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How to Make a Contingency Plan

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Last editedSep 20213 min read

When you run a business, you want to be prepared for worst case scenarios. Even when everything is going well, it is important to plan ahead and know how you will handle any potential disasters. Without a plan to respond to contingent liabilities, a disaster could mean the end of the business. Businesses should plan for a range of potential catastrophes – these will be determined by the type of business and the environment it operates in.

It’s not all doom and gloom – you can also make positive contingency plans, such as figuring how to respond if a globally influential business should suddenly announce interest in partnering with you.

Let’s look at what a contingency plan looks like and how you can make one for your business.

What is a contingency plan for?

In business, a contingency plan consists of actions or proactive strategies to respond to sudden and hugely influential events. Often these events will be negative, such as something that happens that damages a company’s finances, reputation or ability to operate. Having a positive contingency plan places the company well to take advantage of any sudden uptake in fortunes, such as a huge offer made by a client or unexpected access to a valuable or game-changing resource.

A contingency plan is distinctly different from a crisis management plan, with the latter being more of a reactive strategy for handling a negative event that has already happened. A contingency plan looks ahead and prepares for the negative (or positive) event ahead of time.

Contingency plan examples

Retail or manufacturing businesses should have contingency plans in place for potentially devastating events such as their main supplier going bankrupt or key members of their workforce getting food poisoning after dining out together. Companies reliant on their websites to drive business must have a contingency plan for a DDoS attack or being hacked.

Good contingency management is not just about huge disastrous events either, as even small negative events can still be damaging if not planned for. Such small contingency plans should account for the likes of a business relationship going sour, losing staff, losing important data, or even an unexplained downturn in customers.

Businesses will always suffer some or all of these events at some point, so contingency planning should be part of every company’s routine, whether that’s daily, weekly, monthly or annually depending on the type of event being prepared for.

How to make a contingency plan for your business

A good contingency plan needs a lot of research, particularly for a more complicated plan covering more influential events. But it might be as simple as knowing which member of staff can cover for another member of staff who falls ill, and then knowing what to do should both fall ill on the same day and so on. There are five basic steps to making a contingency plan:

Identify key risk areas
Prioritise resources
Match risks to resources
Communicate the plan
Revise actions

Identify key risk areas

The first step is always identifying the actual risks. Staff falling ill is one of the smaller risks, but a higher risk would be an employee resigning without you having a replacement lined up or even a recruitment process in place.

The larger the company, the more research you’ll need to do to identify all the risks from the relatively inconsequential to the utterly catastrophic. You must locate all the company’s vulnerabilities so discussions with all departments, leaders and even shareholders will be necessary to get the full picture.

Prioritise resources

Once you know the risks, you will need to make an account of all the company’s resources and prioritise them according to how they can negate each negative event. Such resources include staff, available finances, equipment, tools and facilities.

Match risks to resources

Now you have identified the risks and know what resources you have to respond to them, you can draft a contingency plan for each risk. Start with the most important risks that could put the company out of business and work your way down. Remember the ultimate objective is to keep the business operational, so communication, assignment of responsibilities and any necessary timelines should be mapped out for each plan.

Communicate the plan

Once all contingency plans are complete, you must share them with relevant parties. That brilliant plan you come up with will be useless if the right people don’t know about it.

Revise actions

As new employees arrive, new technology is implemented and the availability of resources evolves, a plan can become outdated. This is why all contingency plans will need to be revised occasionally, so schedule revisions of each plan at appropriate intervals.

We can help

If you’re interested in discovering more about contingent liabilities or how to make a contingency plan, or any other aspect of your business and its finances, then get in touch with the financial experts at GoCardless. Find out how GoCardless can take the pain out of getting paid, by helping you with ad hoc payments or recurring payments.