The vast majority of failed projects and bankrupt companies had a plan and followed it. So why didn’t they all end up successful, living happily ever after?
Because unfortunately, in the real world, things don’t follow a script. Unexpected things happen that companies don’t plan for, and many fail to adapt in time.
A few years ago, people would have laughed at companies that prepared for global pandemics and government lockdowns. But it all paid off for them in this time of crisis.
Contingency planning is all about expecting the unexpected and preparing to deal with worst-case scenarios ahead of time.
In this article, we’ll cover what a contingency plan is, why it’s essential, and give you step-by-step instructions for creating your first one the right way.
What is a contingency plan?
A contingency plan is a plan for a “what if” scenario that could ruin your project or business.
A simple example of a contingency plan is to back up all website data in case your site gets hacked.
If this scenario happens, you can then restore the data after regaining access and changing passwords.
If you’re not prepared, you might have to recreate your entire website from memory. That’s a significant expense and can mean several extra days of downtime.
A contingency plan deals with eventualities like that. It’s all about managing and lowering risk and setting up for speedy disaster recovery.
Even if you’re running a small business without a digital component, there are plenty of things that could go wrong.
Your whole staff could get sick on the same day, your supplier could have a delayed shipment, or worse, go bankrupt.
There’s really no limit to how much bad luck you could have. But with the right preparation, you can still come out on top.
What is the purpose of contingency planning?
The purpose of contingency planning is to ensure that your business operates as smoothly as possible, despite mistakes and unexpected events.
But what’s the big deal?
On average, 32% of customers will walk away from a brand they love after a single bad experience.
Think about what that means.One big mistake, or unforeseen disaster, could lead to you losing 1/3 of your customers. Can your business survive that?
Chances are you can’t.
If you’re providing a service that your customers expect 24/7 access to, it’s a constant risk.
When T-Mobile experienced a service outage in June 2020, at its peak, 113,980 customers reported the issue in a 15-minute period.
The outage went on to last for several hours. If even 1/3 of those who reported — not experienced — the issue went on to switch brands, that’s millions of dollars in lost revenue.
That’s what you’re working to prevent at all costs.
Most causes for project failure can be kept at bay with good planning.
Even couples planning a picnic have a backup plan if the weather forecast is iffy. As a business, you can’t afford to be less prepared than them.
How to write a contingency plan for your business in 4 simple steps
Have we convinced you that not having a contingency plan is a horrible idea yet?
Let’s cover the basic contingency planning process and detail how to get yours up and running.
Map out your essential processes.
What processes are essential to your business and delivering your product or service safely 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
Just looking at this list, you can see how vulnerable it is to natural disasters or even small human errors.
Pro tip: if you use a digital workspace platform like monday.com, you can plot out every step of your workflow.
Create an overview of every crucial process in your organization.
Create a list of risks for each process.
Once you have your process list, you need to figure out what could disrupt your business continuity.
What can go wrong with each of these critical processes?
For example, let’s explore everything that could go wrong with last-mile delivery:
- The driver can deliver a single package or even 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’re relying on to not go wrong, even for fundamental processes.
Every business process is vulnerable to some sort of emergency or human error.
Evaluate the potential impact and likelihood of each risk.
Once you’ve started identifying risks, you need to figure out how critical they are to your business.
Are they likely to happen? If they do occur, how large will the impact on your business be?
Most companies use qualitative risk assessment to do this. It’s quite a mouthful, we know, but it’s not as complicated as it sounds.
PMI uses the following risk exposure assessment table — also called the probability impact matrix — to evaluate, you guessed it, the probability and impact of potential risks.
First, you rate the severity of the impact on a scale from 1–100. Then, you multiply that with a percentage based on how likely it is.
Calculate costs, contingency reserves, and single out issues to mitigate.
A less common — but more useful — approach is to assess the potential cost of each risk. That’s called quantitative risk assessment because you add numbers into the mix.
How much would each risk potentially cost your business? To get a better overview, you should add these 4 columns to your risk register:
- Full potential loss from the event
- Expected loss from the event
- Cost of response (post-event)
- Cost of mitigation (pre-event)
That way, you can make an educated decision when budgeting contingency reserves into your project plans and yearly budgets.
During your risk analysis, estimate the potential costs of the negative event happening.
For example, if your online store goes down, you can 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 security procedures, like 2-factor authentication for all employees.
Budget in those costs.
An accurate budget is the first part of emergency response and prevention. Without enough cash on hand, your team won’t be able to put any response plans into action.
Create a response plan for prioritized events.
You can create a response plan for events by exploring the following questions:
- What can you do ahead of time to minimize the effect of the event? For example, backing up data, carrying extra stock, or having more employees on call.
- What can you do immediately after the event to minimize the impact? For example, ordering more from a secondary supplier, rerouting another vehicle, or bringing in staff that is on-call.
The specifics depend on your company’s unique processes and situation.
Take your contingency plan to the next level with monday.com
Having your business contingency plan on paper is a good 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 you need to ensure your contingency plans actually get followed.
Outline entire contingency workflows in boards before events happen.
Make sure that no employee is left clueless during a crisis. Add contingency workflows directly into the workflow tables.
You can add expandable workflows to any table to make sure everyone follows the same approach.
With this in place, even your newest employees won’t need to bother senior team members and management for guidance every time something doesn’t go according to plan.
Use integrations to notify someone of an event automatically.
With monday.com’s powerful integrations and automations, you can speed up your response to regular unfavorable events.
For example, you can immediately create and assign a work item whenever a customer submits a bug report.
This approach helps you 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.
The best time to start acting is before you reach 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.
With monday.com, you can easily create custom dashboards that focus on the metrics you care about.
Use the 30,000-foot view every manager dreams of to avoid predictable project delays and failures, and check that project controls are working properly.
When you’re starting a project or business, most people plan according to the status quo. 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 when everything goes wrong.
Use our contingency plan template to prepare your business for accidents, blackouts, natural disasters, and more.