Contingency Planning | tutor2u Business
Study notes

Contingency Planning

  • Levels: A Level, IB
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

The aim of contingency planning is to minimise the impact of a significant foreseeable event and to plan for how the business will resume normal operations after the event.

Contingency planning involves:

  • Preparing for predictable and quantifiable problems
  • Preparing for unexpected and unwelcome events

How Contingency Planning Relates to Risk Management

Contingency planning is one of the three approaches a business can take to manage risk. These are:

  • Risk management: identifying and dealing with the risks threatening a business
  • Contingency planning: planning for unforeseen events
  • Crisis management: handling potentially dangerous events for a business

What is Involved in Contingency Planning?

The process of contingency planning involves:

  • Identifying what and how things can and might go wrong
  • Understanding the potential effects if things go wrong
  • Devising plans to cope with the threats
  • Putting in place strategies to deal with the risks before they happen

Almost by definition, contingency planning should focus on the most important risks; those that have the potential for significant business disruption or damage. Risks vary in terms of their significance to the business

Contingency planning is not required for every eventuality. However, risks of strategic significance cannot be ignored

What do we mean by “risk” in business? Risk can be:

  • The possibility of loss or business damage
  • A threat that may prevent or hinder the ability to achieve business objectives
  • The chance that a hoped-for outcome will not occur (e.g. customers do not respond well to a new product launch)

 Risk is ever-present in business and there are a variety of possible responses to it:

  • Ignore it (wait and see)
  • Share/deflect the risk (e.g. take-out insurance)
  • Make contingency plans - prepare for it
  • Embrace risk as an opportunity- particularly if it also affects other competitors

 Some examples of how action can be taken to reduce risk include:

Marketing

  • Avoid over-reliance on customers or products
  • Develop multiple distribution channels
  • Test marketing for new products

Operations

  • Hold spare capacity
  • Rigorous quality assurance & control procedures & culture

Finance

  • Insurance against bad debts
  • Investment appraisal techniques

People

  • Key man insurance – protect against loss of key staff
  • Rigorous recruitment & selection procedures

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