Contingency Planning: Developing a Good 'Plan B'

culled from:mindtools.com

Fires, floods, tornadoes – these are things that we often connect with contingency planning.

But what if your main supplier suddenly goes bankrupt? Or, your entire sales force gets food poisoning at the annual sales conference? Or, your payroll clerk calls in sick on payroll day?

These things can all cause confusion and disorder if you haven't prepared for them properly. Contingency planning is a key part of this preparation.

As you can see, contingency planning is not just about major disasters. On a smaller scale, it's about preparing for events such as the loss of data, people, customers, and suppliers, and other disruptive unknowns. That's why it's important to make contingency planning a normal part of the way your business works.
Risk Assessment

The need for contingency planning emerges from a thorough analysis of the risks that your organization faces. It's also useful in thinking about new and ongoing projects: what happens when 'Plan A' doesn't go as expected? Sometimes Plan A simply means 'business as usual.' Other times, with more sophisticated risk management plans, Plan A is your first response to deal with an identified risk – and when Plan A doesn't work, you use your contingency plan.

Use these principles in your risk assessment process:

    Address all business-critical operations – A good plan identifies all critical business functions, and it outlines ways to minimize losses.

    Identify risks – For each of these functions, conduct a Risk Analysis   to identify the various risks that your business may face. What has the potential to significantly disrupt or harm your business?

    The end result of a risk analysis is usually a huge list of potential threats: if you try to produce a contingency plan for each, you may be overwhelmed. This is why you must prioritize.

    Prioritizing risks – One of the greatest challenges of contingency planning is making sure you don't plan too much. You need a careful balance between over-preparing for something that may never happen, and adequate preparation, so that you can respond quickly and effectively to a crisis situation when it occurs.

    Risk Impact/Probability Charts   help you find this balance. With these, you analyze the impact of each risk, and you estimate a likelihood of it occurring. You can then see which risks require the expense and effort of risk mitigation. Business processes that are essential to long-term survival – like maintaining cash flow, staff support, and market share – are typically at the top of the list.

    Note that contingency planning isn't the only action that emerges as a result of risk analysis – you can manage risk by using existing assets more effectively, or by investing in new resources or services that help you manage it (such as insurance). Also, if a risk is particularly unlikely to materialize, you may decide to do nothing about it, and manage around it if the situation arises.

Contingency Planning Challenges

You should be aware of two common obstacles as you begin your contingency planning process:

    People are often poorly motivated to develop a strong ‘Plan B’, because they have so much of an emotional investment in the ‘Plan A’ that they want to deliver. Stress that Plan B needs to be properly thought-through.
    There’s often a low probability of a crisis occurring, so people often don’t see contingency planning as an urgent activity. Unfortunately, this can mean that it gets stuck at the bottom of their To Do Lists as a task that never gets done.

Developing the Plan

Remember these guidelines when it's time to prepare your contingency plan:

    Your main goal is to maintain business operations – Look closely at what you need to do to deliver a minimum level of service and functionality.
    Define time periods – What must be done during the first hour of the plan being implemented? The first day? The first week? If you look at the plan in this way, you're less likely to leave out important details.
    Identify the trigger – What, specifically, will cause you to implement the contingency plan? Decide which actions you'll take, and when. Determine who is in charge at each stage and what type of reporting process they must follow.
    Keep the plan simple – You don't know who will read and implement the plan when it's needed, so use clear, plain language.
    Consider related resource restrictions – Will your organization be able to function the same way if you have to implement Plan B, or will Plan B necessarily reduce capabilities?
    Identify everyone's needs – Have people throughout the company identify what they must have, at a minimum, to continue operations.
    Define 'success' – What will you need to do to return to 'business as usual'?
    Include contingency plans in standard operating procedures – Make sure you provide initial training on the plan, and keep everyone up-to-date on changes.
    Manage your risks – Look for opportunities to reduce risk, wherever possible. This may help you reduce, or even eliminate, the need for full contingency plans in certain areas.
    Identify operational inefficiencies – Provide a standard to document your planning process, and find opportunities for performance improvement.

Disaster recovery specifics are beyond the scope of this article. For more information on this topic, listen to our Expert Interview with Kathy McKee, 'Leading People Through Disasters'.
Maintaining the Plan

After you prepare the contingency plan, you need to do several things to keep it practical and relevant – don't just create a document and file it away. As your business changes, you'll need to review and update these plans accordingly.

Here are some key steps in the contingency plan maintenance process:

    Communicate the plan to everyone in the organization.
    Inform people of their roles and responsibilities related to the plan.
    Provide necessary training for people to fulfill these roles and responsibilities.
    Conduct disaster drills where practical.
    Assess the results of training and drills, and make any necessary changes.
    Review the plan on a regular basis, especially if there are relevant technological, operational, and personnel changes.
    Distribute revised plans throughout the company, and make sure that the old plan is discarded.
    Keep copies of the plan off-site, and in a place where they can be accessed quickly when needed.
    Audit the plan periodically:
        Reassess the risks to the business.
        Analyze efforts to control risk by comparing actual performance with the performance levels described in the contingency plan.
        Recommend and make changes, if necessary.

Key Points

Contingency planning is ignored in many companies. Day-to-day operations are demanding, and the probability of a significant business disruption is small, so it's hard to make time to prepare a good plan.

However, if you're proactive in the short term, you'll help ensure a quicker and more effective recovery from an operational setback in the long term, and you may save your organization from failure in the event that risks materialize.

Contingency planning requires an investment of time and resources, but if you fail to do it – or if you do it poorly – the costs could be significant if a disaster