The Purpose of Contingency Planning

Contingency planning is the act of assessing business risk in various areas and developing primary plans and alternate plans for handling unpredictable situations. Small business contingency plans typically address everything from natural disasters that strike a business to drastic downward shifts in the economy that significantly impact earnings. Contingency planning allows a business to develop workable solutions and directives should a feared event occur.

Contingency planning prompts a small business to prepare for various scenarios that have the potential to harm the enterprise. For example, a business may store sensitive files, documents and backup data in an off-site location in the event a fire destroys the main office complex; a vice president of a company may be given business power of attorney in the event the president of the company dies or is incapacitated. This type of preparation focuses on keeping a business up and running if one or more significant aspects of its operations are compromised.

Some potentially harmful business problems can be anticipated. For example, vendors and suppliers can go out of business, so having contingency suppliers to turn to will ensure operations continue without interruption. If the cost of raw materials is rising, a contingency plan for raising prices, using different grades of materials or absorbing the increase, will allow the business to continue operations on schedule.

Developing contingency plans for foreseeable challenges allows a business to be proactive in addressing possible changes to its operations. For example, a small business or industry regulated by the government typically knows in advance of potential changes to any regulatory policy that governs them and can create a contingency plan to implement if those changes take effect. Likewise, economic challenges typically evolve over time, giving business owners the opportunity to create contingency plans for various outcomes. For example, a steadily declining economy may prompt a small business to move toward lean operations or to discontinue low-revenue-producing products or services to prepare for a business slowdown.

Contingency plans can help a small business effectively react to unanticipated events. For example, a frozen food company might develop an alternate plan for keeping perishable foods viable in the case of a power outage by installing generators. This form of contingency plan allows a company to successfully react to events that have the potential to damage the business.

Comprehensive contingency planning helps a business deal with unexpected occurrences and helps them recovery quickly and get back to full operations. Say a small business has contingency communication plans in place for reaching employees and customers if typical business communication tools are compromised. This business positions itself for reconnecting with employees, regrouping efforts and keeping customers apprised of the business’ status. This leads to faster recovery and resumption of regular operations.