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The Importance of Contingency Planning

If 2020 taught us anything, it’s that you never know what the future might bring. The COVID-19 pandemic took the world by storm, and businesses in every industry had to take a cold, hard look at how well prepared they were to deal with economic upheaval on a global scale. Unfortunately, many organizations found that they were simply unprepared to weather the storm. In fact, according to research by the Federal Reserve Board, the pandemic contributed to the permanent closure of approximately 200,000 establishments in the US alone.

And while a pandemic of this magnitude may seem like a once-in-a-generation occurrence, the reality is that unexpected events can and do occur with alarming regularity. These events may be global in nature or localized to a specific region or even a single organization, but they all have the capacity to disrupt normal business. To better prepare for these eventualities, successful companies turn to contingency planning.

What is contingency planning?

To define contingency planning, first consider a very common, very simple occurrence, such as unexpected internet network failure. A contingency plan for such an event may outline the potential risks of facility downtime, identify the need for a backup power system, and establish a course of action (in this case switching to the backup power

This is the meaning of contingency planning: predicting the effects of possible emergent events, and building strategies for preparation and remediation. In other words, a contingency plan establishes a reliable course of action a business can fall back on to respond to events that present risks to operations.

What Are the Benefits of Contingency Planning?

A contingency plan is to an organization as a safety net is to a trapeze artist—a failsafe to help minimize negative impact in the event that something goes wrong. For the acrobat that slips from their rung, the net may save their life. To a company that has to find a way to remain operational during a natural disaster or other emergencies, contingency planning may save the entire business.

Contingency planning makes this possible by providing several important benefits:

Reducing Operational Loss
Disruptions have a way of stopping business operations in their tracks, and that leads to reduced productivity and lost revenue. A key advantage of effective contingency planning is that it provides working solutions to ensure that the business remains in operation during and after the event, reducing or even eliminating the loss of revenue that comes with operational disruption.

Improving Assessment and Self-Awareness
Preparing for unexpected events means taking accurate inventory of an organization’s strengths, weaknesses, resources, needs, and opportunities. This not only helps to develop a more detailed, systemic contingency plan; it can also provide valuable insight into other areas of business.

Minimizing Panic
When emergencies occur and people don’t have a clear set of instructions on how to proceed, they naturally fall into a panic. But panicking individuals often make a bad situation much worse. Contingency planning gives employees and stakeholders clear directions to follow, allowing everyone involved to move together towards the right solution.

Preventing Reputational Damage
When disruptions occur, organizations face the possibility of reputational damage that comes from being unable to meet expectations. Customers aren’t always privy to all of the facts of a situation, and competitors are often more than happy to take advantage of operational loss to set themselves up as a superior alternative. With an effective contingency plan in place, organizations may be able to endure otherwise debilitating events, without customers or competitors ever taking notice.

Increasing Credit and Insurance Availability
Credit providers and insurance carriers both want to know that an organization is low-risk before they invest. Having clear, documented contingency plans in place demonstrate a business’ preparedness, and show creditors and insurers that the organization is a ‘safe bet.’ This may mean easier access to credit and lower insurance rates.

How to Develop a Contingency Plan
Contingency planning depends heavily on the unique needs of the business in question; there is no single, standardized process for developing a contingency plan. However, there are certain steps most organizations take when creating contingency strategies. Here, we outline seven important stages in contingency planning.

Assemble a Contingency-Planning Team
Recruit reliable members from across different departments to lead your contingency planning initiatives. Plans for specific events need to include management personnel and team members with specific responsibilities or expertise.

Identify and List Key Risks
Work together to take an honest assessment of the business, possibly also bringing in outside consultation to identify major risks. Categorize and visually map out these risks and their associated dangers.

Prioritize Risks
There are two factors to consider when prioritizing potential threats: the likelihood of occurring, and impact on business. A risk with a high probability but extremely low impact may not be as high a priority as one with a moderate probability and high impact. Determine which risks represent the greatest threats overall.

Create Contingency Plans
Prioritizing the biggest threats and then moving down the list, create contingency plans for each event. Outline actions needed to reduce negative impact and facilitate fast recovery to normal operations.

Share the Plans
Contingency plans aren’t effective if they aren’t easily available. Share your plans with all relevant personnel and stakeholders, and make sure that they know how to access and execute these plans during an emergency situation.

Test and Exercise the Plans
An actual emergency shouldn't be the first time an organization tests out its contingency plans. Regular training, exercising, and testing of plans will help ensure that everyone involved knows what they should be doing when disaster strikes.

Maintain and Improve the Plans
Businesses grow and change over time, and so do the threats that they face. Periodically review contingency plans to ensure ongoing relevance, and make changes where necessary.

Contingency planning and developing plans for responding to utility power outages is an essential part of ensuring business stability. ASCO Power Technologies offers backup power equipment and solutions that can be incorporated into business contingency plans. Click here to learn more.

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