Contingency PlanningBy Richard Grover

Contingency Planning

• Also known as ‘What if’ analysis.

• Prepares for changes in both the internal and external environment.

• This can produce opportunities as well as threats.

• Plans are based on probabilities not solid data.

A Contingency Plan

• Recognise the need for contingency planning.

• Catalogue as many crisis scenarios as possible.

• Search for ways to prevent each crisis

• Formulate plans for dealing with each crisis.

• Simulate crisis and the implementation of the plan.

What should firms plan for?

• Aim: To identify potential situations which may hinder the firm in achieving its objectives.

• Plans are prioritised by looking at probability and severity of the impact it would have.

Who should use it?

• A system to deal with change should allow firms to cope quickly and effectively when it does occur. And it will occur!

• It is most useful when:• Firms are not used to sudden changes.• Managers have limited experience.• The external environment is unstable• Firms are operating in ever changing markets.

Quote!

“It is not the strongest of the species who survive, nor the most intelligent… it is the most adaptable to change”

Charles Darwin

‘What if…?’ Questions

• What if our workforce doesn’t accept the pay offer and takes industrial action?

• What if our firm is the target of a hostile bid?

• What if machine failure leads to a 50% reduction in capacity for 2 weeks?

Problems

• Time consuming

• Events are unexpected and therefore may be difficult to predict.

• Uses companies resources.

• Information overload.

• It might never happen!

Effectiveness

More Effective if:• Well communicated.• Up to date.• Easy to use.

Less effective if:• Management aren’t

committed.• Out of date.• Badly resourced.

Can we evaluate it?

It is very difficult to evaluate how effective contingency planning has been as the firm will never know how serious impacts would have been without the contingency plan in place.

Crisis Management

Differences between Crisis and Contingency Planning

• Contingency planning examines issues where the firm may have weeks to react, in a crisis there may only be hours.

• Crisis management has to be more flexible than detailed contingency planning.

• A crisis can be described as a cataclysmic event which poses and immediate and severe threat to the firm.

Impact of a CrisisFactors that influence this:

• Reaction of firms allies and enemies e.g. politics, press etc.

• Reaction of competitors.• Blame.• The early stages – Crucial to react fast.• Luck• How well prepared the firm is and its ability to implement

the plan.

Are crises always bad?

Not if the firm was not to blame and it has dealt with it effectively. It can actually strengthen the firm and its reputation.

e.g. A customer complaint can be seen as a chance to impress.

How far is it possible to plan for a crisis?

It is difficult to plan for specific crises as these are very difficult to predict. However a plan can be made for crises in general.

e.g. A crisis team may be put together with people from all aspects of the business, necessary resources should also be set aside.

Staff should also be trained to deal with the media as some coverage can be very damaging.

Also, flexibility and teamwork are vital.

Thank you for Listening