What is a contingency plan?
A contingency plan, or disaster recovery (DR), is a proactive project management approach to addressing adverse developments and ensuring business continuity. When your primary plan fails, having a solid backup plan is the best way to prepare, tackle, and get through any situation, such as losing a key client or having your software go down for hours. Contingency planning, also a form of risk management, ensures your business remains healthy during unexpected crises by helping you identify potential risks and create strategies to mitigate them. Planning ahead reduces the likelihood of going over budget and encountering project delays. It also:
- creates a shared sense of responsibility
- improves employee satisfaction and retention
- increases leadership efficiency
- manages expectations
- bolsters trust
- instills proactive measures rather than reactive ones
Project risk management plan vs. contingency plan vs. mitigation plan
A project risk management plan helps you identify, monitor, and address project-level risks. Organizations use project risk management during the planning phase to prepare for potential threats that can affect project success. A contingency plan is similar, as it helps you identify and manage risks, but contingency planning covers potential risks spanning several projects and multiple departments impacting the project’s budget, timeline, or quality. A mitigation plan, on the other hand, outlines several strategies for preventing a threat from happening and minimizing the impact if it does.
When to use a contingency plan
Contingency plans aren’t only for anticipating when things go wrong; you can also use them to take advantage of strategic opportunities. For example, imagine a website launch involving various stakeholders, from web developers and designers to content creators and marketers. Now, picture everything that could go wrong—security breaches, website crashes, and unsatisfactory user experiences. A contingency plan detailing how to respond to these scenarios would help you adjust and change direction as quickly as possible. In this case, contingency planning would involve working with your web development team to isolate the issue and implement a fix.
A successful website launch often depends on having a contingency plan in place to ensure potential risks don’t derail your project’s success. You can only create a contingency plan once you identify a potential threat—not knowing your risks makes it impossible to plan for them. There are four common challenges project managers face during contingency planning.
- Employees become too invested in your initial plan to create an actionable Plan B ( contingency plan ).
- Lack of company-wide awareness and buy-in can significantly hinder implementation.
- Not spending enough time on identifying risks to create an actionable contingency plan .
- Employees and stakeholders not taking Plan B seriously, especially since it may never be necessary.
- Failing to adequately define and lay out your disaster relief plan can lead to total project failure.
How to create an effective contingency plan for your organization
A strong contingency plan helps your business bounce back when the unexpected happens. During contingency planning, ensure your leaders evaluate the likelihood and severity of all risks, base their strategy around them, and get it approved by upper management. Not waiting for approvals means they can take immediate action if disaster strikes. Here are step-by-step instructions on how to build an effective contingency plan at various levels throughout your organization.
List potential risks
Before resolving risks, you need to know what they are. Identify all potential risks impacting your organization, including at the business, department, and program levels. What specific event must happen before implementing your contingency plan? Ensure your contingency plans align with the scope and magnitude of the risks you’re planning for. Planning should involve relevant employees and stakeholders in brainstorming sessions to identify and discuss potential threats. Some of the most common threats businesses plan for include:
- losing key employees
- losing stakeholders
- new competitors
- supply chain breakdowns
- economic recessions
- talent shortages
- inflation
- fraudulent activity
- financial crisis
- data breaches
- employee burnout
- failure to innovate
- natural disasters
- global pandemics
- terrorist attacks
- climate change
Determine the severity and likelihood of risks
You don’t need a contingency plan for every potential risk out there. Narrow down your threats by determining (a) the severity of impact should the risk occur and (b) the likelihood of the risk happening.
Prioritize higher-risk threats
This is where you decide which threats are a priority. Work with your team to determine the potential impact of each risk using a high, medium, and low rating for each hazard. The ones that have the highest ratings are the most important to address. For example, you should create a contingency plan for any risk with increased severity and a high likelihood of occurring. In contrast, those with low severity and probability typically don’t require a disaster recovery plan. You and your team know best where to draw the line.
Perform a business impact analysis
Dive deep into your operations with a business impact analysis (BIA) to help you identify what keeps your business going. A BIA predicts the impact specific risks can have on your business and the best response for damage control. Understanding the likelihood and severity of your risks helps you determine how to minimize any negative impact. For example, how would you plan for high-severity and low-probability risks? Or those with low severity but high likelihood? Knowing what actions, processes, and resources are essential to keeping your business operating helps you create a contingency plan for anything that directly impacts your operations.
Create a disaster recovery plan for the most significant risks
Here’s where you develop a contingency plan for each risk you identified as important. Part of the contingency planning process involves describing the risks and brainstorming what your organization would do if the threat became a reality. Your disaster recovery plans should include:
- all the necessary steps for returning to “business as usual”
- clear guidelines for communication and reporting during plan implementation
- the triggers that set the plan into motion
- how you’ll notify internal and external stakeholders
- your team’s immediate response
- Who you’ll involve, what they need to do, when the actions need to happen, where will your plan take place, and how you’ll execute it
- key responsibilities
- how often you’ll provide updates to stakeholders
Get approval
Inform all relevant company leaders about your contingency plans and ensure they agree and sign off on your course of action. This step is especially crucial when you’re creating team or department-level plans. A contingency plan empowers your entire organization to respond to risks quickly without waiting for approval during times of crisis, so you must ensure your suggested course of action is approved before setting the plan in motion.
Communication is critical to successful outcomes
Once you have approval on your contingency plans, it’s crucial to share them with your team. Communication is especially important now as everyone must know what to do if and when disaster strikes, so they can act as quickly as possible. Storing your contingency plans in a single source of truth (SSOT) or central data source makes it easy for everyone to access them when necessary.
Monitor, adapt, and develop new plans when necessary
Monitor your contingency plans regularly to ensure they stay up to date. You may need to adapt them for new risks or opportunities, especially if they have a high enough likelihood or severity, like a changing business landscape or new hires. While reviewing your plans, you may realize some of the scenarios you once listed as high severity and likelihood are no longer the case, just as low severity and likelihood can also shift gears and become a more significant threat. When this happens, adapt and develop new plans as necessary. Anytime a new employee or executive joins your team, ensure they review your contingency plans thoroughly.
Consistent and transparent company-wide communication is crucial to mitigating risks and returning to “business as usual” in the least time possible.
