How to Create a Contingency Plan (With Benefits and Example)

By Indeed Editorial Team

Published 5 May 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Having a contingency plan while working on a project or running a business is essential. A contingency plan lays out systematic responses for when disruptive circumstances occur. While you can't prepare for all situations, the more plans you have prepared, the more likely you can react to any challenges effectively and quickly. In this article, we discuss what a contingency plan means, explain how to create a contingency plan and share an example for such a plan.

How to create a contingency plan

If you're a business owner or a project manager, you may wonder how to create a contingency plan. A contingency plan is a pre-defined course of action that helps you respond and take necessary measures when a crisis affects the project or business. The contingency plan contains details regarding what steps to take to reduce the damage caused due to the issue. It helps to avoid unnecessary panics if an actual disruption occurs.

Contingency plans are crucial for the continuity of your project. Such strategies prepare everyone in the organisation to face an issue more confidently. Government and large companies develop many contingency plans to address the different types of problematic scenarios they may face. Such firms do proper research regarding potential problems and practise responses before an actual event occurs. Here's a step-by-step process to help you prepare a contingency plan for your organisation:

1. Assess the current state

To develop a contingency plan, it's necessary to understand the organisation's current state. Familiarise yourself with the working of the various departments, the company's finances and available resources. Knowing in-depth about the company and its process can help you prepare an effective contingency plan that aligns with its capabilities.

Related: Goals and Objectives: What's the Difference? (With Tips)

2. Identify the company's potential risks

Understanding the adverse events or potential risks that the company might face is essential for developing an effective contingency plan. Negative events may include critical resources leaving the organisation, facing negative press coverage or losing long-term suppliers or customers. When creating a list of potential risks that require contingency plans, it's helpful to speak with other team members to consult their opinion. You may also get help from experts outside the organisation and refer to industry-related articles to identify potential risks the company may face.

3. Brainstorm potential solutions

Begin with the high priority risks that are more likely to occur and develop all possible solutions for them. This helps in identifying the best solution among the various options. You can then develop this solution into a complete contingency plan.

4. Develop your contingency plans

Once you identify the best solutions, you may develop a contingency plan. The length of your contingency plan may vary depending on several factors, such as the probability of an adverse event, the measure of its impact and the complexity of your response. If your project involves multiple departments and several resources, include all the necessary details in the plan.

5. Share your plan and make revisions

Once you prepare a contingency plan, it's a good practice to seek feedback from other stakeholders. This helps you identify potential issues that you may have missed or identify better responses for a situation. You can also share it with department heads who can guide you in refining the contingency plan to match the available resources and capabilities.

6. Keep updating the contingency plan

Businesses are dynamic, and as time passes, the situations that led to creating the current contingency plans may change. Therefore, it's crucial that you regularly check the relevance of your contingency plans to make sure they still fit within your existing operations. An annual assessment is sufficient for most contingency plans. When a company undergoes a significant change, it's also an excellent time to evaluate if any of the sections of the contingency plan requires an update.

Related: What is an Internal Audit and What are its Primary Objectives?

Components of a contingency plan

A well-explained contingency plan takes a structured response to avoid unnecessary chaos. The primary contents of a contingency plan are as below:

  • Trigger: This is the event, action or situation that triggers the use of the contingency plan. Examples of triggers include projects exceeding the agreed timeline, losing a potential customer or a natural disaster.

  • Available responses: A simple contingency plan may include only a single response to a potential situation. Conversely, a more significant issue or one considered more likely to occur may have multiple responses to let you consider several options quickly.

  • Key people: Identify the key people, such as managers and department staff, who play a critical role in the project and contingency plan.

  • Team breakdowns: Along with the key people, identify the people in various other departments who may have an impact during the contingency. The contingency plan may include all the information related to what team members may do when the plan comes to action and help them prepare themselves and offer support during a disruption.

  • Goals: Define the goals for each of the plans you develop. This may help communicate the outcome of the contingency plan to other employees.

  • Response timelines: Divide the response phase into clear goals. Label each goal, describe how to achieve them and assign a specific timeline.

Related: 15 Project Management Skills Every Manager Should Have

Benefits of a contingency plan

There are various scenarios where an organisation may use a contingency plan. Here are some situations:

Public relations

Public relations response uses contingency plans in various scenarios. These plans help detail how to respond in case an issue related to public relations occurs. For example, it's important to be careful regarding what you post on public media platforms. Having a contingency plan helps you decide whom to consult before posting a piece of sensitive information and which medium is best suited for communication.

Schedule disruptions

Sometimes you may find it difficult to meet deadlines. Developing a contingency plan before initiating the project may prepare you for such situations. Some examples of contingency plans in such scenarios may include revisiting the scope of a project and re-prioritising items, increasing work hours or outsourcing a part of the project. The plan may also include ways to communicate these changes to stakeholders.

Performance issues

Sometimes, you may not get the expected result when you execute a project. In such cases, having a contingency plan is helpful. It supports you in bringing the necessary change and preventing the project from failing. For example, when you execute a marketing campaign for a specific demographic that doesn't yield the desired results, a contingency plan helps you identify the changes and adjustments that may help increase its reach.

Budget changes

While working on a project or running a business, sometimes you may expect changes in the budget. It may be because of an increase in the cost of materials, sudden fund shortages, unavailability of planned resources or natural disasters. Preparing a contingency plan in advance may help you identify areas to adjust budget changes without significant disruptions. An effective contingency plan also identifies elements you may exclude or reduce and provides other additional funds options.

Loss of a partner or contractor

Often large projects involve the cooperation between multiple stakeholders, and sometimes, there may be situations where a key player leaves a project. A contingency plan may include alternative replacements. This ensures the loss causes minimum disruption to the business.

Technical difficulties

Modern businesses rely heavily on technology, and while this generally increases the efficiency of team members, it also raises the chances of unforeseen technical difficulties occurring. Including backup options and suppliers to replace the failed parts in your contingency plan may help you avoid work disruptions until the professionals solve the technical problem. In addition, a fail-safe backup plan can reduce the risk of data loss and mitigate the overall damage to the company.

Contingency plan example

Below is a short example of a contingency plan that may convey the key response elements for a marketing campaign failure:

Trigger: Ad campaign reach to the audience is 25% below the expected result.

Response: Change the medium and public platforms where the ad campaign runs to reach the targeted audience.

Who: Marketing department, public relations department and graphics department

Responsibilities:

  • Marketing: Analyse the reason for the gap between the expected outcome and the actual performance.

  • Public relations: Identify the public platforms where the reach was less. Explore more mediums where the expected reach is possible for the ad campaign.

  • Graphics: Brainstorm with the marketing department and analyse past ads that had successful reach. Develop better graphics to catch the attention of the audience.

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