the three branches of business continuity?

Business continuity consists of three primary branches of planning: 1) Disaster prevention, 2) Response and 3) Recovery. Together, these three branches help businesses better understand their risks for operation disruptions and the steps to minimize them.

5. How many businesses close each year?

Nearly 600,000 businesses in the United States close each year, according to statistics from chamberofcommerce.org. This figure represents closures due to numerous factors, including general business failure, lack of profitability, natural disasters, cyberattacks, owner retirement and so on.

The most recent business continuity statistics show a troubling ongoing trend. Threats like ransomware and other cyberattacks continue to disrupt operations for organizations in every industry. At the same time, these disruptions are becoming costlier and taking longer to resolve. Small to mid-sized businesses are especially vulnerable, because they typically have fewer resources to recover from an extended outage. All of this underscores the importance of implementing a strong business continuity plan, as well as dependable BC/DR technologies that can prevent costly disruptions from data loss.

Don’t let your business become another statistic

To learn more about deploying robust data backup and other business continuity technologies, contact our experts at Invenio IT.  Request a free demo , call (646) 395-1170 or email us at  [email protected]

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7 Benefits of Working with a Business Continuity Consultant

D id you know that 90% of small businesses fail within a year unless they can continue operations within five days after a disaster? Businesses without a disaster recovery plan in place will likely never re-open their doors.

If you don’t have a solid business continuity plan, this could be your fate. To avoid this problem and resume operations as normal during an emergency, hire a business continuity consultant.

Keep reading to learn the seven benefits of working with these professionals.

1. Regulatory Compliance

A business continuity consultant will help you meet regulatory requirements. Regulatory requirements are costly if you breach them.

Legislations are continuing to grow to support business mitigation strategies. Additionally, governance regulations emphasize reasonable care in the face of potential business risks.

There are many potential cyber-attacks and risks businesses should be aware of. When you are equipped to respond to these attacks, you protect more data.

Regulatory compliance compels businesses to prioritize cybersecurity and business continuity strategies. This can protect assets and your reputation as well.

Making risk assessments a habit can help your business stay clued up on the rules.

Keep in mind that even as cyberattacks become more sophisticated, insurance doesn’t protect your data. Insurance usually isn’t enough to cover all of the damages that come from a disaster.

2. Valuable Business Data

Business continuity plans generate a wealth of data to help you understand business operations. Some of the data you can collect includes:

  • Critical tasks
  • Recovery time objectives
  • Financial impact of disruptions

This data will help you prepare and recover from unexpected events. Your business will be equipped to navigate any challenge thrown your way.

Data is a valuable asset that can be used in various ways. When you analyze the data, you can make informed decisions that help drive your business toward long-term success.

Additionally, this valuable business data is more than you can get with backups. Most companies have a form of data backup, but this does no good if you don’t have access to it.

How can you access data in the event of an outage? If your business continuity plan leverages cloud technology and virtual servers, your business can run critical applications in the cloud. This also helps keep downtime to a minimum.

3. Minimize Downtime

Business continuity planning is a great investment because it can minimize downtime during a disruption.

A business continuing consultant helps you identify potential risks and develop contingency plans. These allow you to respond to an unexpected event and reduce downtime.

Your business can continue to operate during times of crisis. This also helps with maintaining your reputation because it keeps your customers happy.

Reducing downtime saves you a considerable amount of cash. When operations slow, you lose revenue, productivity decreases, and your overall business reputation takes a hit.

To avoid these negative consequences, minimize your downtime through business planning with a continuity consultant.

4. Rise in Trust and Confidence

A business continuity consultant increases trust and confidence in two ways. First, your customers are more trusting of your business. Second, your workforce has more confidence in their training during an emergency.

Your buyers aren’t likely to learn about a disaster until you have no choice but to tell them. They will notice if you are responding quickly to the problem.

Giving your customers a rundown of your protection strategy can help them feel more confident in your work. This can create an invaluable sense of trust.

Employees will also be more confident in their work through better training and effective responses. In the event of a crisis, employees can stay calm knowing how to handle the situation.

Business continuity and disaster recovery planning can be tailored to fit the goals of your business and the needs of your customers.

5. Strengthens Your Brand

Similarly to building trust and confidence, business continuity creates a lasting mark on your brand. People will remember your choices and what they represent to them as customers in the future.

For instance, how you handle production challenges or new communications platforms will say a lot about your business.

Brands survive on consistent values. A business continuity consultant will help you create a plan that ensures you don’t do anything to undermine your reputation.

6. Supply Chain Protection

Suppliers need to know about risks just as your company does. They should be completing assessments to create their own disaster plans as well.

A business continuity consultant will encourage you to talk to your suppliers about disaster planning. Ask suppliers about the protections they can offer your business, such as:

  • Cyber defenses
  • Remote business communications
  • Multiple locations for production

Business continuity management has to work in both directions. You need to understand the potential threats and how they impact day-to-day operations. Share your own business continuity plan with suppliers too.

7. Get Ahead of the Competition

Some companies miss out on business continuity; don’t be one of them. Other businesses may fail to prepare and take stock of resources, agility, skills, and weak spots.

Instead of future-proofing, they look at the present. This will eventually affect how they stay relevant.

You will have a huge advantage over the competitors if you can restore business operations while they are trying to figure things out. Getting your network back up and running quickly will make you stand out as a leader in the industry.

When times change, you’ll race ahead of the competition with a business continuity consultant. Focus on the longer term instead of only worrying about what is happening at the moment.

Work With a Business Continuity Consultant Now

A business continuity consultant will learn about your company and create a business continuity plan tailored to your needs. These plans help business operations and customer relations.

By keeping operations going, you keep employees working and keep your customers happy.

When choosing a business continuity consultant, find one who has experience helping multiple companies develop and implement a successful plan of action. In the event of a disaster, your business will be protected as much as possible.

Are you looking for more business advice? Keep coming back to our blog for regular new posts.

This article is published by NYTech in collaboration with Syndication Cloud.

7 Benefits of Working with a Business Continuity Consultant

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Huawei has maintained its position among the top five global companies that made the highest R&D investments in 2022.

Huawei’s PC chipset contingency plan does not exist, Huawei staff say

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Word has spread in a Huawei app forum that Huawei HiSilicon’s chairman He Tingbo and Huawei Terminal Business Group’s chairman Yu Chengdong issued an internal letter “To Comrades” in which a contingency plan entitled “Tashan Battle” for PC chipsets was revealed. The letter allegedly urged HiSilicon and the Terminal Business Group to bring about swift and high-quality launches of PC products equipped with the self-developed Kirin X series chipset by the end of the year. In response to an inquiry by a Cailianpress reporter on Thursday, Huawei staff said that no such internal document had been received. On Tuesday, the US revoked licenses allowing Huawei to buy PC-related chips from Qualcomm and Intel, according to overseas media, a move that will further tighten export restrictions on the Chinese telecom equipment maker. [ Cailianpress, in Chinese ]

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  25. 23 Business Continuity Statistics to Know [Updated for 2024]

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  29. contingency plan

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