What is contingency plan, importance and how to do it?

If something out of the ordinary happens, how much will it affect your business? Have you already defined what and how to do it? Is your company prepared to deal with problems beyond those that already occur with some frequency or that are part of the routine? What if one or more essential internal processes stop?

The answer to these and other similar questions necessarily involves a contingency plan.

Understanding what it is, what is its importance and how to elaborate one, is our objective with this post.

What is a contingency plan?

In short, a contingency plan is a set of measures that must be applied to control an emergency situation, deviations from unexpected routes, providing alternatives, assisting in the maintenance of the operation and minimizing losses and not only those of an immediate and direct financial order, such as for example , possible damage to the company’s image.

Thus, when creating and instituting one, when an abnormality occurs that threatens the business at some level, a sequence of actions is used to restore or maintain as close as possible the normality of the area or operation that has been affected by the occurrence of an internal or external factor .

As an entry, contingency is a feminine noun that designates the possibility of something happening.

Thus, a contingency plan is the anticipation in the event of certain situations and that can be a problem, trying to exhaust or minimize its negative consequences.

But let’s go to situations that many know and that are good practical examples of contingency plans:

• Fire Brigade – a company’s fire brigade is trained according to a set of specific procedures that must necessarily be adopted in the event of a fire, the in order to protect the safety and lives of people within the company;
• Aviation – in the case of emergency landings , flight attendants adopt a series of measures and provide guidance to passengers, which are previously known and standardized, also aiming to reduce the risks to passengers and crew;
• Transport – drivers of vehicles transporting certain types of cargo receive training both in the necessary care to avoid accidents, as well as how to proceed in case they occur involving such loads, in order to reduce the impacts environment and people nearby;
• Backup routine – the backup routine and set of technologies used to ensure the availability of a company’s data, as well as restoration when necessary, as in a ransomware incident, are an example of a contingency plan, normally under the responsibility of the company’s IT area.

What is common in the four examples above is that although prevention should always be prioritized, even so events of internal origin or external, can happen and the people involved need to know precisely what to do to minimize the impacts.

But these are not just alarming or catastrophic situations s that require prior planning.

In the business environment, contingency plans aim to make negative consequences as small as possible or even non-existent, whenever a predictable event and undesirable, affect normality.

Imagine an extremely critical and sensitive situation, such as a data center, which can never be without electricity supply, which, if confirmed, means that the all of its customers will be without the provision of services for as long as the problem persists.

In such cases, it is common for the supply to occur through at least two different electrical networks, so that in the event of one fails, the second is automatically used. In the event that the second one also fails, the batteries come in and if they are not able to supply the demand, then there are the generators, which in turn, need fuel depending on the time they will work.

In this case, all this is planned, in a very detailed and documented way.

Situations like this go further by predicting not only one, but several alternatives, resulting in a high level of redundancy, as the failure brings severe consequences.

Why is it important to have a contingency plan?

Suppose you have a customer that is your biggest and that represents 30% or even a little less of your revenue, but that is still a significant volume and in a given month, you have an important order that needs to be delivered by a certain date, due to a promotion with massive publicity in advertising.

What would happen if the delivery was delayed?

Well, that’s what happens, because the responsible carrier had a problem but you didn’t get another one capable of taking care of the logistics necessary to supply all your customer’s stores in time.

This hypothetical situation – but not impossible to happen – made you lose the your most important customer in terms of revenue, severely affecting the business.

Even if the worst has not happened and after phone calls, emails, contacts, a lot of rush and mobilization of several employees, you have obtained another carrier and that, having charged 50% more than usual, still allowed him to honor the request, but it brought losses and caused minor impacts on the operation.

Depending on its relevance, there are those who argue that contingency plans are also business continuity plans, since their existence can be the difference between the end and continuity of the company in certain circumstances.

Therefore, anticipate- if to the possible problems that can happen, through a pla in the case of contingencies, it is important for a number of reasons:

1. 1. Minimize losses and that in some cases , can be decisive even for the survival of the business. A real and recent example was the pandemic and social distancing, which decisively affected all businesses that had no alternatives to face-to-face business relationships;

Give the people involved guidelines on what and how to do in situations that characterize the threat and that are unusual and extraordinary, insofar as they are not used to it. With a contingency plan properly prepared and implemented, it is known how to act, without having to wait for instructions or even randomly experimenting with unknown alternatives that may also have associated risks;

1. Provides an expanded view of the risks that could threaten the business. It involves a sharper, more detailed and strategic view of the processes and the way the company operates;
2. By anticipating if to possible threats, the many alternative scenarios cease to represent risk, bringing an environment of security and stability to operate in your market segment;
3. Makes the organization less reactive and more proactive;
4. The search for solutions for possible risks, it often implies the acquisition of new knowledge and technologies, better methods of doing things, new and/or better standard operating procedures and even the breaking of old paradigms.

How to set up a contingency plan?

Once you are convinced of the importance and the benefits of having a contingency plan, the next step is to create one.

Before we present the necessary steps, it is important to keep a few things in mind:

• Depending on the size of the company and the complexity of the operation, there will not be just one, but possibly several different plans. Maybe one for each critical or sensitive area of ​​the company;
• It is not necessary to have plans for everything, but for everything which is essential for the smooth running of the business;
• When a plan often has to be put into practice, it is indicative that other factors need to be reassessed. Being an internal factor, there are possibly problems with the associated standard operating procedure. Being an external factor, like the carrier in our previous example, it may be the case to look for another supplier for the service;
• The greater the dependence and influence of external factors and, therefore, outside its direct control, the greater the chances of the risk being confirmed and consequently the importance of having the respective contingency plan;
• Build a relationship with suppliers who also have contingency plans, as the risks of external origin will be lower, as they also anticipate possible threats ;
• The plans must be dynamic, that is, they need to undergo revisions and improvements, in the same way as the processes and internal operations are modified and improved to adapt to market demands, the respective plans must be in accordance;
• The contingency plan, given its role, must be linked to the strategic planning of the company, as it is what will ensure that the goals and objectives are not compromised by predictable and avoidable factors;
• One must consider as many levels of redundancy, the greater the dependence on a factor and its impact, as in the aforementioned case of energy supply to a data center.

8 steps to create and implement a contingency plan

1. Identify which risks / threats, whether internal or external, that can threaten your business, both in terms of processes, inputs, people, resources, technologies, etc. That is, any factor that is absent or that presents an abnormal behavior, affects the result;
2. Impact assessment and consequences if the risks are confirmed. This needs to consider the effects in the short, medium and long term, because depending on the variation of impacts as a function of time, the solutions also need to be different;
3. Define a scale of priorities that is often related to impacts and that needs to be defined especially for when two or more risks are confirmed simultaneously. It aims to stipulate which will be the first or most important to be addressed, but also determines which plans need to be drawn up first;
4. Plan strategies that solve problems, which need to be well defined and easily applicable. Here is still an outline of what will be done, as it is still necessary to answer other questions that will come next;
5. Survey of resources (infrastructure, know-how, people, technology, etc.) needed to put the plan into practice;
6. Create the plan itself, which is a document, with the step-by-step and answers to the main doubts that may exist, stipulating what to do, how to do it, who does what and when. It is important to note that in addition to a possible version on the company’s intranet, for example, there must be a printed document, which is the contingency when there is no electricity or access to the network, for example;
7. Plan test. It is necessary to put the proof as to whether it is feasible or practicable, as well as its efficiency. For example, fire brigade tests are an example of the application of measures if it occurs. The simulations help to foresee both the applicability of the defined measures, as well as for the application of improvements or adjustments that are necessary and, above all, to serve for the next step;
8. Provide training for those who will be responsible for implementing the plan, since those involved need to know in advance so much of its existence, as well as they need to know how to put it into practice effectively, minimizing impacts.

Conclusion

The contingency plan is a crucial resource for companies to protect themselves from internal risks. suits and externals that threaten its profits and even its existence.