Businesses prepare contingency plans because things do go wrong from time to time. Contingency planning involves:
Preparing for predictable and quantifiable crises
Preparing for unexpected and unwelcome events
The aim of contingency planning is to minimise the impact of a foreseeable event and to plan for how the business will resume normal operations after the event.
The key stages in contingency planning are:
Recognise the need for contingency planning
Identify possible contingencies (all the possible adverse and crisis scenarios)
Specify the likely consequences
Assess of the degree of risk to each eventuality
Determine risk strategy (to prevent a crisis and deal with one should it occur)
Prepare plan and identify management responsibilities
Test the plan (crisis simulation)
Contingency planning work well when the “what if” question is considered carefully. Two techniques really help with addressing “what if”?
Scenario analysis
This involves constructing multiple but equally plausible views of the future
The scenario consists of a “story” from which managers can plan
Sensitivity analysis
Involves testing the effect of a plan on alternative values of key variables
e.g. the effect of a 25% loss of capacity
