How to Create a Contingency Plan for Your Business - 2021

A contingency plan is about preventive control—it’s a course of action developed to mitigate any financial or reputational damage to a business due to unexpected events or circumstances. A contingency plan is your “plan B,” a backup plan that has been specifically prepared for a scenario that may or may not happen. A contingency plan doesn’t always have to prep for a negative event. You might make a contingency plan for when your company sees a surge in business or when your nonprofit receives a large anonymous donation. Contingency plans differ from crisis management, which is an unprepared response to an event that’s just happened. Good contingency planning is important because it ensures that business can function if your plan A falls through. What if business operations are hit by a natural disaster? What if the project manager gets fired? What if there’s a power outage and information systems are down on the busiest day of the year? A company needs to have a contingency planning guide in place to minimize losses and maintain normal functions should there be any such event that could negatively impact business. A business contingency plan is necessary for most businesses and can save a company time, money, and resources. For a thorough look at the contingency planning process, consider the steps below: 1. __Create an official policy__. In the event that something goes disastrously wrong, having a contingency policy statement in place provides clear guidelines to follow so that all employees and team members are on the same page when responding. This optimizes the quality of response. 2. __Gather your resources__. For your contingency planning, make a list of important resources the company has access to and can use in the event of an emergency or recovery strategy. Knowing what you have makes it easier to identify what you don’t. 3. __Use risk assessment__. A business impact analysis (BIA) can determine the likelihood of a particular scenario occurring and its potential impact on your most critical business processes. A BIA can both identify future risks and help a company prioritize what should be planned for first. 4. __Draft your plan__. Different risks require different plans. Prioritize your plans to address the most significant potential threats to your company. Focus on minimizing losses. Work in flexibility to account for multiple scenarios and circumstances. 5. __Test your plan__. Testing a business continuity plan ensures its effectiveness. Conduct exercises or simulations to measure response time and execution of recovery strategies. Plan testing can expose weaknesses or vulnerabilities and show where staff needs to be trained or informed to increase preparedness. 6. __Update your plan__. It’s important to enact plan maintenance, revising and amending as needed. Systems change as information technology advances, so review your plan as necessary and keep it up to date. 7. __Brainstorm unlikely scenarios__. Just because a scenario does not have a likely chance of occurring does not mean it never will. A contingency plan is like insurance—it ensures you have what you need in the event of a worst-case scenario. Get the [MasterClass Annual Membership](https://www.masterclass.com/) for exclusive access to video lessons taught by business luminaries, including Chris Voss, Sara Blakely, Bob Iger, Howard Schultz, Anna Wintour, and more. Contingency planning is an important aspect of risk management, business continuity, and disaster recovery. It’s so vital the National Institute of Standards and Technology (NIST) has outlined a seven-step contingency planning process for federal information systems and other critical organizations to use in case of a negative event. A solid contingency plan can be developed for standard system disruptions or worst-case scenarios. For most businesses, a good plan can mean the difference between success and failure, so it’s important to always have one in place.