What Is a Contingency Factor?
A contingency factor is anything that cannot be accurately predicted or forecast in the future. A contingency is the unexpected, or things that are out of your control. Natural disasters, economic crisis and other major events all fall into this category. As it pertains to small and large business, preparing for the contingency factor is critical. Failing to prepare will interrupt basic daily processes at a minimum. A business with no contingency strategy risks being crippled by major events because they are unprepared to adapt to rapidly changing conditions.
A contingency factor requires a "what if" planning scenario. You expect a major deal to close in Q3 but what if your primary point of contact leaves the company and you lose the contract? Preparing for contingencies requires a plan with steps to manage the situation and keep the business above water. The plan is not easy to create because it requires acknowledging difficult measures like layoffs and significant cost-saving strategies. A contingency is not always a major disaster. It can be something simple like an employee who fails to show up for work. Having a strategy to mitigate small issues is essential for any business. Preparing for the worst contingency scenarios is a matter of survival.
If an employee fails to show up for work, a business can have a staffing agency with on-call temp workers as the contingency plan. Training another employee on the job so their skills overlap in an emergency is also effective. Adding a cushion to deadlines prepares for contingencies. Give your employees a deadline for work that is several days ahead of the actual deadline. If a contingency factor delays the work, you can still meet deadlines. Lastly, keep relevant insurance policies against factors that can damage your business. Insurance is well worth the upfront investment.
Financial advisers recommend diversifying your portfolio to mitigate risk across different types of investments. Why not take measures to diversify revenue streams and protect your business against contingency factors? A landscaping company can add snow removal services to survive unexpectedly long winters. The ability for alternative revenue streams to shoulder shortfalls is useful in any business. Diversifying the customer base is also a strategic business move. A company that delivers products and services to a wide range of demographics and customer types has an advantage in continuing sales through times of hardship.