Contingency plans address “what if” questions regarding events or issues that can affect ongoing business operations. They can focus on ways to deal with major disasters such as a fire or flooding. They can also focus on ways the business plans to deal with issues such as key employee absences or supply chain disruptions. A variety of factors influence contingency planning and should be considered before finalizing plans.
The probability that an event or issue will occur is a factor that helps in prioritizing the contingency planning process. Probability assessments start by organizing events or issues into one of three or more probability ranges such as high or nearly certain, moderate or possible and low or improbable. For example, the probability that at some point your business will face a power outage is high while the probability the business will face a public relations crisis may be low. After establishing probability priorities, add the business processes that will be impacted by each event or issue.
The impact an event or issue can have on business operations is a major factor influencing contingency planning. The Federal Emergency Management Authority recommends completing a business impact analysis to predict and assess the consequences of disruptions to specific business functions. Consequences can be tangible or intangible and include lost or delayed sales, increased expenses, customer dissatisfaction or defection and delays in achieving business goals and objectives. The results of a thorough impact analysis are then compared against the business’ available physical, financial and human resources to get information vital to creating effective contingency plans.
The order in which contingency plan steps must take place also influences contingency planning. Establishing order can help to ensure the contingency plan isn’t missing important details. Order starts with an estimate of how long it will take to get the business back to how it normally functions after a triggering event occurs. It continues by working backwards to determine what steps must be taken according to weeks, days or hours.
Risk mitigation efforts influence contingency planning by reducing the chance that an event or issue will occur and by reducing negative effects if the event or issue does take place. Proactive measures can focus on business processes and include improving internal controls to prevent fraud and secure computer networks or cross-training to ensure critical processes flow smoothly in the event a key employee becomes ill or separates from the business. Proactive measures can also include ensuring the building complies with building codes, fire and safety regulations. Taking steps to ensure the business has adequate liability and loss of income insurance is another way to mitigate risk.