Enterprises are often defined by how they deal with events that are out of their control. For example, how you react to a disruptive technology or cope with a sudden change in the markets can be the difference between success and failure.

Contingency planning is the art of preparing for the unexpected. But where do you start and how do you separate the threats that could do real harm to your business from the ones that aren’t as critical?

Here are some important definitions, best practices and strong examples to help you build contingency plans for whatever your business faces.

What is a contingency plan?

Business contingency plans, also known as “business continuity plans” or “emergency response plans” are action plans to help organizations resume normal business operations after an unintended interruption. Organizations build contingency plans to help them face a variety of threats, including natural disasters, unplanned downtime, data loss, network breaches and sudden shifts in customer demand.

A good place to start is with a series of “what if” questions that propose various worst-case scenarios you’ll need to have a plan for. For example:

  • What if a critical asset breaks down, causing delays in production?
  • What if your top three engineers all quit at the same time?
  • What if the country where your microprocessors are built was suddenly invaded?

Good contingency plans prioritize the risks an organization faces, delegate responsibility to members of the response teams and increase the likelihood that the company will make a full recovery after a negative event.

Five steps to build a strong contingency plan

1. make a list of risks and prioritize them according to likelihood and severity..

In the first stage of the contingency planning process, stakeholders brainstorm a list of potential risks the company faces and conduct risk analysis on each one. Team members discuss possible risks, analyze the risk impact of each one and propose courses of action to increase their overall preparedness. You don’t need to create a risk management plan for every threat your company faces, just the ones your decision-makers assess as both highly likely and with a potential impact on normal business processes.

2. Create a business impact analysis (BIA) report

Business impact analysis (BIA) is a crucial step in understanding how the different business functions of an enterprise will respond to unexpected events. One way to do this is to look at how much company revenue is being generated by the business unit at risk. If the BIA indicates that it’s a high percentage, the company will most likely want to prioritize creating a contingency plan for this business risk.

3. Make a plan

For each potential threat your company faces that has both a high likelihood of occurring and a high potential impact on business operations, you can follow these three simple steps to create a plan:

  • Identify triggers that will set a plan into action: For example, if a hurricane is approaching, when does the storm trigger your course of action? When it’s 50 miles away? 100 miles? Your teams will need clear guidance so they will know when to start executing the actions they’ve been assigned.
  • Design an appropriate response: The threat your organization prepared for has arrived and teams are springing into action. Everyone involved will need clear, accessible instructions, protocols that are easy to follow and a way to communicate with other stakeholders.
  • Delegate responsibility clearly and fairly: Like any other initiative, contingency planning requires effective project management to succeed. One proven way to address this is to create a RACI chart . RACI stands for responsible, accountable, consulted and informed, and it is widely used in crisis management to help teams and individuals delegate responsibility and react to crises in real time.

4. Get buy-in from the entire organization—and be realistic about cost

Sometimes it can be hard to justify the importance of putting resources into preparing for something that might never happen. But if the events of these past few years have taught us anything, it’s that having strong contingency plans is invaluable.

Think of the supply chain problems and critical shortages wreaked by the pandemic or the chaos to global supply chains brought about by Russia’s invasion of Ukraine. When it comes to convincing business leaders of the value of having a strong Plan B in place, it’s important to look at the big picture—not just the cost of the plan but the potential costs incurred if no plan is put in place.

5. Test and reassess your plans regularly

Markets and industries are constantly shifting, so the reality that a contingency plan faces when it is triggered might be very different than the one it was created for. Plans should be tested at least once annually, and new risk assessments performed.

Contingency plan examples

Here are some model scenarios that demonstrate how different kinds of businesses would prepare to face risks. The three-step process outlined here can be used to create contingency plans templates for whatever threats your organization faces.

A network provider facing a massive outage

What if your core business was so critical to your customers that downtime of even just a few hours could result in millions of dollars in lost revenue? Many internet and cellular networks face this challenge every year. Here’s an example of a contingency plan that would help them prepare to face this problem:

  • Assess the severity and likelihood of the risk: A recent study by Open Gear showed that only 9% of global organizations avoid network outages in an average quarter. Coupled with what is known about these attacks—that they can cause millions of dollars in damage and take an immeasurable toll on business reputation—this risk would have to be considered both highly likely and highly severe in terms of the potential damage it could do to the company.
  • Identify the trigger that will set your plan in action: In this example, what signs should decision-makers have watched for to know when a likely outage was beginning? These might include security breaches, looming natural disasters or any other event that has preceded outages in the past.
  • Create the right response: The organization’s leaders will want to determine a reasonable recovery time objective (RTO) and recovery point objective (RPO) for each service and data category their company faces. RTO is usually measured with a simple time metric, such as days, hours or minutes. RPO is a bit more complicated as it involves determining the minimum/maximum age of files that can be recovered quickly from backup systems in order to restore the network to normal operations.  

A food distribution company coping with an unexpected shortage

If your core business has complex supply chains that run through different regions and countries, monitoring geopolitical conditions in those places will be critical to maintaining the health of your business operations. In this example, we’ll look at a food distributor preparing to face a shortage of a much-needed ingredient due to volatility in a region that’s critical to its supply chain:

  • Assess the severity and likelihood of the risk: The company’s leaders have been following the news in the region where they source the ingredient and are concerned about the possibility of political unrest. Since they need this ingredient to make one of their best-selling products, both the likelihood and potential severity of this risk are rated as high.
  • Identify the trigger that will set your plan in action: War breaks out in the region, shutting down all ports of entry/exit and severely restricting transport within the country via air, roads and railroads. Transportation of their ingredient will be challenging until stability returns to the region.
  • Create the right response: The company’s business leaders create a two-pronged contingency plan to help them face this problem. First, they proactively search for alternate suppliers of this ingredient in regions that aren’t so prone to volatility. These suppliers may cost more and take time to switch to, but when the overall cost of a general production disruption that would come about in the event of war is factored in, the cost is worth it. Second, they look for an alternative to this ingredient that they can use in their product.

A social network experiencing a customer data breach

The managers of a large social network know of a cybersecurity risk in their app that they are working to fix. In the event that they’re hacked before they fix it, they are likely to lose confidential customer data:

  • Assess the severity and likelihood of risk: They rate the likelihood of this event as high , since, as a social network, they are a frequent target of attacks. They also rate the potential severity of damage to the company as high since any loss of confidential customer data will expose them to lawsuits.
  • Identify the trigger that will set your plan in action: Engineers make the social network’s leadership aware that an attack has been detected and that their customer’s confidential information has been compromised.
  • Create the right response: The network contracts with a special response team to come to their aid in the event of an attack and help them secure their information systems and restore app functionality. They also change their IT infrastructure to make customer data more secure. Lastly, they work with a reputable PR firm to prepare a plan for outreach and messaging to reassure customers in the event that their personal information is compromised.

The value of contingency planning 

When business operations are disrupted by a negative event, good contingency planning gives an organization’s response structure and discipline. During a crisis, decision-makers and employees often feel overwhelmed by the pile-up of events beyond their control, and having a thorough backup plan helps reestablish confidence and return operations to normal.  

Here are a few benefits organizations can expect from strong contingency plans:

  • Improved recovery times: Businesses with good plans in place recover faster from a disruptive event than companies that haven’t prepared.  
  • Reduced costs—financial and reputational: Good contingency plans minimize both financial and reputational damage to a company. For example, while a data breach at a social network that compromises customer information could result in lawsuits, it could also cause long-term damage if customers decide to leave the network because they no longer trust the company to keep their personal information safe.
  • Greater confidence and morale: Many organizations use contingency plans to show employees, shareholders and customers that they’ve thought through every possible eventuality that might befall their company, giving them confidence that the company has their interests in mind.

Contingency plan solutions

IBM Maximo Application Suite is an integrated cloud-based solution that helps businesses respond quickly to changing conditions. By combining the power of artificial intelligence (AI) , Internet of Things (IoT) and advanced analytics, it enables organizations to maximize the performance of their most valuable assets, lengthen their lifespans and minimize costs and downtime.

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Free Contingency Plan Templates

By Joe Weller | March 25, 2021 (updated April 24, 2023)

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Contingency plans offer organizations a proactive strategy for resuming daily functions and operations following unforeseen events. We’ve compiled the most useful contingency plan templates and tips on using them for various industries.

On this page, you'll find free contingency plan templates, including a simple contingency plan template , a software contingency plan template , a business contingency plan template , and a project management contingency plan template . Plus, learn how to use a contingency plan template .

Simple Contingency Plan Template

Simple Contingency Plan Template

Use this simple contingency plan template to help your organization return to daily operations after unforeseen circumstances. Find sections for business impact analysis (BIA), recovery strategies, plan development, and testing and exercises. By completing these areas, you can stress-test your contingency plan. Assign contingency plan tasks to team members. Share the document with stakeholders to keep everyone apprised of the organization’s fail-safe contingency plan. 

Download a Simple Contingency Plan Template for  Microsoft Word | Adobe PDF | Smartsheet | Google Docs

For more resources on emergency response and contingency planning, see “ Free Risk Management Plan Templates .”

Simple Contingency Plan Presentation Template

Simple Contingency Plan Template

Use this simple contingency plan presentation template to highlight the details of your contingency plan to your team members and other stakeholders. Slides include details for business impact analysis (BIA), recovery strategies, contingency plan development, and plan testing and exercises. It also includes a comprehensive version history slide including your presentation plan’s version, approved by, revision date, descriptions of changes, author, prepared by, and approved by sections. Keep everyone in the loop with this easy-to-use contingency plan presentation template. 

Download a Simple Contingency Plan Template for PowerPoint

To learn more, read this comprehensive guide on contingency planning.

Software Contingency Plan Template

Software Contingency Plan Template

Use this software contingency plan template to identify, describe, and categorize risks, create an impact level and impact description, and create a contingency plan for each, in order to mitigate risks. For each risk, the template also includes a Trigger Points column (e.g., “What triggers the contingency scenario?”) and End Plan Trigger column (e.g., “What triggers the end of the contingency plan?”), so that team members understand the need for the contingency plan. Software project managers can use this template to create contingency plans related to data security, user privacy, geographically discrete data centers, or apply it to software development and software testing. 

Download a Software Contingency Plan Template for  Microsoft Excel | Google Sheets   

Read this guide to contingency planning to find tips for improving your contingency preparedness.

Information Technology (IT) Service Contingency Plan Template

Information Technology IT Service Contingency Plan Template

This easy-to-fill template focuses on keeping IT operations up and running in the event of a disruption. Use this template to document details of the scope, recovery objectives, recovery team, recovery strategy, and return-to-plan strategy of your IT department’s contingency plan. Be fully prepared for any incidents that cause downtime by using the proactive steps in this all-inclusive IT service continuity planning template. 

Download an Information Technology (IT) Service Contingency Plan Template for  Microsoft Word | Adobe PDF | Google Docs | Smartsheet

IT Service Contingency Plan Presentation Template

Informational Technology Service Contingency Plan Presentation

This easy-to-use information technology (IT) contingency plan presentation template is the perfect solution for presenting your IT contingency plan to key stakeholders. Slides include scope (service area, service offerings, and service areas that depend on the service at risk), recovery objectives (recovery time objectives, RTO; and recovery point objective, RPO), recovery team (service / role / function, responsibility, dependencies, and expected response time), and recovery strategy (initial recovery and overall recovery strategy). Easily gain buy-in from team members, management and other stakeholders with the all-in-one, IT-specific solution for outlining and refining your IT department’s service contingency plan.  

Download an Information Technology (IT) Service Contingency Plan Template for  PowerPoint | Google Slides | Smartsheet

Business Contingency Plan Template

Business Contingency Plan Template

Keep tabs on your organization’s comprehensive business contingency plan (BCP) with this distinctive business contingency plan template. It guides you through your business function recovery priorities, relocation strategy, alternate business site, recovery plan, recovery phase, records and backup details, restoration plan, recovery teams, and recovery procedures. This BCP template is useful for determining accurate planning and courses of action to ensure the success of your business’s contingency plan. 

Download a Business Contingency Plan Template for  Microsoft Word | Google Docs | PowerPoint | Adobe PDF | Smartsheet

Business Contingency Framework Template

Business Contingency Framework Template

This one-page template features a broad-strokes framework for performing a business impact analysis (BIA), along with working out your recovery strategy, plan development, and testing and exercises. You’re never far from the big-picture vision of your business contingency plan with this efficient one-page business contingency framework template, available in Microsoft Word, PDF, Google Docs and Slides, and presentation-friendly PowerPoint formats. 

Download a Business Contingency Framework Template for  Microsoft Word | Adobe PDF | Google Docs | Google Slides | PowerPoint

For more resources on business contingency planning, see “ Free Business Continuity Plan Templates .”

Project Management Contingency Plan Template

Project Management Contingency Plan Template

This project management contingency plan template is ideal for creating a comprehensive contingency plan for any type of project. The template enables you to create a high-level executive summary of your project’s contingency plan, including risk evaluation, a synopsis of your risk-prevention mitigation strategies process, and roles and responsibilities. Use this template to define risks and their events or triggers, consider budgetary implications, and define your potential plans of action. 

Download a Project Management Contingency Plan Template for  Excel | Google Sheets  

Visit our article on contingency planning in project management for more information.

Small Business Contingency Plan Template

Small Business Contingency Plan Template

It’s critical for small businesses to have a comprehensive contingency plan that team members can reference in the event of a debilitating event or emergency. Designed specifically for small businesses, this template uses a pre-built, all-inclusive contingency plan to provide guidance for modestly sized organizations. Take the guesswork out of creating a contingency plan from scratch, and leverage the advantages of this small-business-specific template. 

Download a Small Business Contingency Plan Template for  Microsoft Word | Adobe PDF | Google Docs

For more resources on emergency response and contingency planning, check out our roundup of disaster recovery plan templates .

Contingency Plan Checklist Template

Contingency Plan Checklist Template

This two-part, fully customizable contingency plan checklist template contains a pre-built contingency plan checklist based on disaster-recovery steps, and a step-by-step, linear recovery procedure section. Use the latter section to ensure that everyone is aware of your contingency plan, if there is an event or occurrence that triggers the need to implement your plan. Then, use the checklist section to ensure that all steps in your contingency plan are in place, should you need to execute your contingency plan. 

Download a Contingency Plan Checklist Template for  Microsoft Word | Adobe PDF | Google Docs

What Is a Contingency Plan Template?

A contingency plan template provides a step-by-step process to communicate actionable items in the event of a disaster or disruption. The document takes the guesswork out of emergency planning, so you can protect resources, minimize interruptions, and identify go-to team contacts. 

You can begin the contingency planning process by completing a contingency plan template so that you’re adequately prepared. By recording accurate and thorough information to ready yourself for an emergency, you can determine your priorities, relocation strategy, and recovery plan details. A contingency plan also helps you plan your organization’s recovery phases, work to ensure records backup, create a restoration plan, establish a recovery team, and assign roles to key individuals.

When to Use a Contingency Plan

You should use a contingency plan if there is the risk of an unexpected event that could impact your project’s success. A contingency plan is a backup plan that outlines steps for you to take in case the original plan encounters unforeseen obstacles. 

The following provides a list of typical scenarios where you should use a contingency plan: 

  • Risky or Uncertain Situations: When there are potential risks or uncertainties that could impact the success of your project, it's a good idea to have a contingency plan in place to mitigate those risks. 
  • Time-Sensitive Projects: When you have a tight deadline or critical timeline that you must meet, a contingency plan can help ensure that your project is completed on time, even if unexpected issues arise. 
  • Resource Limitations: When you have resource constraints, such as budget or personnel, a contingency plan can help you effectively allocate resources. 
  • Emergency Situations: When emergencies (e.g., natural disasters, pandemics, or other crises) can impact your ability to complete your project, a contingency plan can help you and your organization respond quickly and efficiently. 

Overall, you should use a contingency plan whenever there is a potential risk or uncertainty that could impact the success of your project or goal, or when there is the possibility of emergencies. When unexpected events occur, it's always better to be proactively prepared by having a plan in place, instead of scrambling to come up with a solution.

Sections of a Contingency Plan Template: 

While your contingency plan will vary to meet the needs of your project, below are the common elements of a contingency plan:

  • Recovery Priorities: Enter contingency plan priorities, including recovering essential operations and restoring critical functions. 
  • Relocation Strategy: Add the relocation strategy when your contingency plan requires moving your primary services. 
  • Alternate Site: Document alternate site details when you determine the secondary site where you can continue operations. 
  • Recovery Plan: Enter the step-by-step recovery-plan details to get your organization operational again. 
  • Disaster Occurrence: Use this phase to identify what constitutes a disaster that requires your organization to activate the contingency plan. 
  • Plan Activation: In this phase, your organization puts your contingency plan into effect, which continues until your organization secures an alternate site and can relocate operations.
  • Alternate Site Operation: Operations continue at the secondary facility until you can restore them at the original site. 
  • Transition to Primary Site: The organization prepares to move operations back to the original site.
  • Records Backup: Enter contingency plan details about how you’ll back up records and make them accessible in the event of a disaster or disruption. 
  • Restoration Plan: Add your plan for ensuring that all operations, records, etc., are able to be operational in the event of a facility disruption or disaster. 
  • Recovery Teams: List the recovery team(s) and members. Assign contingency plan tasks based on job role and title. 
  • Recovery Procedures: Enter details of specific activities or tasks required to adequately recover normal and critical operations. 

Additionally, a contingency plan template enables you to track changes to your plan through a section for version history, comprising the following data: 

  • Version: Enter the unique version number for the most up-to-date iteration of the plan. 
  • Approved By: Ensure that department heads or other stakeholders have approved the contingency plan. 
  • Revision Date: Provide the date when a substantial revision was made to your contingency plan. 
  • Description of Change: List details of the change(s) made to the plan. 
  • Author: Record the name of the plan’s primary author.

How to Create a Contingency Plan 

When creating a contingency plan, be proactive, thorough, and adaptable. By anticipating potential risks and developing a well-documented plan of action, organizations can minimize the negative impact of unexpected events and ensure continuity of critical functions and key services.

Here are some key steps to follow when creating a contingency plan:  

  • Identify Potential Risks: First, identify potential risks or unexpected events that could impact the success of your project. Brainstorm with stakeholders and team members to identify as many potential risks as possible. 
  • Assess the Impact: Once you have identified potential risks, assess each risk’s potential impact. This will help you prioritize risks and determine which ones require immediate attention. 
  • Develop Response Strategies: Based on your impact assessment, develop response strategies for each potential risk. This may involve developing alternative solutions or workarounds, identifying additional resources, or establishing clear communication protocols. 
  • Assign Responsibilities: Determine who will be responsible for executing the contingency plan if and when it is necessary. Assign specific roles and responsibilities to stakeholders or team members to ensure that everyone knows what they’ll need to do. 
  • Establish Communication Protocols: Establish clear communication protocols so that team members and stakeholders know how to report potential risks or unexpected events and receive updates on the status of the contingency plan. 
  • Test and Refine Your Plan: Test the contingency plan periodically to ensure that it works effectively. Make adjustments as needed. 
  • Document Your Plan: Document the contingency plan in a clear and concise manner and make it easily accessible to all relevant parties. 

Keep in mind that a contingency plan is only effective if you regularly review and update it to reflect changing circumstances and new risks that may arise.

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contingency plan for small business example

The Easy Guide to Creating a Business Contingency Plan

Updated on: 2 November 2022

How to avoid disasters? Be prepared for them. 

When things are going well, you often forget to plan for the bad times. But when disaster strikes, you could lose everything in a heartbeat.

An earthquake can bring your whole shop to the ground, your biggest client can choose your competitor over you, your system suddenly can crash making you lose important data etc. There are endless possibilities of disasters if you really think about it. 

That’s why lack of a plan can be a disaster of its own. 

Let’s see why you need a business contingency plan and how to create one in a few simple steps.  

What is a Business Contingency Plan? 

But first, let’s define what a contingency plan is. 

A contingency plan is a proactive strategy that describes the course of actions or steps the management and staff of an organization need to take in response to an event that could happen in the future. It plays a significant role in business continuity , risk management and disaster recovery. 

It helps you stay prepared for unforeseen events and minimize their impact. It also outlines a plan for carrying out the normal business operations after the event has occurred.  

It’s also known in names such as plan B, backup plan, and disaster recovery plan. In case your primary plan doesn’t work, it’s time to execute the plan B.

Benefits of a Contingency Plan 

Without a contingency plan you’re opening yourself to unnecessary risks. Here are some important benefits of a contingency plan that you cannot look away from. 

  • Helps react quickly to negative events. As a contingency plan lists the actions that need to be taken, everyone can focus on what to do without wasting time panicking.
  • Having a contingency plan in place allows you to minimize damage that could happen from a disaster and minimize the loss of production. For example if you have emergency generators set up, even during a blackout, your team can work seamlessly. 

How to Make a Contingency Plan 

An effective contingency plan is based on good research and brainstorming. Here are the steps you need to follow in a contingency planning process. 

Step 1: List down the key risks

Identify the major events that could have a negative impact on the course of your business and on the key resources, such as employees, machines, IT systems etc. 

Involve other team heads, subject experts, and even outsiders like business consultants to get a deeper understanding of things that may cause problems and jeopardize the direction.

Use a mind map to organize and categorize the information you gather from the brainstorming session with the staff. You can easily share this with everyone in the organization to get their input as well.

Mind Map for Risk Identification

Step 2: Prioritize the Risks Based on Their Impact 

Once you have created a list of all the possible risks that could occur in different areas of your business, start prioritizing them based on the threat they pose. 

The risk impact probability chart is a handy tool you can use here. It helps you evaluate and prioritize risks based on the severity of their impact and the probability of them occurring.

Risk Probability and Impact Matrix

Step 3: Create Contingency Plans for Each Event

In this step you’ll create separate plans that outline the actions you need to take in case the risks you identified earlier occur. 

Consider what needs to be done in order to resume normal operations after the impact of  the event. 

Here you’ll need to clarify employee responsibilities, timelines that highlight when things should be done and completed after the event, restoring and communications processes and the steps you need to have taken in advance to prevent losses when the event has taken place (i.e. insurance coverage). 

You can use a visual format here to highlight the course of actions. It would be easier for everyone to comprehend.

Business Contingency Plan Example

Step 4: Share and Maintain the Plan 

Once you have completed the contingency plans , make sure that they are quickly accessible to all employees and stakeholders. 

Review your contingency plans from time to time and update them as needed. And it’s a best practice to inform your employees of the changes as well, as it may include updates to their roles and responsibilities.  

What’s Your Take on Contingency Plans?

That is how you make a detailed contingency plan. List down the major incidents that could harm your business operations, prioritize them based on their impact and probability, create an action plan explaining what you should do in case they occur, and review and update them frequently. 

What is the contingency planning process at your organization? Let us know in the comments section below.

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

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What is a contingency plan? A guide to contingency planning

Julia Martins contributor headshot

A business contingency plan is a backup strategy for your team or organization. It lays out how you’ll respond if unforeseen events knock your plans off track—like how you’ll pivot if you lose a key client, or what you’ll do if your software service goes down for more than three hours. Get step-by-step instructions to create an effective contingency plan, so if the unexpected happens, your team can spring into action and get things back on track.

No one wants Plan A to fail—but having a strong plan B in place is the best way to be prepared for any situation. With a solid backup plan, you can effectively respond to unforeseen events effectively and get back on track as quickly as possible. 

A contingency plan is a proactive strategy to help you address negative developments and ensure business continuity. In this article, learn how to create a contingency plan for unexpected events and build recovery strategies to ensure your business remains healthy.

What is contingency planning?

What is a contingency plan .

A contingency plan is a strategy for how your organization will respond to important or business-critical events that knock your original plans off track. Executed correctly, a business contingency plan can mitigate risk and help you get back to business as usual—as quickly as possible. 

You might be familiar with contingency plans to respond to natural disasters—businesses and governments typically create contingency plans for disaster recovery after floods, earthquakes, or tornadoes. 

But contingency plans are just as important for business risks. For example, you might create a contingency plan outlining what you will do if your primary competitors merge or how you’ll pivot if you lose a key client. You could even create a contingency plan for smaller occurrences that would have a big impact—like your software service going down for more than three hours.

Contingency planning vs risk management

Project risk management is the process of identifying, monitoring, and addressing project-level risks. Apply project risk management at the beginning of the project planning process to prepare for any risks that might come up. To do so, create a risk register to identify and monitor potential project risks. If a risk does happen, you can use your risk register to proactively target that risk and resolve it as quickly as possible. 

A contingency plan is similar to a project risk management plan or a crisis management plan because it also helps you identify and resolve risks. However, a business contingency plan should cover risks that span multiple projects or even risks that could affect multiple departments. To create a contingency plan, identify and prepare for large, business-level risks.

Contingency planning vs crisis management

Contingency planning is a proactive approach that prepares organizations for potential emergencies by implementing pre-planned risk mitigation strategies. It involves identifying threats and crafting strategies in advance. 

Crisis management , on the other hand, is reactive, focusing on immediate response and damage control when a crisis occurs. While contingency planning sets the stage for effective handling of emergencies, crisis management involves real-time decision-making and project management during an actual crisis. Both are important for organizations and businesses to maintain their stability and resilience.

Contingency plan examples

There are a variety of reasons you’d want to set up a contingency plan. Rather than building one contingency plan, you should build one plan for each type of large-scale risk or disaster that might strike. 

Business contingency plan

A business contingency plan is a specialized strategy that organizations develop to respond to particular, unforeseen events that threaten to disrupt regular operations. It's kind of like a business continuity plan, but there's one key difference. 

While business continuity plans aim to ensure the uninterrupted operation of the entire business during a crisis, a business contingency plan zeroes in on procedures and solutions for specific critical incidents, such as data breaches, supply chain interruptions, or key staff unavailability. 

A business contingency plan could include:

Strategies to ensure minimal operational disruption during crises, such as unexpected market shifts, regulatory compliance changes, or severe staff shortages.

Partnerships with external agencies that can provide support in scenarios like environmental hazards or public health emergencies.

A comprehensive communication strategy with internal and external stakeholders to provide clear, timely information flow during crises like brand reputation threats or legal challenges.

Environmental contingency plan

While severe earthquakes aren’t particularly common, being unprepared when “the big one” strikes could prove to be catastrophic. This is why governments and businesses in regions prone to earthquakes create preparedness initiatives and contingency plans.

A government contingency plan for an earthquake could include things like: 

The names and information of the people designated to handle certain tasks in advance to ensure the emergency response is quick and concise

Ways to educate the public on how to respond when an earthquake hits

A timeline for emergency responders.

Technology contingency plan

If your business is particularly data-heavy, for example, ensuring the safety and cybersecurity of your information systems is critical. Whether a power surge damages your servers or a hacker attempts to infiltrate your network, you’ll want to have an emergency response in place.

A business’s contingency plan for a data breach could involve: 

Steps to take and key team members to notify in order to get data adequately secured once more

The names and information of stakeholders to contact to discuss the impact of the data breach and the plan to protect their investment

A timeline to document what is being done to address the breach and what will need to be done to prevent data breaches in the future

Supply chain contingency plan

Businesses that are integral parts of the supply chain, such as manufacturing entities, retail companies, and logistics providers, need an effective supply chain contingency plan to continue functioning smoothly under unforeseen circumstances.

These plans hedge against supply chain disruptions caused by events like natural disasters or technological outages and help organizations reduce downtime and ensure real-time operational capabilities. 

A supply chain contingency plan could include:

Secure critical data and systems while promptly notifying key team members, such as IT staff and management, for immediate action.

A predetermined list of essential stakeholders, including suppliers, customers, investors, and authorities, should be contacted to inform them about the disruption and steps being taken.

A detailed timeline is essential for documenting the immediate response and outlining long-term strategies to prevent future disruptions in the supply chain.

Pandemic contingency plan

In the face of a global health crisis, a pandemic contingency plan is vital for organizations in healthcare, retail, and manufacturing. This plan focuses on mitigation strategies to minimize operational disruptions and ensure the safety of employees while maintaining business continuity. 

A pandemic response plan could include:

A comprehensive health and safety protocol for employees, which integrates regular health screenings, detailed risk analysis, and emergency medical support as key components.

Flexible work arrangements and protocols for remote operations and digital communication.

A list of key personnel and communication channels for immediate response and coordination.

Regularly reviewing and adapting the pandemic contingency plan as part of an ongoing disaster recovery plan to address evolving challenges and lessons learned.

How to create a contingency plan

You can create a contingency plan at various levels of your organization. For example, if you're a team lead, you could create a contingency plan for your team or department. Alternatively, company executives should create business contingency plans for situations that could impact the entire organization. 

As you create your contingency plan, make sure you evaluate the likelihood and severity of each risk. Then, once you’ve created your plan—or plans—get it approved by your manager or department head. That way, if a negative event does occur, your team can leap to action and quickly resolve the risk without having to wait for approvals.

1. Make a list of risks

Before you can resolve risks, you first need to identify them. Start by making a list of any and all risks that might impact your company. Remember: there are different levels of contingency planning—you could be planning at the business, department, or program level. Make sure your contingency plans are aligned with the scope and magnitude of the risks you’re responsible for addressing. 

A contingency plan is a large-scale effort, so hold a brainstorming session with relevant stakeholders to identify and discuss potential risks. If you aren’t sure who should be included in your brainstorming session, create a stakeholder analysis map to identify who should be involved.

2. Weigh risks based on severity and likelihood

You don’t need to create a contingency plan for every risk you lay out. Once you outline risks and potential threats, work with your stakeholders to identify the potential impact of each risk. 

Evaluate each risk based on two metrics: the severity of the impact if the risk were to happen and the likelihood of the risk occurring. During the risk assessment phase, assign each risk a severity and likelihood—we recommend using high, medium, and low. 

3. Identify important risks

Once you’ve assigned severity and likelihood to each risk, it’s up to you and your stakeholders to decide which risks are most important to address. For example, you should definitely create a contingency plan for a risk that’s high likelihood and high severity, whereas you probably don’t need to create a contingency plan for a risk that’s low likelihood and low severity. 

You and your stakeholders should decide where to draw the line.

4. Conduct a business impact analysis

A business impact analysis (BIA) is a deep dive into your operations to identify exactly which systems keep your operations ticking. A BIA will help you predict what impact a specific risk could have on your business and, in turn, the response you and your team should take if that risk were to occur. 

Understanding the severity and likelihood of each risk will help you determine exactly how you will need to proceed to minimize the impact of the threat to your business. 

For example, what are you going to do about risks that have low severity but high likelihood? What about risks that are high in severity, but relatively low in likelihood? 

Determining exactly what makes your business tick will help you create a contingency plan for every risk, no matter the likelihood or severity.  

[inline illustration] Business impact analysis for a contingency plan (example)

5. Create contingency plans for the biggest risks

Create a contingency plan for each risk you’ve identified as important. As part of that contingency plan, describe the risk and brainstorm what your team will do if the risk comes to pass. Each plan should include all of the steps you need to take to return to business as usual.

Your contingency plan should include information about:

The triggers that will set this plan into motion

The immediate response

Who should be involved and informed?

Key responsibilities, including a RACI chart if necessary

The timeline of your response (i.e. immediate things to do vs. longer-term things to do)

[inline illustration] 5 steps to include in your contingency plan (infographic)

For example, let’s say you’ve identified a potential staff shortage as a likely and severe risk. This would significantly impact normal operations, so you want to create a contingency plan to prepare for it. Each person on your team has a very particular skill set, and it would be difficult to manage team responsibilities if more than one person left at the same time. Your contingency plan might include who can cover certain projects or processes while you hire a backfill, or how to improve team documentation to prevent siloed skillsets. 

6. Get approval for contingency plans

Make sure relevant company leaders know about the plan and agree with your course of action. This is especially relevant if you’re creating team- or department-level plans. By creating a contingency plan, you’re empowering your team to respond quickly to a risk, but you want to make sure that course of action is the right one. Plus, pre-approval will allow you to set the plan in motion with confidence—knowing you’re on the right track—and without having to ask for approvals beforehand.

7. Share your contingency plans

Once you’ve created your contingency plans, share them with the right people. Make sure everyone knows what you’ll do, so if and when the time comes, you can act as quickly and seamlessly as possible. Keep your contingency plans in a central source of truth so everyone can easily access them if necessary.

Creating a project in a work management platform is a great way of distributing the plan and ensuring everyone has a step-by-step guide for how to enact it.

8. Monitor contingency plans

Review your contingency plan frequently to make sure it’s still accurate. Take into account new risks or new opportunities, like new hires or a changing business landscape. If a new executive leader joins the team, make sure to surface the contingency plan for their review as well. 

9. Create new contingency plans (if necessary)

It’s great if you’ve created contingency plans for all the risks you found, but make sure you’re constantly monitoring for new risks. If you discover a new risk, and it has a high enough severity or likelihood, create a new contingency plan for that risk. Likewise, you may look back on your plans and realize that some of the scenarios you once worried about aren’t likely to happen or, if they do, they won’t impact your team as much.

Common contingency planning pitfalls—and how to avoid them

A contingency plan is a powerful tool to help you get back to normal business functions quickly. To ensure your contingency planning process is as smooth as possible, watch out for common pitfalls, like: 

Lack of buy-in

It takes a lot of work to create a contingency plan, so before you get started, ensure you have support from executive stakeholders. As you create your plan, continuously check in with your sponsors to ensure you’ve addressed key risks and that your action plan is solid. By doing so, you can ensure your stakeholders see your contingency plan as something they can get behind.

Bias against “Plan B” thinking

Some company cultures don’t like to think of Plan B—they like to throw everything they have at Plan A and hope it works. But thinking this way can actually expose your team to more risks than if you proactively create a Plan B.

Think of it like checking the weather before going sailing so you don’t accidentally get caught in a storm. Nine times out of ten, a clear sunny day won’t suddenly turn stormy, but it’s always better to be prepared. Creating a contingency plan can help you ensure that, if a negative event does occur, your company will be ready to face it and bounce back as quickly as possible. 

One-and-done contingency plans

It takes a lot of work to put a contingency plan together. Sometimes when you’ve finished, it can be tempting to consider it a job well done and forget about it. But make sure you schedule regular reminders (maybe once or twice a year) to review and update your contingency plan if necessary. If new risks pop up, or if your business operations change, updating your contingency plan can ensure you have the best response to negative events.  

[inline illustration] The easiest ways to prevent contingency plan pitfalls (infographic)

You’ve created a contingency plan—now what?

A contingency plan can be a lot of work to create, but if you ever need to use it, you’ll be glad you made one. In addition to creating a strong contingency plan, make sure you keep your plan up-to-date.

Being proactive can help you mitigate risks before they happen—so make sure to communicate your contingency plan to the team members who will be responsible for carrying them out if a risk does happen. Don’t leave your contingency plan in a document to collect dust—after creating it, you should use it if need be!

Once you’ve created the plan, make sure you store it in a central location that everyone can access, like a work management platform . If it does come time to use one of your contingency plans, storing them in a centrally accessible location can help your team quickly turn plans into action.

Related resources

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What Is Contingency Planning? [+ Examples]

Flori Needle

Published: January 13, 2023

The COVID-19 pandemic has shown, more than ever, the importance of being prepared with a contingency plan for the unexpected, especially when it comes to business continuity.

business professional creating a business contingency plan

While some unexpected interruptions can be due to situations outside of your control, some issues arise that may be caused by internal errors. Unexpected problems can also be positive, like a sudden influx of interest in a new product.

Download Now: Free Contingency Plan Template

Regardless of the scenario, it's essential to prepare for everything, and contingency planning helps you do so. This post will explain what contingency planning is, outline the steps you can follow to create your own plan, and give examples that you can use for inspiration.

  • Contingency Planning
  • Business Contingency Plan
  • Making a Contingency Plan
  • Contingency Plan Timeline
  • Contingency Plan Example

Contingency Plan Definition

What is a contingency plan? Simply put, a contingency plan is an action plan designed to help organizations respond to a potential future incident. Think of it as a backup plan, or plan B to guide organizations through a worst-case scenario.

Contingency plans are helpful for all types of organizations, from businesses to non-profits, to government organizations. While these scenarios may never come to fruition, it’s important to have a plan in place so that your team isn’t panicking or scrambling to deal with an unfavorable event at the last minute.

What is contingency planning?

Contingency planning is a proactive process of creating a strategy to help you prepare for any scenario that can affect your business, regardless of the likelihood of its occurrence.

These plans shouldn't focus solely on situations that may harm your business. For example, you may experience a significant increase in revenue during a specific period due to changes in market behavior. This is a good scenario, but you will still need to adapt your operations to scale and appropriately meet the new demands of your growing audience.

Contingency Planning vs. Crisis Management

Contingency planning is also different from crisis management , as it is not a reaction to something that has already happened but more so a plan for if and when something may happen. However, a contingency plan can help you with crisis management when issues arise.

Contingency Planning vs. Risk Management

Risk management is the identification, mitigation, and assessment of potential risks that may affect your organization. This process helps an organization prevent losses before they occur and aids in assessing whether or not certain risks are worth taking. Contingency planning can be a component of risk management since that process helps organizations survive these potential risks.

To ensure your business is prepared for everything, it's crucial to understand how to create a contingency plan.

What is a business contingency plan?

A business contingency plan is a strategy that outlines the steps your business’ teams will take in the event of a crisis occurring. It is essentially the backup plan that goes into action when the worst-case scenario occurs. The goal of your contingency plan is to help your business stay up and running after an issue arises.

Business Continuity Plan vs. Contingency Plan

Although their names vary by few letters, business continuity and contingency plans are different concepts. Continuity is the ability of your business to continue functioning after an incident that has disrupted operations occurs. A contingency plan is an action plan that goes into place if an incident were to happen.

Contingency plans can significantly impact whether your business can achieve continuity. Being able to react and take action during a crisis can dictate whether or not your business can emerge from the other side and continue normal business operations.

You can think of it like this: your continuity plans contain five sections: program administration, governance, business impact analysis, strategies and requirements, and training and testing. If your business also uses contingency plans, it could be part of the strategies and requirements section, which dictates how your business will respond to a crisis if it occurs.

Contingency Planning: How to Make a Business Contingency Plan

Creating a contingency plan is responding to the question of "What if?"

What if your storefront floods? Or what if your supplier goes out of business? The responses to the what-ifs are contingency plans. These scenarios aren't necessarily going to happen, but if there is a possibility that they'll affect your business, you're prepared if they do.

Below we'll discuss the steps that go into contingency planning.

Contingency Planning in 7 Steps

1. identify critical business functions..

This first step is the most important aspect of your planning, as it sets the tone for why your plans need to exist in the first place.

During this phase, identify all critical areas essential to keeping your business up and running every day. As these operations are imperative to success, you need to have plans to ensure that these operations continue, regardless of whatever scenarios arise.

You can think of it like this: these critical areas keep your business up and running on a day-to-day basis. Other areas are important, but these are the main functions that keep you afloat. Given this, you want to be prepared for anything and everything that may happen that can affect the critical areas, whether positive or negative. Contingency planning is exactly that.

Identifying these areas helps you move on to the next step as you begin brainstorming possible scenarios that can impact them.

2. Conduct a scenario assessment.

Once you've identified the critical operations of your business, you'll want to conduct a scenario assessment to identify situations that will affect these functions and put stress on your day-to-day operations.

For example, if your business operates out of a storefront, keeping your storefront up and running is a critical area of your business's success. Maybe you launch a new product that attracts more interest than you thought, and you need to deal with higher in-store traffic and a lack of products to satisfy the market. While it is a positive situation that will draw in more revenue, it can still have negative repercussions for your business if you don't deal with it when it happens.

You can think of this stage as similar to a risk assessment, but the possibilities are positive and negative. It may be helpful to meet with people who work in these critical areas and understand what they think may cause interruptions to their job duties and barriers to their success. Ask them how they feel situations will impact them and how they would deal with each scenario.

If you come up with a long list of threats, you can prioritize them based on their likelihood of occurring and how significant their impact would be on your business.

3. Create contingency plans for each scenario.

During this phase, you'll create contingency plans. Begin with the highest priority "threats," or those most likely to occur and most likely to cause significant stress to your business.

Outline the scenarios, people to inform, and the roles and responsibilities involved parties will have when they respond. We'll go over an example below, but a helpful template to follow can be:

  • Outlining the scenario,
  • Determine the probability of it occurring,
  • Explain how you'll prepare ahead of time,
  • Detail what the response will be if and when it happens.

Once you've created your plans, distribute them to key stakeholders in each scenario, so everyone understands what they are responsible for and can prepare ahead of time.

4. Get your plan approved.

Once you’ve come up with a desired plan of action, it’s time to get approval from stakeholders and management. If you’re creating both department-level and company-wide plans, this is especially important. Your plan won’t be a success unless there is buy-in from key members of your team and management. Once all parties agree that the course of action described in the contingency plan works for everyone, you can move forward with confidence.

5. Share the plan with your team.

Once your plan is approved, it’s time to distribute it. Putting it in a shared folder accessible to everyone creates transparency and makes it readily available if the time comes.

Make sure the parties involved know what they’re responsible for in the plan, that way you can execute the plan seamlessly should the worst-case scenario occur.

6. Test your plans.

As with all plans, it's essential to continuously test (more on that in the next section) and update them over time. As businesses scale and change, your business needs will likely change, and specific scenarios will no longer have as significant of an impact. There may also be new scenarios to plan for that you hadn't anticipated or thought of when you were a smaller operation.

It can be helpful to create a timeline that you'll use to spend dedicated periods reviewing your plans, testing them, and communicating with the necessary stakeholders about any changes you've made to the plans.

7. Update your plan as needed.

Consider your contingency plan a work in progress. You’ll need to adapt it as new risks arise and to ensure it still makes sense for your business needs. Whenever a new manager or executive joins the team, be sure to share it with them as needed so they know what (if anything) is expected of them.

Contingency Planning Timeline

As planning is always an involved process, you may be wondering how much time you should devote to each step. Let's discuss a timeline below.

Week One: Identify Key Operations

Give yourself about a week to identify the operational areas essential for business function. You likely already know what these areas are, but you want to do enough research to identify them all.

Weeks Two & Three: Brainstorm Scenarios

Take two to three weeks to brainstorm the scenarios you're going to create plans for. Spend as much time as possible speaking to the necessary stakeholders to understand their ideas about the scenarios and how they'd like them dealt with. You'll want to conduct probability assessments and market research to understand if your competitors have ever dealt with something similar. You want to make sure you have all the necessary information before drafting your plan, so this step should be the longest.

Week Four: Draft Plan

Give yourself a week to draft your plans. The first two steps should give you all the information you need, so the third step is simply fine-tuning your research and creating the final plan. You can also share what you've created with your stakeholders and iterate on what you have based on their feedback.

The final step to creating your plan, maintaining and testing, is a continuous effort. As mentioned above, your business will likely be impacted by different things at different times, so it's always important to review plans and ensure they still relate to your needs. For example, maybe you plan to do quarterly reviews and training so new hires, and existing employees, are all on the same page.

Contingency Planning Example

business contingency plan steps

It may be helpful to have an example of a contingency plan, so we'll go over one below. The examples are of a positive and negative situation, so you can get a sense of how a plan applies to both.

Contingency plan example

Contingency Planning Mistakes to Avoid

Even with the best intentions, your contingency plan may get off to a rocky start. Here are some common mistakes to avoid when creating one of your own.

Not securing executive buy-in first.

Before you can get your team or department onboard, you must get buy-in from the executive team. Otherwise, you risk creating a doomed plan from the start.

Get their feedback on potential risks and other factors that may impact guidelines in the plan. Having executive support from the start ensures the plan put forth is approved and also can motivate those at the department level to buy-in as well.

Failure to cover multiple scenarios.

When assessing potential risks and scenarios, it’s important not to cut corners or slack. Scenario planning is key to your contingency plan’s success. All potential risks should be taken into account. You can rank them by likelihood, but you should by no means leave less likely events out. Otherwise, you leave yourself vulnerable should the event happen.

Think about how many businesses were affected by supply chain issues during the pandemic. Most probably never predicted such a catastrophe, but the ones that had a plan in place for such an obstacle were better prepared.

Set it and forget it.

It’s really easy to get comfortable once your contingency plan is in place — after all, if you did your due diligence from the start, you’re ready to tackle any obstacle thrown your way.

Unfortunately, it’s not a one-and-done process. A contingency plan should be looked at as a living document and updated as needed. Your business needs will change over time and so will its obstacles and risks.

Create Business Contingency Plan

All in all, contingency plans help you prepare for a host of what-if scenarios, whether they happen or not. As you never want to be caught in a challenging situation, being prepared is the best thing you can do to ensure your business continues to succeed, regardless of whatever happens along the way.

As the saying goes, better safe than sorry .

Editor's note: This post was originally published in November 2021 and has been updated for comprehensiveness.

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Use this contingency plan template to communicate risk, prevention, and mitigation measures in your company.

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What Is a Business Contingency Plan?

Small Business Contingency Plans Explained

vitapix / Getty Images

A business contingency plan is a course of action that will be taken if an unexpected event occurs that could disrupt the business. It's a backup plan that ensures the business can continue to operate despite an adverse event.

A business contingency plan is a “plan B” or blueprint for how to keep your business running in the event of a natural disaster, major technical issue, or other unforeseen disruption. A contingency plan identifies potential risks to your business and outlines steps your management team and employees can take if confronted with one of those risks. It helps protect the health and safety of your workers after an event has occurred, while also minimizing business interruptions that can result in financial losses. A well-thought-out plan can mean the difference between staying in business and shutting down.

  • Alternate term : Continuity plan

Do You Need a Business Contingency Plan?

Every business should have a contingency plan so it can resume its operations as soon as possible after a disruptive event occurs. 

A plan will save you time and money since you've already decided what resources you need and actions to take to keep your business going. It can also alleviate some of the stress you're likely to feel when disaster strikes. 

Rather than fretting about what you should do, you can simply follow the steps you've laid out ahead of time.

How to Create a Business Contingency Plan

The first step in creating a contingency plan is to determine what risks are most likely to impact your business and the functions they will impact. Think about how your business normally operates and the types of events that could disrupt its major activities. Your risks depend on the nature of your business and your geographical location. For instance, hurricanes and earthquakes are risks in some areas but not others. Here are examples of events that could cause disruptions:

  • Physical damage by fire, windstorm, or other peril to a building that your business occupies
  • Damage to machinery or breakdown of equipment
  • An extended utility outage (electricity, water, gas, or telecommunications)
  • Resignation or extended absence of key employees
  • Damage to your computer system or a data breach
  • Interruption of your supply chain
  • Blocked access to your business location

Some of these events could also have legal implications. For example, all 50 states, along with D.C. and U.S. territories, have laws requiring businesses to notify individuals whose personally identifiable information has been stolen or released in a data breach.

Run an Impact Analysis

The next step is to conduct a business impact analysis so you can predict the potential outcomes of a disruption of one of your business functions or processes. An analysis can help you estimate the operational and financial impacts of a disruption. It can also help you gather the information you will need to develop recovery strategies. Here are examples of the potential operational and financial impact from the disruption of business functions and processes:

  • Lost or delayed sales or income
  • Increased expenses, such as overtime, outsourcing, and expediting costs
  • Regulatory fines
  • Contractual penalties or loss of contractual bonuses
  • Customer dissatisfaction or defection
  • Delay of new business plans  

When estimating the impact of events, be sure to consider timing and duration. 

A hurricane, structure fire, or data breach may have a greater effect on your income or costs if it occurs during your busy season than when business is normally slow. Likewise, a disruption that lasts for a day will have less impact than one that extends for a week or a month.

You can use the results of your impact analysis to rank your risks in order of priority. Risks with the greatest potential impact should be listed first.

One of the easiest ways to write a contingency plan is to use a template, which is provided by several state and local websites including, for example, the one for Cambridge, Massachusetts .

Plan for Continuity

Once you've analyzed your risks and estimated their impacts, you can begin writing your contingency plan. You'll need a plan for each of the risks you've identified. For example, suppose your manufacturing business is highly dependent on a grinding machine. If the machine became inoperable due to physical damage or a malfunction, your business might have to shut down temporarily. You draft a contingency plan outlining steps you will follow if your machine becomes unusable. Your plan, in turn, might include contact information for two companies that rent machines similar to yours.

When writing your contingency plan, be sure to identify specific people who will need to take action. For instance, suppose your firm employs a highly-skilled salesperson named Susan, who generates 50% of your firm's sales. If Susan left your firm or was unable to work for an extended period, your sales would plummet. You know a retired salesperson (Jim) who could step in for Susan temporarily. However, before you include Jim in your plan, you should explain the roles and responsibilities you'd expect him to fulfill and obtain his consent.

Once you've completed your contingency plan, be sure to share it with your managers and staff who will be responsible for implementing it. Ask them for their feedback, as they may think of a potential risk or impact you didn't consider.

Contingency Plan Example

Here's an example of how a company might use a contingency plan.

Tom owns Tasty Treats, a manufacturer of frozen prepared meals. The firm generates 60% of its revenue from sales of frozen pizza, all of which is made at a central location. Tom worries that his business could be severely impacted if a catastrophe occurs at the pizza manufacturing facility and he's forced to shut it down. Tom thinks his biggest risks are fire, windstorm, equipment breakdown, and an extended power outage, and that all have a high probability of occurring. He drafts a detailed contingency plan. Here are the highlights.

Ready.gov. " Business Impact Analysis ." Accessed Jan. 28, 2021. 

National Conference of State Legislatures. " Security Breach Notification Laws ." Accessed Jan. 28, 2021. 

How to Implement a Contingency Plan for Your Small Business

by Anam Ahmed

Published on 2 Feb 2020

Running a small business requires a lot of planning. From operations to marketing to sales and logistics, there are so many things to consider. If your business experiences a disruption — like a natural disaster, problems with new employees, shipping delay, or other unexpected event — it’s important to have a contingency plan in place so you can ensure everything runs smoothly.

Understand the Importance of a Business Contingency Plan

A contingency plan is a plan B for your business to use in case you experience a major disruption . This business document outlines the possible scenarios that can go wrong and offers step-by-step procedures to undertake in order to get things back on track. Contingency planning helps small-business owners to manage their day-to-day operations in the face of adverse events.

Risk management is a critical component of contingency planning. Because a contingency plan looks at all of the possible scenarios that could happen, business owners are able to asses which threats their business faces and can work to mitigate them. By developing detailed action plans for each scenario laid out in your risk assessment, businesses can lessen the risk of losing sales, customers and revenue should a disaster occur.

Including contingency measures as part of your larger business plan also helps investors, lenders and partners to see the potential for a business. If the business owner has thought through the potential risks and disasters he may face and has figured out how to work around those issues, then the business will be able to manage its day-to-day operations effectively.

Review the Components of a Contingency Plan

A contingency plan needs to be tailored toward the business. For example, a backup plan for a café will differ from a backup plan for an e-commerce store, as the businesses have different risks they need to consider. A café may be concerned about delayed food supply or food poisoning, whereas an e-commerce business may be concerned about a postal strike or a warehouse fire.

A contingency plan should include:

  • Essential operations that your business needs in order to run successfully, such as product supply and staff.
  • Possible threats and disruptive events a business may face, including natural disasters, labor disputes and supply issues.
  • Step-by-step procedures for how to work around each scenario. These should be detailed and specific to the business.
  • Risk-mitigation steps the business has taken to try to reduce the likelihood of possible disasters.
  • Contact information for key personnel like managers, partners, suppliers, investors and anyone else who will need to be aware should disaster strike.
  • Communication plan for alerting customers, employees and other stakeholders of the issue taking place.
  • List of resources and their locations, such as an emergency kit, backups of business data and insurance details.

Identify the Risks to Your Business

The first step for developing a contingency plan is to assess the risks. Consider all possible angles and think of what the worst-case scenario might be for each one. Possible threats that a small business may face include:

  • Natural disasters: Depending on where your business is located, you may face floods, fires, tornadoes or earthquakes.
  • Cybersecurity attack: Your customer or business data could be hacked online.
  • Breakdown of a key piece of technology: Equipment integral to your business may break down or require extensive repair.
  • Issue with inventory: Your product may be delayed in arriving at your store, or you may have large quantities of damaged products.
  • Robbery or theft: Inventory, cash or expensive equipment may be stolen from your business.
  • On-site accidents: A staff member may have an accident at work, which could lead to extensive legal issues in addition to a staff shortage.
  • Unplanned departure of a key staff member: A store manager or highly skilled technician may decide to leave with no notice. 
  • Issue with a key partner, supplier or manufacturer: A valued business stakeholder may decide to discontinue your partnership.

In order to maintain business continuity, it’s imperative to assess the likelihood of each risk and focus on the ones that are most likely. For example, if you’re not located in an earthquake zone, then it’s highly unlikely that your business will be affected by an earthquake. If your store is located in an area with crime, however, you may see the potential impact of theft or vandalism.

After identifying the risks, figure out the goal of each scenario . While the larger goal of the contingency plan is to resume operations as smoothly and quickly as possible, there will be different goals for each disaster. After losing a key supplier, for example, the goal will be to establish a new partnership with another supplier who can provide similar products.

Put the Right Resources in Place

A contingency plan requires a lot of prep work. Once you have established the biggest risks to your business, it’s vital to implement risk-mitigation steps to lessen the likelihood of each disaster. This information should also be included in the contingency plan so it’s clear what has already been done in order to enable smooth operations.

For example, if a convenience store is located in an area where robberies are common, some of the risk-mitigation steps a business may put in place include:

  • Installing a security system so that an alarm is triggered and police can be at the scene quickly.
  • Installing security cameras so the store has footage of any perpetrators. Cameras can also dissuade anyone who is considering theft.
  • Training staff on what to do if someone comes in to rob the store. This will help the staff remain calm and stay safe.

Establish Solutions for Each Scenario

In order to resume normal operations , your contingency plan should outline step-by-step guidelines that the business should undertake if a disaster occurs. These instructions need to be clearly written so that any staff member can understand and execute them in case the business owner is unable to help. Have a set of instructions for each possible threat your business may face.

In a contingency plan for a bakery, for example, one of the biggest threats to the business may be that the supply of ingredients is delayed due to bad weather. If the store has no flour, sugar, eggs, butter or milk in the morning, it will not be able to make its products to sell to customers that day. As a result, the bakery will lose sales and revenue, which could devastate the business.

Steps to alleviate this issue may include:

  • Alert the business owner and shift manager. See the contact information on the contact sheet.
  • Place the “close” sign on the front door and close the shop.
  • Change the phone message to say that the shop is temporarily closed due to supply issues and will open later in the day.
  • Update the website with the same message.
  • Contact the local grocery stores and warehouse food stores to inquire about how much of each ingredient you can purchase from them today. Keep in mind that other stores may also have a supply delay. See contact information on the contact sheet.
  • Once you have arranged to pick up the ingredients you need, arrange with the manager or owner to pick up the supplies.
  • Once the supplies have been brought back to the bakery, commence preparing the products.
  • Once the products are ready to be sold, update the phone message and the website. Hang the “open” sign.

In preparing for this scenario, the business owner may have made deals with several suppliers should one be unable to deliver products. This scenario would occur only if all of the suppliers are unable to make their deliveries due to bad weather, for instance. The business owner can also establish partnerships with local grocers to purchase ingredients from them as a plan B to help during negative events.

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A practical guide to creating a contingency plan

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The vast majority of failed projects and bankrupt companies had a plan and followed it. So why do these projects and companies end up failing?

Unexpected things happen that companies don’t plan for, and many fail to adapt in time.

The key: having a sound contingency plan. A contingency plan is all about expecting the unexpected and preparing to deal with worst-case scenarios ahead of time. This article will cover why you need a contingency plan, and walk you through step-by-step instructions for creating one. We’ll also provide a contingency planning template you can implement and use on monday.com immediately.

What is a contingency plan?

A contingency plan is a predefined set of actions that you will implement in response to specific future events that put your project or business at risk.

A simple example of a contingency plan is to back up all your website data. That way, if your website gets hacked, it will be easy to restore the data after regaining access and changing passwords.

Without that backup, the team might have to recreate the entire website from memory or build a website from scratch . That’s a significant expense and can mean several extra days (or weeks!) of downtime.

A contingency plan is about managing and lowering risk and setting yourself up for speedy disaster recovery.

What are the two types of contingencies in project management?

monday.com makes budget contingency planning visual

There are two types of contingencies that you should plan for: budget contingency & schedule contingency.

  • Budget contingency is an additional amount of money that you allocate to your budget, so you can cover extra costs that might come up as the project progresses. If you don’t have a contingency budget, you might run into an unexpected cost that could send you over budget and risk the profit margin of your project.
  • Schedule contingency is an additional amount of time that you bake into your project schedule, to allow for any unexpected delays or hiccups in your project progress. Without schedule contingency, you risk running over your project deadlines and disappointing stakeholders.

Contingency plan examples

Here are a few examples of how contingency planning could help save the day, no matter what happens:

Project contingency plan

Imagine that a key team member unexpectedly leaves the project. If you were contingency planning for this scenario, you might outline the following steps you could follow if you lost a key project team member:

  • Identify who will take over the tasks of the departing team member, and what tasks still need doing
  • Assess if any additional resources will be needed (such as an additional part-time project member from another team)
  • Provide training sessions for other team members to ensure they can step in effectively
  • Notify any stakeholders about the change and how it will be managed to minimize disruption and offer reassurance.

Business continuity plan

How about if a natural disaster disrupted operations at your primary office location? Could your business cope? With a continuity plan in place, you’ll turn things around quickly:

  • Make sure all your employees have access to the necessary tools and systems so that they can work remotely if necessary
  • Regularly back up all essential data to the cloud, and have a data recovery plan in place, in the event of loss of the hardware in your primary office
  • Identify backup office space or plan for remote work options if the primary location becomes inaccessible
  • Define communication channels that you’ll use in the event of a major disruption so that you can reach your employees to provide updates and instructions on how to proceed

Supply chain contingency plan

Do all your logistics depend on a few key suppliers? Then you should have a supply chain contingency plan in place, in case of unexpected production or shipping delays.

  • Have more than one supplier for critical components, so this becomes less of a business risk.
  • Maintain a buffer stock of your essential components, so that production won’t be held up by supplier delays
  • Find a shipping company that offers expedited shipping options in case you have an urgent need
  • Update your supplier contract to include penalties for delays and a procedure for resolving any disputes

Why contingency planning is important

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Murphy’s Law specifies that anything that can go wrong will go wrong. And any experienced project planner knows how true that is! Contingency planning can make or break your business:

It helps mitigate risk.

Contingency planning helps to identify potential risks and get ahead of them with a proactive plan. That way, even when things go wrong, you can minimize the disruption to operations and reduce your financial losses.

It makes your business more resilient.

Having a contingency plan in place enables you to respond to the unforeseen more effectively, adapt to changing conditions, and recover from setbacks more efficiently.

It keeps you compliant.

In many industries, contingency planning is mandated by regulatory requirements, so you’ll need these plans in place to avoid penalties and maintain good legal standing.

It increases customer trust.

Customers trust businesses that handle disruptions effectively. The ability to respond quickly and effectively when things go wrong will help build your reputation for great customer service.

Looking for a tool to make contingency planning easier? With monday.com, you can store all your contingency plans in a central location, communicate changes with stakeholders, and create automated workflows in response to unexpected events.

What are the characteristics of a good contingency plan?

Your contingency plan should include the following components:

List of risks

Begin by making a thorough identification of potential risks that could realistically occur. Depending on what kind of contingency plan you’re putting together, these could be all the risks that could impact your business, or the risks that could delay or disrupt a specific project or product.

For example, in terms of business-level contingency planning, you could list out:

  • Natural disasters
  • Technological failures
  • Economic downturns
  • Supply chain disruptions
  • Sudden market changes

Response options

Your plan should then outline various responses that you could choose between, for each risk you’ve identified. These might be:

  • Actions to mitigate the risk
  • Ways to transfer the risk to another party (e.g. by buying insurance)
  • Ways to accept and manage the risk

Plan of action

For each risk and response option, you should then add in a plan of action, including:

  • Steps to take
  • Who is responsible for each step
  • Any resources you’ll need
  • Any need to coordinate with other stakeholders or third parties

Communication management protocols

You’ll also want to make sure that you have a plan in place to communicate effectively with all stakeholders, including:

  • Who needs to be notified
  • The channels you’ll use for communication
  • How often you’ll send out updates
  • Any useful templates to use for messages

Trigger points

Decide in advance when you’ll activate a specific contingency response. For instance, you might have a particular threshold beyond which you’ll move to a contingency plan — such as the severity level of a natural disaster. You should also define who has the authority to make these decisions, and how the decision will be made (by committee or by chain of command, for instance.)

Testing and review

To keep your plan up to date, you should schedule regular tests and reviews. For instance, for a natural disaster contingency plan, you might want to run a drill once a year, to practice your response procedures and make sure that everything works as it should.

How to create a contingency plan

Let’s cover the basic contingency planning process and detail how to get yours up and running.

1. Map out essential processes.

What processes are essential to your business and safely delivering your product or service to customers?

If you’re a manufacturing company that ships directly to consumers, a simplified process list might look something like this:

  • Getting raw materials from suppliers
  • Manufacturing process
  • Freight and shipping
  • Packaging and warehousing
  • Last-mile delivery

Looking at this list, you can see how vulnerable it is to natural disasters or even minor human errors.

Create an overview of every crucial process in your organization.

2. Create a list of risks for each process.

Once the process list is created, consider what might disrupt business continuity.

What can go wrong with each of these critical processes?

Let’s look at an example of what could go wrong with “last-mile delivery” …

  • The driver can deliver single or multiple packages to the wrong address.
  • The package can be damaged during delivery.
  • The package could get lost at a distribution center.
  • A truck full of packages could be involved in an accident.
  • A flood could cripple the road system in a specific area.
  • The driver could get delayed because a moose wants to lick salt splatter off the car (seriously, it’s a thing ).

And that’s only a preliminary list. Once you start thinking about it, you’ll realize how many things you rely on to avoid going wrong, even for fundamental processes.

Every business process is vulnerable to some sort of emergency or human error and requires a solid risk management process .

3. Evaluate the potential impact and likelihood of each risk.

Once the risks are identified, it’s essential to determine how they could impact your business.

Are they likely to happen? How large will the impact on your business if they do occur?

Most companies use “qualitative risk assessment” to do this.

PMI uses the following risk exposure assessment table — also called the probability impact matrix — to evaluate … the probability and impact of potential risks.

Risk impact probability table from PMI

( Image Source )

First, rate the severity of the impact on a scale from 1–100. Then, multiply with a percentage based on how likely it is to occur.

4. Calculate costs and contingency reserves, and identify issues to mitigate.

The quantitative risk assessment approach is less common — but more practical — to assess the potential cost of each risk.

How much would each risk potentially cost your business? To get a better overview, add these 4 columns to the risk register template :

  • Full potential loss from the event
  • Expected loss from the event
  • Cost of response (post-event)
  • Cost of mitigation (pre-event)

Quantitative risk register example in monday UI

This means you can make an educated decision when budgeting contingency reserves into project plans and yearly budgets.

During the risk analysis , estimate the potential costs of the adverse event.

EXAMPLE: if your online store goes down, multiply the average online sales revenue per hour with expected downtime. Make one pessimistic and one realistic estimate.

Your hosting service may also have a flat fee for restoring sites, which would be your response cost. If these costs are unreasonably high and the event is likely, estimate the costs of a mitigation effort. In this case, it could be a firewall and extra procedures, like 2-factor authentication, an important security system , for all employees.

Budget in those costs. An accurate budget is the first part of emergency response and prevention. Without enough cash, your team won’t be able to put any response plans into action.

5. Create a response plan for prioritized events.

Create a response plan for events by exploring the following questions:

  • What can be done ahead of time to minimize any adverse effects on the event? For example, backing up data, carrying extra stock, or having more employees on call.
  • What can be done immediately after the event to minimize the impact? For example, ordering more from a secondary supplier, rerouting another vehicle, or bringing in on-call staff.

The specifics depend on your company’s unique processes and situation.

6. Share the contingency plan.

A contingency plan only works if it’s used when things go wrong—and that means that everyone in your organization knows to reach for the plan in times of trouble. To make sure that happens:

  • Identify who needs to be aware of and involved in contingency planning.
  • Choose appropriate communication methods for each stakeholder group. For instance, department heads may need specific meetings to focus on their section of the plan. Key employees might need a training session.
  • Create the plan in an accessible, centralized location, such as a monday.com board. That way, everyone involved can access the plan, and you can keep it updated at all times.
  • Encourage feedback on the plan, such as running an employee survey to check understanding and seek ideas for changes and improvements.
  • Post reminders and updates on your shared internal communication channels.

7. Monitor and review the contingency plan.

If you want your contingency plans to protect your business, you have to keep them up to date. That means you’ll need to schedule regular reviews of the plan to check that it’s still relevant and aligned with your changing business.

Remember to communicate updates or revisions to all relevant stakeholders, and provide opportunities for additional training if needed.

Manage your contingency planning process with monday.com

Having your business contingency plan on paper is an excellent place to start. But it won’t translate to how your entire company will tackle a crisis.

That’s where monday.com comes in. Our flexible digital workspace gives you everything necessary to ensure everyone follows the contingency plan when they need to.

Use our pre-built contingency plan template to get you started 

Make sure that no employee is left clueless during a crisis. Our contingency plan template has everything you need to start the planning process.

With our pre-built template, you can feel confident you’re following best practice contingency planning, so your business will run smoothly even in the case of unexpected events.

Use integrations to notify someone of an event automatically 

use automation to keep stakeholders up to date on your contingency plan

With monday.com’s powerful integrations and automations, you can respond to unfavorable events more quickly.

For example, you can immediately create and assign a work item whenever a customer submits a bug report.

This approach helps avoid another potential problem: customer service failing to report bug reports to your development team.

Monitor project status at all times in dashboards to avoid bottlenecks and domino effects.

manage your contingency planning with monday.com dashboards

The best time to start acting is before a catastrophic event that puts your entire project or business at risk.

To do that, your management team needs a clear understanding of the project’s status at all times.

Use the 30,000-foot view every manager needs to avoid predictable project delays and failures and check that project controls are working properly.

Contingency plans are a must-have.

When starting a project or business, most people plan according to the status quo. Unfortunately, that’s a best-case scenario and not helpful in the real world.

A contingency plan helps you prepare for worst-case scenarios and keep your project afloat, should anything go wrong.

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How to Create a Financial Contingency Plan for Your Business

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7 min. read

Updated October 29, 2023

Financial contingency planning is a must—not just for established small businesses, but also for businesses in the earliest stages of formation.

If you’re pre-launch or have only recently gone to market, a contingency plan is likely to be the last thing on your mind; after all, your efforts are focused on making your business a success, and not necessarily thinking about what could go wrong.

But unexpected situations can interrupt the launch of a business and disrupt normal operations. Without a financial contingency plan in place, these unforeseen events can be harmful to the health of the business, potentially leading to insolvency before a startup is even off the ground.

Working for a firm of turnaround practitioners, I provide expertise in terms of business recovery, cash flow, and financing. I commonly see perfectly viable startups that are simply unable to function due to a lack of cash flow . For businesses in the earliest stages, funding streams are often not available, which gives them little choice but to fold. Putting a simple financial contingency plan in place can give businesses in this situation the lifeline they need. 

In this article, we’re going to explore why financial contingency plans are so important and help you create your own for your early-stage business.

  • What is a financial contingency plan?

A financial contingency plan should document your course of action in times of crisis that threaten the stability of your company. It should focus on resource and financial allocations in particular.

It can mean the difference between the survival and failure of a business when disaster strikes, whether the crisis stems from a late payment, the loss of a credit line, or equipment failure.

  • Why are financial contingency plans so important?

At the start of this year, 5,593 businesses were on the verge of insolvency in the U.K. Many of these businesses would be perfectly viable, but they are simply suffering from financial management issues. For example, they may generate a revenue but have falling profit margins, or have issues with chronic late payments due to the lack of an effective collections procedure.

In the early stages of a business, there are often simply no resources to absorb any unexpected negative events. That’s why a comprehensive plan that aims to limit the risk of financial loss can be invaluable. Rather than panicking and fearing the worst, startups can implement practical and effective business strategies to remain operational and avoid insolvency.

As an aside, a financial contingency plan cannot protect you against every financial situation. Other issues, such as problems making tax payments or issues around simply growing too quickly, can also threaten to derail new businesses. If you’re looking for more information on the subject, head over to  Company Debt  (where I serve as head of digital) after you’ve finished this article. We offer an extensive range of resources and guides to help resolve many challenges you might face. 

  • How to create a financial contingency plan

Follow this process to create a financial plan you can rely on. Importantly, each of these steps is simple and completely doable. Don’t be intimidated. The whole process should take no more than an hour of your time.   

1. Create a list of your priority resources

Not all your business’s resources are crucial to its operation. Although they may be few and far between in the early days, what resources you can operate without if it means the difference between keeping your doors open and folding?

For example, do you own a business vehicle that is nice to have but is not critical to the business’s core activity? Or perhaps you own a brick and mortar location you could sell if the survival of your business depended on it? Equally, there may be less essential members of staff you could let go if the business was struggling financially. Remember, it will almost certainly be easier to think through your bottom-line essentials now, rather than in the heat of a crisis.

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2. Consider the potential risks

There are a limited number of risks that could lead to failure. In fact, the risks are usually relatively easy to foresee, even if you’ve yet to launch. For example, what would happen if a key customer went elsewhere, or if an important team member left the business? With the right planning, as long as there’s demand for the products or services you offer, it is possible for a business to survive any kind of risk.

Make a list of possible risks and give some thought to how likely each of the threats is to occur and when they are most likely to occur (conducting a SWOT analysis can be helpful here, too).

For each of the threats, you should:

  • List the strategies and techniques you will use to minimize the risks
  • Detail the techniques you will use to mitigate the financial impact of the risk if it should occur

3. Determine how to execute the plan, and who will be responsible for what

Take the information above and determine who will be responsible for executing the financial contingency plan. As a startup business, this responsibility will likely fall on the business owner. You should also map out who will have access to the documents needed to act upon the plan before and during the process, and include a list of the team members who will know about the plans before they are put in place.

4. Review regularly—make sure your plans are up to date

The type of risks businesses face change at different stages of their development. The threat of late or non-payments is one of the leading causes of business insolvency, as is the insolvency of a company within the supply chain. However, before launch, your biggest threat is more likely to be whether you can secure funding .

There can also be changes to market conditions that expose the business to new and previously unidentified threats. To make sure the financial contingency plan is relevant and up-to-date, it’s essential you revisit and revise the plan on a quarterly basis as the business grows.  

5. Identify alternative sources of credit

These days, it is not uncommon for lenders to remove lines of credit or for trade suppliers to reduce the credit they offer your business if they are concerned about its financial stability. Proactively identifying alternative sources of credit that can be secured and assessing their financial feasibility will help the business continue operating if credit lines are reduced.

This should be a process that is revisited on a quarterly basis as the range of finance options available to your business will change. Don’t wait until your credit line is removed to start thinking about this risk—it can take a long time for startup businesses to find alternative funding sources.   

6. Consider the capital requirements first

The typical approach to contingency planning is to decide what’s best for the business first and then think about where the money to implement the plan will come from.

However, when creating a financial contingency plan for a startup, the probability of accessing the capital you need is relatively low. For that reason, it makes sense to explore the capital markets first and then adjust your strategic plan accordingly based on the money that’s likely to be available. Keep an eye on your financials on a weekly or even daily basis—you can do this with an Excel spreadsheet or a dashboard that pulls in your data automatically from your accounting software.

Make sure you’re comparing your cash flow projections with actuals on a regular basis so that you can head off a crisis before it has a chance to grow into something that threatens the existence of your business.

Creating a financial contingency plan may not be the number one priority for startup businesses. However, with 4 out of 10 UK businesses failing in their first five years, this is something those that are serious about their survival should give serious thought.  

The truth is, there’s no substitute for proper preparation, and putting plans in place if the worst should happen can provide reassurance and respite during a financial storm.   

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Content Author: Piers Ede

Piers Ede, a former journalist and published author, is currently head of digital at CompanyDebt.com, the UK's largest insolvency hub. He's been working in SEO since 2006.

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Business contingency plan example

This business contingency plan example template can help you:

  • Understand your organization's contingency plan more clearly.
  • Communicate the plan to everyone who could potentially be affected.
  • Prepare your organization to handle anything unexpected.

Open this template to view a detailed example of a business contingency plan that you can customize to your use case.

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What Is a Business Contingency Plan?

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Many businesses do not even consider a contingency plan or realize the option exists and is a sound practice. Creating a plan is most often overlooked or forgotten when times are good and business is booming. Unfortunately, it does not take much to completely turn things around. One technical mishap that crashes a server, a missed delivery or a major project that goes unpaid can turn a business upside down in a hurry.

Contingency planning is the process of building a procedure to prepare for the absolute worst. When things go wrong, the plan is there to salvage your business and provide an opportunity to get things back on track again. Most contingency situations are out of your control, and in many cases cannot be seen coming in advance. You can create contingency plans to respond to the failure of elements that are within your immediate control, but that effort is better served in solving those issues upfront to ensure the business is operating smoothly. The uncontrollable, however, requires a plan to bail yourself out and pull the business back above water.

Types of Contingency Planning

They exact type of contingency plan you create should depend on the type of business and the location. For example, a business located in a hurricane zone should add flood insurance and hurricane damage recovery to its plan. The plan itself is essentially a detailed sequence of steps and processes that will be used in worst-case scenarios.

You can make a plan for natural disasters, financial shortfalls and market crashes, temporary inflation of material or labor prices, and so on. The most basic plan will cover the financial and material aspects of the business. An in-depth plan pinpoints areas of the business that are first in line for cuts, where employees can be eliminated and where costs can be drastically reduced to save expenses immediately while entering a rebuilding phase. It’s essentially based on "What if...?" scenarios. What if the market crashes? What if there is a labor shortage? What if the client does not pay? What if our system goes down unexpectedly? What if we get hacked? Ask yourself every possible "What if...?" that could apply to your company, and then starting building a plan to answer those questions.

For example: "If the market crashes, we can cut costs by 50 percent by eliminating these departments, and we can access emergency capital in this contingency savings account." Now you are building a plan that can potentially save the business if things turn in the wrong direction. Creating a contingency plan takes time and some deep thought. The process should be limited to the owners and upper-level decision makers. Telling employees where you would eliminate positions in a worst-case scenario is simply bad leadership and will not inspire or build confidence.

How to Write a Contingency Plan

The contingency plan works as a sequence of events based on priority.

First, make a list of the most likely major events that could change the course of business for the worse. Build out an individual response for each of these events. How will you prepare, and what actionable steps will you execute following the events?

After you have each scenario and response on paper, it’s time to prioritize. In the case of a financial crisis, what contingency steps are the most important? What equitable assets can be sold or used as collateral against a temporary loan or line of credit? Where can you cut some fat immediately without losing ground on processes? Lay these things out in order of importance so you can have an action plan ready to use immediately after taking a big hit. You won’t push every step live in one shot, so really take the time to prioritize your cuts and actions.

Timing the Plan

Timing is difficult in a contingency situation, but having a rough timeline in place helps drive actionable results. You can set deadlines against contingency steps toward recovery. The most important part about timing is keeping the company solvent. If you sell X number of assets, cut a department and tap an emergency fund, how much will it help and for how long? You have to know what kind of time-frame you need to get back on your feet. How much inventory must sell in that time-frame to recover? How much revenue will bring you to a break-even point. In a worst-case scenario, buying the business a year of recovery time is helpful. More than a year is not often realistic, but in some cases you might need that long to survive and turn around through a period of bad economic growth. You can also set time-frames alongside each contingency step. For example, the return on disaster insurance will buy you two months and new inventory. If that is not enough, tapping into savings will buy you another two months. If that fails, cutting specific expenses will buy you another two months. Your business is in survival mode, and every penny counts toward more recovery time.

Emergency Financing and Insurance

You can get ahead of the curve on emergency financing and insurance policies for contingency situations. It's good to have an emergency line of credit pre-approved or a savings account stashed away for a rainy day. This saves a ton of time and headaches if things do go south. You can tap those funds immediately to get things running again or to stay afloat until the storm passes. A good method of building your contingency savings is through a simple self-tax. Set aside a small percentage of monthly revenue, and watch your fund grow. When there's an emergency, you can lean on that fund to remain operational and solvent. If the shortfall is industry-wide, many of your competitors without contingency plans will close their doors. The remaining businesses are all the stronger after surviving and can capture a larger share of the rebounding market.

Insurance against natural disasters and anything outside of your control is also a great resource. Shop insurance plans with a close eye on the plans that have a reimbursement option for assets lost to natural disasters and any worst-case situation. It’s common to save a few bucks on the monthly premium by ignoring add-on protections – but those small details and extra payments are the ones that will save your business. Work closely with your agent, and use an attorney, if possible, to maximize your payout potential and payout amount for holding the policy.

Small Business Plans

Building a contingency plan for a small business is simple, because the business has fewer employees and moving parts. In some cases, it’s a matter of cutting business expenses and riding out the downfall with a savings account. The small business has the advantage of being nimble and responsive to rapid changes in the market. A small business, however, has the disadvantage of typically owning fewer assets and depending more heavily on those assets for daily revenue. In this case, the contingency plan should rely on protecting those assets and anything that is required for driving income.

For example, a landscaping contractor should avoid selling its equipment at all costs. If you own two backhoes, you might need to sell one in a worst-case situation, but selling both backhoes is the same as going out of business unless you can access equipment in another manner. Owning the assets outright really helps when possible. Working to own your most basic and necessary assets when revenue is at a peak means you aren’t chasing payments to stay afloat during a crash.

Medium and Enterprise-Sized Business

There are more employees and moving parts in larger businesses with diverse job roles and multiple departments. Your contingency plan should look at the least important departments and assets first for cuts. A larger business requires detailed accounting and a strategic big picture view for dealing with bad situations. What aspect of the business has the best revenue and the lowest overhead structure? While a larger businesses has more areas to cut and more pieces to move around, this can also bog them down in a recession or emergency. The ability to enact the contingency plan quickly can make or break the business. Wasting critical time while revenue spirals downward can push the business over the edge to a point where it’s simply too late to recover.

How to Organize and Enforce the Plan

Having your contingency plan on paper is great, but you need to assign roles and actually enforce the plan. When you create the plan, do so with a small team of your highest level or most trusted employees. The business owner is responsible for determining when to enforce the plan, and the other committee members each have specific roles to play. Assign a coordinator role to manage the actions after the plan has a green light to move forward. The coordinator will follow the actionable steps to ensure the plan is being properly followed and executed. This person is essentially the plan manager, and they keep everything moving while covering their steps legally. An auditor is then added to double-check the contingency and look for weak spots. Finding weaknesses and revising the plan may be necessary, because nothing is static in business. Lastly, one person should be tasked with the difficult communications role. This is the person communicating the new procedures and business organization to staff and the outside world. This can mean enforcing layoffs, and justifying each action in a public-facing role.

Contingency planning is not an exact art, and in many cases it really comes down to analyzing the numbers and working toward a revenue-positive goal. Maintaining clear goals and sticking to the general plan while revising and testing along the way is a solid approach. The ability to adapt while locating new opportunities and turning a failing business around is no easy task and it requires difficult decision-making processes.

Positive and Surplus Contingency Plans

Most contingency situations require preparing for the unexpected, worst-case scenario but in some instances, a contingency plan is required for positive growth. A business can struggle when growth happens rapidly and it cannot scale properly. It’s an odd line of thinking, but growing too quickly can actually cripple a business that is unprepared. A positive contingency plan is laid out to manage growth while scaling in a manner that is sustainable and effective. A major aspect of this process is keeping an outside set of advisers available to tap for advice and resources in a best-case scenario. This positive plan also works together with your negative contingency plan, because the new departments and growth management processes work in reverse when things fail. As you add to the business and grow, pay close attention to which moving parts are the most productive and necessary and which can take a hit or cut, if needed. It’s not an easy process, but making these observations during the growth phase is a useful and productive practice.

  • BiSimplified: Contingency Plan Outline
  • Quickbooks: What is a contingency plan and why does your business need one
  • Forbes: Many business contingencies but you need only a few plans
  • Sample Contingency Plan Template

Zach Lazzari is a freelance writer with extensive experience in startups and digital advertising. He has a diverse background with a strong presence in the digital marketing world. Zach has developed and sold multiple successful web properties and manages marketing for multiple clients in the outdoor industry. He has published business content in Angling Trade Magazine and writes white papers and case studies for multiple corporate partners.

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What Is a Contingency?

  • How It Works

Types of Contingency Plans

Special considerations, banks and contingencies, the bottom line.

  • Corporate Finance

What Are Contingencies and Contingency Plans? Definition and Examples

contingency plan for small business example

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

contingency plan for small business example

A contingency is a potential occurrence of a negative event in the future, such as an economic recession, natural disaster, fraudulent activity, terrorist attack, or a pandemic.

Although contingencies can be prepared for, the nature and scope of such negative events are typically unknowable in advance. Companies and investors plan for various contingencies through analysis and implementing protective measures.

In finance, managers often attempt to identify and plan using predictive models for possible contingencies that they believe may occur. Financial managers tend to err on the conservative side to mitigate risk, assuming slightly worse-than-expected outcomes.

A contingency plan might include arranging a company's affairs so that it can weather negative outcomes with the least distress possible.

Key Takeaways

  • A contingency is a potentially negative event that may occur in the future, such as an economic recession, natural disaster, or fraudulent activity.
  • Companies and investors plan for various contingencies through analysis and implementing protective measures.
  • A thorough contingency plan minimizes loss and damage caused by an unforeseen negative event.
  • Contingency plans can include the purchase of options or insurance for investment portfolios.
  • Banks must set aside a percentage of capital for negative contingencies, such as a recession, to protect the bank against losses.

How a Contingency Works

To plan for contingencies, financial managers may often also recommend setting aside significant reserves of cash so that the company has strong liquidity, even if it meets with a period of poor sales or unexpected expenses.

Managers may seek to proactively open credit lines while a company is in a strong financial position to ensure access to borrowing in less favorable times. For example, pending litigation would be considered a contingent liability . Contingency plans typically include insurance policies that cover losses that may arise during and after a negative event.

However, insurance policies may not cover all of the costs or every scenario. For example, business interruption insurance doesn't usually cover pandemics, which many businesses suffered through as a result of the coronavirus pandemic.

The Federal government had to step in and pass the  Coronavirus Aid, Relief, and Economic Security (CARES) Act , which provided financial relief to businesses, families, and local governments to stem the economic hardship caused by the pandemic. In particular, the Paycheck Protection Program (PPP) offered $349 billion in aid to small businesses to help them maintain their payroll and expenses.

Insurance companies might also limit coverage or put exclusions in place for an act of God, which is an exogenous event, meaning outside of human control, such as a flood or an earthquake. Also, insurance can't replace the customers that were lost to competitors due to an event, particularly if it was an internal systems issue such as a data breach.

As a result, businesses need to have contingency plans established to help minimize the lost revenue and increased costs that are involved when business operations have been disrupted. Typically, business consultants are hired to ensure contingency plans consider a large number of possible scenarios and provide advice on how to best execute the plan.

Contingency plans are utilized by corporations, governments, investors, and central banks, such as the Fed. Contingencies can involve real estate transactions, commodities, investments, currency exchange rates, and geopolitical risks.

Protecting Assets

Contingencies might also include contingent assets , which are benefits (rather than losses) that accrue to a company or individual given the resolution of some uncertain event in the future. A favorable ruling in a lawsuit or an inheritance would be an example of contingent assets.

Contingency plans might involve purchasing insurance policies that pay cash or a benefit if a particular contingency occurs. For example, property insurance might be purchased to protect against fire or wind damage.

Investment Positions

Investors protect themselves from contingencies that could lead to financial losses related to investing. Investors might employ various hedging strategies such as stop-loss orders, which exit a position at a specific price level.

Hedging can also involve using options strategies, which is akin to buying insurance whereby the strategies earn money as an investment position loses money from a negative event.

The money earned from the options strategy completely or partially offsets the losses from the investment. However, these strategies come at a cost, usually in the form of a premium, which is an upfront cash payment.

Investors also employ asset diversification , which is the process of investing in various types of investments. Asset diversification helps to minimize risk if one asset class, such as stocks, declines in value.

Contingent Immunization

Contingent immunization is a type of contingency plan used in fixed-income investing. It involves the fund manager switching to a defensive position if the portfolio drops below a predetermined value.

Business Continuity and Recovery

As part of a contingency plan for disasters, such as a pandemic, companies need to plan ahead to ensure that the business can operate during and after an event. This type of contingency plan is often called a business continuity plan (BCP) or a business recovery plan.

Typically, a business continuity team is formed to plan for any possible contingencies and manage the continuity and recovery plan during a disruption . Businesses need to identify their critical business functions and perform an analysis of how an event might impact the company's operations and processes.

The contingency plan would include implementing the recovery of critical business functions such as systems, production, and employee access to technology such as computers.

For example, a contingency plan for a pandemic would include developing a remote work strategy to help prevent the spread of disease and provide employees with secure access to their work.

As a result, companies would need to invest in technology, which could include providing laptops and video-conferencing access to employees, creating cloud-based data storage, and facilitating access to company-wide communications such as email and internal data.

Cybersecurity

With any type of disaster, cybercriminals often try to take advantage of a crisis to hack into a company’s systems and steal data or disrupt business operations. Contingency plans are used to outline the procedures for cybersecurity teams to protect an organization from threats and malicious attacks.

A contingency plan should also prepare for the loss of intellectual property through theft or destruction. As a result, backups of critical files and computer programs, as well as key company patents, should be maintained in a secure off-site location.

Contingency plans need to prepare for the possibility of operational mishaps, theft, and fraud. A company should have an emergency public relations response relating to possible events that have the ability to severely damage the company’s reputation and its ability to conduct business.

How a company is reorganized after a negative event should be included in a contingency plan. It should have procedures outlining what needs to be done to return the company to normal operations and limit any further damage from the event.

For example, financial services firm Cantor Fitzgerald was able to resume operation in just days after being crippled by the 9/11 terrorist attacks due to having a comprehensive contingency plan in place.

Benefits of a Contingency Plan

A thorough contingency plan minimizes loss and damage caused by an unforeseen negative event. For example, a brokerage company may have a backup power generator to ensure that trades can be executed in the event of a power failure, preventing possible financial loss.

A contingency plan can also reduce the risk of a public relations disaster. A company that effectively communicates how negative events are to be navigated and responded to is less likely to suffer reputation damage.

A contingency plan often allows a company affected by a negative event to keep operating. For example, a company may have a provision in place for possible industrial action, such as a strike, so obligations to customers are not compromised.

Companies that have a contingency plan in place may obtain better insurance rates and credit availability because they are seen to have reduced business risks.

As a result of the financial crisis of 2008 and the Great Recession , regulations were implemented requiring bank stress tests to be performed to test how a bank might handle various negative contingencies. The stress tests project how much a bank would lose—if a negative economic event occurred—to determine if the bank has enough capital or funds set aside to survive the event.

Banks are required to have a specific percentage of capital reserves on hand, depending on the total risk-weighted assets  (RWAs). These assets, which are typically loans, have various risk weightings applied to them.

For example, a bank's mortgage portfolio might receive a 50% weighting, meaning the bank—in a negative scenario—should have enough capital that's valued at 50% of the outstanding mortgage loans.

The capital, called Tier-1 capital , can include equity shares or shareholders' equity and retained earnings, which are accumulated savings of prior years' profits. Although there are various components that go into the tier-capital ratio requirement, the ratio has to be at least 6% of the total risk-weighted assets.

Let's say as an example, Bank XYZ has $3 million in retained earnings and $4 million in shareholders' equity, meaning the total tier-1 capital is $7 million. Bank XYZ has risk-weighted assets of $70 million. As a result, the bank's tier-1 capital ratio is 10% ($7 million/$70 million). Since the capital requirement is 6%, the bank is considered well-capitalized when compared to the minimum requirement.

Of course, we won't know if the banking sector's contingency plan will be adequate until another recession occurs, which is a limitation of these plans since it's difficult to plan for every contingency.

Why Is an Environmental Contingency Plan Important?

Businesses that are at risk for environmental accidents–particularly spills of hazardous materials–should always have a plan in place detailing their response actions. Being prepared can help minimize the total damage done to the environment, minimize accident-related costs, and limit liability.

What Is Contingency Theory?

Contingency theory is an approach to management that suggests the best way to run an organization is dependent, or contingent, on that particular situation. In other words, a specific management style can work well in one company and fail completely in another one.

What Are the Steps in Creating a Contingency Plan?

To create a contingency plan, first, identify the key risks to your business and order them in regard to the likelihood of occurring and severity. Next, conduct a business impact analysis (BIA). From there, start shaping your plan, which should include preventive controls, an incidence response plan, a disaster recovery plan, and a business continuity plan. Make sure to provide training to employees, frequent testing, and updating of your plan.

A contingency is a potentially negative future event or circumstance, such as a global pandemic, natural disaster, or terrorist attack. By designing plans that take contingencies into account, companies, governments, and individuals are able to limit the damage done by such events.

U.S. Congress. " H.R.748 - CARES Act ."

Cornell Law School. " Minimum Capital Requirements ."

contingency plan for small business example

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Blog Business

7 Business Continuity Plan Examples

By Danesh Ramuthi , Nov 28, 2023

Business Continuity Plan Examples

A business continuity plan (BCP) is a strategic framework that prepares businesses to maintain or swiftly resume their critical functions in the face of disruptions, whether they stem from natural disasters, technological failures, human error, or other unforeseen events.

In today’s fast-paced world, businesses face an array of potential disruptions ranging from cyberattacks and ransomware to severe weather events and global pandemics. By having a well-crafted BCP, businesses can mitigate these risks, ensuring the safety and continuity of their critical services and operations.

Responsibility for business continuity planning typically lies with top management and dedicated planning teams within an organization. It is a cross-functional effort that involves input and coordination across various departments, ensuring that all aspects of the business are considered.

For businesses looking to develop or refine their business continuity strategies, there are numerous resources available. Tools like Venngage’s business plan maker and their business continuity plan templates offer practical assistance, streamlining the process of creating a robust and effective BCP. 

Click to jump ahead: 

7 business continuity plan examples

Business continuity types, how to write a business continuity plan, how often should a business continuity plan be reviewed, business continuity plan vs. disaster recovery plan, final thoughts.

In business, unpredictability is the only certainty. This is where business continuity plans (BCPs) come into play. These plans are not just documents; they are a testament to a company’s preparedness and commitment to sustained operations under adverse conditions. To illustrate the practicality and necessity of these plans, let’s delve into some compelling examples.

Business continuity plan example for small business

Imagine a small business specializing in digital marketing services, with a significant portion of its operations reliant on continuous internet connectivity and digital communication tools. This business, although small, caters to a global clientele, making its online presence and prompt service delivery crucial.

Business Consultant Continuity Plan Template

Scope and objective:

This Business Continuity Plan (BCP) is designed to ensure the continuity of digital marketing services and client communications in the event of an unforeseen and prolonged internet outage. Such an outage could be caused by a variety of factors, including cyberattacks, technical failures or service provider issues. The plan aims to minimize disruption to these critical services, ensuring that client projects are delivered on time and communication lines remain open and effective.

Operations at risk:

Operation: Digital Marketing Services Operation Description: A team dedicated to creating and managing digital marketing campaigns for clients across various time zones. Business Impact: High Impact Description: The team manages all client communications, campaign designs, and real-time online marketing strategies. An internet outage would halt all ongoing campaigns and client communications, leading to potential loss of business and client trust.

Recovery strategy:

The BCP should include immediate measures like switching to a backup internet service provider or using mobile data as a temporary solution. The IT team should be prepared to deploy these alternatives swiftly. Additionally, the company should have a protocol for informing clients about the situation via alternative communication channels like mobile phones.

Roles and responsibilities:

Representative: Alex Martinez Role: IT Manager Description of Responsibilities:

  • Oversee the implementation of the backup internet connectivity plan.
  • Coordinate with the digital marketing team to ensure minimal disruption in campaign management.
  • Communicate with the service provider for updates and resolution timelines.

Business Continuity and Disaster Recovery Plan Template

Business continuity plan example for software company

In the landscape of software development, a well-structured Business Continuity Plan (BCP) is vital. This example illustrates a BCP for a software company, focusing on a different kind of disruption: a critical data breach.

Business Continuity Plan Template

Scope and objectives:

This BCP is designed to ensure the continuity of software development and client data security in the event of a significant data breach. Such a breach could be due to cyberattacks, internal security lapses, or third-party service vulnerabilities. The plan prioritizes the rapid response to secure data, assess the impact on software development projects and maintain client trust and communication.

Operation: Software Development and Data Security Operation Description: The software development team is responsible for creating and maintaining software products, which involves handling sensitive client data. In the realm of software development, where the creation and maintenance of products involve handling sensitive client data, prioritizing security is crucial. Strengthen your software development team’s capabilities by incorporating the best antivirus with VPN features, offering a robust defense to protect client information and maintain a secure operational environment. The integrity and security of this data are paramount.

Business Impact: Critical Impact Description: A data breach could compromise client data, leading to loss of trust, legal consequences and potential financial penalties. It could also disrupt ongoing development projects and delay product releases.

The IT security team should immediately isolate the breached systems to prevent further data loss. They should then work on identifying the breach’s source and extent. Simultaneously, the client relations team should inform affected clients about the breach and the steps being taken. The company should also engage a third-party cybersecurity firm for an independent investigation and recovery assistance.

Representative: Sarah Lopez Role: Head of IT Security Contact Details: [email protected] Description of Responsibilities:

  • Lead the initial response to the data breach, including system isolation and assessment.
  • Coordinate with external cybersecurity experts for breach analysis and mitigation.
  • Work with the legal team to understand and comply with data breach notification laws.
  • Communicate with the software development team leaders about the impact on ongoing projects.

Business Continuity Plan Templates

Related: 7 Best Business Plan Software for 2023

Business continuity plan example for manufacturing

In the manufacturing sector, disruptions can significantly impact production lines, supply chains, and customer commitments. This example of a Business Continuity Plan (BCP) for a manufacturing company addresses a specific scenario: a major supply chain disruption.

Business Continuity Plan Template

This BCP is formulated to ensure the continuity of manufacturing operations in the event of a significant supply chain disruption. Such disruptions could be caused by geopolitical events, natural disasters affecting key suppliers or transportation network failures. The plan focuses on maintaining production capabilities and fulfilling customer orders by managing and mitigating supply chain risks.

Operation: Production Line Operation Description: The production line is dependent on a steady supply of raw materials and components from various suppliers to manufacture products. Business Impact: High Impact Description: A disruption in the supply chain can lead to a halt in production, resulting in delayed order fulfillment, loss of revenue and potential damage to customer relationships.

The company should establish relationships with alternative suppliers to ensure a diversified supply chain. In the event of a disruption, the procurement team should be able to quickly switch to these alternative sources. Additionally, maintaining a strategic reserve of critical materials can buffer short-term disruptions. The logistics team should also develop flexible transportation plans to adapt to changing scenarios.

Representative: Michael Johnson Role: Head of Supply Chain Management Contact Details: [email protected] Description of Responsibilities:

  • Monitor global supply chain trends and identify potential risks.
  • Develop and maintain relationships with alternative suppliers.
  • Coordinate with logistics to ensure flexible transportation solutions.
  • Communicate with production managers about supply chain status and potential impacts on production schedules.

Related: 15+ Business Plan Templates for Strategic Planning

BCPs are essential for ensuring that a business can continue operating during crises. Here’s a summary of the different types of business continuity plans that are common:

  • Operational : Involves ensuring that critical systems and processes continue functioning without disruption. It’s vital to have a plan to minimize revenue loss in case of disruptions.
  • Technological : For businesses heavily reliant on technology, this type of continuity plan focuses on maintaining and securing internal systems, like having offline storage for important documents.
  • Economic continuity : This type ensures that the business remains profitable during disruptions. It involves future-proofing the organization against scenarios that could negatively impact the bottom line.
  • Workforce continuity : Focuses on maintaining adequate and appropriate staffing levels, especially during crises, ensuring that the workforce is capable of handling incoming work.
  • Safety : Beyond staffing, safety continuity involves creating a comfortable and secure work environment where employees feel supported, especially during crises.
  • Environmental : It addresses the ability of the team to operate effectively and safely in their physical work environment, considering threats to physical office spaces and planning accordingly.
  • Security : Means prioritizing the safety and security of employees and business assets, planning for potential security breaches and safeguarding important business information.
  • Reputation : Focuses on maintaining customer satisfaction and a good reputation, monitoring conversations about the brand and having action plans for reputation management.

Business Continuity Planning Templates

As I have explained so far, a Business Continuity Plan (BCP) is invaluable. Writing an effective BCP involves a series of strategic steps, each crucial to ensuring that your business can withstand and recover from unexpected events. Here’s a guide on how to craft a robust business continuity plan:

Business Continuity And Disaster Recovery Plan Template

1. Choose your business continuity team

Assemble a dedicated team responsible for the development and implementation of the BCP. The team should include members from various departments with a deep understanding of the business operations.

2. Outline your plan objectives

Clearly articulate what the plan aims to achieve. Objectives may include minimizing financial loss, ensuring the safety of employees, maintaining critical business operations, and protecting the company’s reputation.

3. Meet with key players in your departments

Engage with department heads and key personnel to gain insights into the specific needs and processes of each department. This helps in identifying critical functions and resources.

4. Identify critical functions and types of threats

Determine which functions are vital to the business’s survival and identify potential threats that could impact these areas. 

5. Carry on risk assessments across different areas

Evaluate the likelihood and impact of identified threats on each critical function. This assessment helps in prioritizing the risks and planning accordingly.

6. Conduct a business impact analysis (BIA)

Perform a BIA to understand the potential consequences of disruption to critical business functions. It has to be done in determining the maximum acceptable downtime and the resources needed for business continuity.

7. Start drafting the plan

Compile the information gathered into a structured document. The plan should include emergency contact information, recovery strategies and detailed action steps for different scenarios.

8. Test the plan for any gaps

Conduct simulations or tabletop exercises to test the plan’s effectiveness. This testing can reveal unforeseen gaps or weaknesses in the plan.

9. Review & revise your plan

Use the insights gained from testing to refine and update the plan. Continual revision ensures the plan remains relevant and effective in the face of changing business conditions and emerging threats.

Read Also: How to Write a Business Plan Outline [Examples + Templates]

A Business Continuity Plan (BCP) should ideally be reviewed and updated at least annually. 

The annual review ensures that the plan remains relevant and effective in the face of new challenges and changes within the business, such as shifts in business strategy, introduction of new technology or changes in operational processes. 

Additionally, it’s crucial to reassess the BCP following any significant business changes, such as mergers, acquisitions or entry into new markets, as well as after the occurrence of any major incident that tested the plan’s effectiveness. 

However, in rapidly changing industries or in businesses that face a high degree of uncertainty or frequent changes, more frequent reviews – such as bi-annually or quarterly – may be necessary. 

A Business Continuity Plan (BCP) and a Disaster Recovery Plan (DRP) are two crucial components of organizational preparedness, yet they serve different functions. The BCP is aimed at preventing interruptions to business operations and maintaining regular activities. 

It focuses on aspects such as the location of operations during a crisis (like a temporary office or remote work), how staff will communicate and which functions are prioritized. In essence, a BCP details how a business can continue operating during and after a disruption​​​​.

On the other hand, a DRP is more specific to restoring data access and IT infrastructure after a disaster. It describes the steps that employees must follow during and after a disaster to ensure minimal function necessary for the organization to continue. 

Essentially, while a BCP is about maintaining operations, a DRP is about restoring critical functions, particularly IT-related, after a disruption has occurred​

It’s clear that having a robust and adaptable business continuity plan (BCP) is not just a strategic advantage but a fundamental necessity for businesses of all sizes and sectors. 

From small businesses to large corporations, the principles of effective business continuity planning remain consistent: identify potential threats, assess the impact on critical functions, and develop a comprehensive strategy to maintain operations during and after a disruption.

The process of writing a BCP, as detailed in this article, underscores the importance of a thorough and thoughtful approach. It’s about more than just drafting a document; it’s about creating a living framework that evolves with your business and the changing landscape of risks.

To assist in this crucial task, you can use Venngage’s business plan maker & their business continuity plan templates . These tools streamline the process of creating a BCP, ensuring that it is not only comprehensive but also clear, accessible and easy to implement. 

Small Business UK

Small Business UK

Advice and Ideas for UK Small Businesses and SMEs

contingency plan for small business example

Why every small business should have a contingency plan

contingency plan for small business example

Here, Andrew Clough, founder and managing director of The Brew, explains why it is important for businesses to have a contingency plan.

It’s been an eventful year for the UK, and London in particular, with a succession of high-profile incidents reminding us how situations can change without warning. From terrorism to fire, extreme weather to cyber-attacks; it gets you thinking about how your business would cope if it was affected by something similar. Would your staff know what to do? Would you be able to keep trading?

It was this realisation that drove me to start building a contingency plan for my business, The Brew, a chain of five co-working spaces across East London. We’ve grown quickly over the last five years and when that happens, you can end up with a situation where a lot of critical information exists only in your head. As the founder, you always know what’s going on and how to do things, but what would happen if you weren’t there?

Putting a contingency plan in place not only gives you the peace of mind that everything could continue in your absence, or without key members of your team. It also makes for a better run and more organised business. Forcing yourself to have everything documented centrally builds a greater awareness of roles and responsibilities across the organisation, while also making holidays less of a challenge!

Having just been through the process with The Brew, here’s my advice on the steps involved:

What are your biggest risks: Start off by identifying the key risks that could affect your business, focusing on those that are most likely to happen. There isn’t much value in preparing for very rare events, as the chances of being affected are very small. We decided that the biggest realistic issues we could face would be the internet going down, or being hit by a cyber-attack. We would also have serious problems if numerous employees were unable to get into work for some reason. With over 2,000 members, that would leave us with an operational and communication headache on our hands.

Document everything: Put together an operational guide for your business, outlining everything you would need to know to keep it running, such as who your suppliers are, how and when they are paid, and everything else that happens on a daily/weekly/monthly basis. As part of the same process, not only outline the roles and responsibilities of every senior member of staff, but scope out the daily and weekly tasks, so a replacement could assume those responsibilities very easily.

For example, we have fully documented our website, which is one of our most important marketing channels, so other employees could find out who hosts it, designs it and how is it updated etc… These documents prove to be a great handbook for new members of staff coming in, and ensure your processes remain consistent. We also keep copies offsite in case our premises aren’t accessible, following an incident.

Have back-ups in place: Like most businesses, the internet is absolutely critical to what we do, so we have multiple back-ups in place in case our normal supplier went down. Cyber-attacks and data breaches are one of the biggest threats at the moment, which means backing up company data every day is non-negotiable, ensuring copies are kept offsite. So if, for example, a ransomware attack shut down your systems – as happened to thousands of businesses recently with the WannaCry virus – you would know that all your files are safe elsewhere.

Alternatively, keeping files stored in the cloud will ensure they can always be accessed. Another key contingency plan for the internet is ensuring every single member of staff knows the basics of where the router is, how to restart it, who your supplier is, what your customer number is etc. This information can be in your handbook (kept offline) so that if there are any issues, anyone in the business can work on restoring your connection and minimising any downtime.

Have a crisis plan in place: You should also have a plan in place for emergencies, including employee roles in such a situation and the key actions that would need to be taken. I remember following the 7/7 attacks in London, I suddenly realised that we didn’t have all the contact numbers of staff easily accessible anywhere, so we now have those ready, as well as next of kin.

Work through the likely progression of events, in terms of how you would communicate to staff and customers, whether via the website, social media, or directly. Also run through the absolute essentials you would need to keep operating, even if it is at a limited level. With The Brew, our members rely on us to keep their businesses up and running, so it would be unacceptable for us to be unprepared.

Nobody likes to think about being hit by something that could derail their business, but it’s a vital part of the job. And once you have a plan in place, you’ll benefit from the peace of mind of knowing you’re prepared, whatever the world throws at you.

Andrew Clough is founder and managing director, The Brew

Further reading on your contingency plan

Disaster recovery plans and small businesses

Owen Gough, SmallBusiness UK

Owen was a reporter for Bonhill Group plc writing across the Smallbusiness.co.uk and Growthbusiness.co.uk titles before moving on to be a Digital Technology reporter for the Express.co.uk. More by Owen Gough

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Your job title should never be based on your own view, and how comfortable you feel being referred to by a certain position

Nick Johnson

contingency plan for small business example

Employing & managing staff

Five areas of UK employment law businesses must be aware of

Before taking on any employees, it’s important to grasp the basics of employment law. In this piece, we look at what you need to know

Matt Gingell

contingency plan for small business example

10 employment law changes that you should know about

Kate Palka, employment and commercial solicitor from The Legal Director, talks us through current and future employment law changes

contingency plan for small business example

Using an NDA in your small business

NDAs or non-disclosure agreements are becoming increasingly common. When should you use them? And are they even enforceable?

Brett Lambe

contingency plan for small business example

What are the new rules on calculating holiday pay for seasonal workers?

The Harpur Trust v Brazel case has challenged the way that seasonal and part-year worker holiday pay is calculated. What should you do now?

Donna Obstfeld

IMAGES

  1. FREE Contingency Plan Template

    contingency plan for small business example

  2. How To Write A Contingency Plan For Your Small Business

    contingency plan for small business example

  3. What is a Business Contingency Plan

    contingency plan for small business example

  4. 40 Detailed Contingency Plan Examples (& Free Templates) ᐅ

    contingency plan for small business example

  5. 40 Detailed Contingency Plan Examples (& Free Templates) ᐅ

    contingency plan for small business example

  6. 40 Detailed Contingency Plan Examples (& Free Templates) ᐅ

    contingency plan for small business example

COMMENTS

  1. Contingency plan examples: A step-by-step guide to help your business

    Contingency plan examples: A step-by-step guide to help your business prepare for the unexpected IBM Maximo July 12, 2023 By Mesh Flinders 7 min read Enterprises are often defined by how they deal with events that are out of their control.

  2. What Is A Contingency Plan & How Do You Create One?

    3 Contingency Plan Examples How To Create a Contingency Plan in 7 Steps Bottom Line Frequently Asked Questions (FAQs) Show more Many companies take the time to create a business plan...

  3. Free Contingency Plan Templates

    Strategic planning Free Contingency Plan Templates Get free Smartsheet templates By Joe Weller | March 25, 2021 (updated April 24, 2023) Contingency plans offer organizations a proactive strategy for resuming daily functions and operations following unforeseen events.

  4. 40 Detailed Contingency Plan Examples (& Free Templates)

    / Project management / Contingency Plan Examples 40 Detailed Contingency Plan Examples (& Free Templates) Good strategies always involve a contingency plan in case the original plan backfires. In some cases, the original plan may not be as successful as you expect which is why you need a contingency plan example to achieve the same goal.

  5. What is a Business Contingency Plan

    Step 1: List down the key risks 2.2. Step 2: Prioritize the Risks Based on Their Impact 2.3. Step 3: Create Contingency Plans for Each Event 2.4. Step 4: Share and Maintain the Plan 3. What's Your Take on Contingency Plans? What is a Business Contingency Plan? But first, let's define what a contingency plan is.

  6. What is a contingency plan? A guide to contingency planning

    A guide to ... What is a contingency plan? A guide to contingency planning Julia Martins January 16th, 2024 10 min read Jump to section Summary A business contingency plan is a backup strategy for your team or organization.

  7. What Is Contingency Planning? [+ Examples]

    Manage cookies What Is Contingency Planning? [+ Examples] Flori Needle Published: January 13, 2023 The COVID-19 pandemic has shown, more than ever, the importance of being prepared with a contingency plan for the unexpected, especially when it comes to business continuity.

  8. How To Write A Contingency Plan For Your Small Business

    For example, when the computer system at your business breaks down, you know who to contact right away to get the computer system up and running. What is a Contingency Plan?

  9. What Is a Business Contingency Plan?

    Photo: vitapix / Getty Images A business contingency plan is a course of action that will be taken if an unexpected event occurs that could disrupt the business. It's a backup plan that ensures the business can continue to operate despite an adverse event. What Is a Business Contingency Plan?

  10. What Is a Business Contingency Plan and How to Create One

    Risks can include a global pandemic, natural disaster, loss of a key employee, supply chain breakdown, a new competitor, and more. You can think of a business contingency plan as a Plan B or disaster recovery plan. It gives your business something to fall back on in case things don't go as planned.

  11. How to Create a Contingency Plan for Your Small Business

    Being ready to deal with negative events like a natural disaster is a common contingency plan example, but you also need to be prepared when unexpected good fortune comes your way. If a...

  12. How to Implement a Contingency Plan for Your Small Business

    The first step for developing a contingency plan is to assess the risks. Consider all possible angles and think of what the worst-case scenario might be for each one. Possible threats that a small business may face include: Natural disasters: Depending on where your business is located, you may face floods, fires, tornadoes or earthquakes.

  13. 3 Examples of a Contingency Plan

    The following are illustrative examples of a contingency plan. Event The organizers of an industry conference identify major risks that could derail the event with a contingency plan that includes a risk response and preparation steps. Operations

  14. How To Create A Good Contingency Plan

    Get started What is a contingency plan? A contingency plan is a predefined set of actions that you will implement in response to specific future events that put your project or business at risk. A simple example of a contingency plan is to back up all your website data.

  15. Example of a Business Contingency Plan

    Example of a Business Contingency Plan Small Business | Business Planning & Strategy | Business Plans By Patrick Gleeson, Ph. D., Updated February 04, 2019 Every business depends...

  16. How to Create a Financial Contingency Plan for Your Business

    6. Consider the capital requirements first. The typical approach to contingency planning is to decide what's best for the business first and then think about where the money to implement the plan will come from. However, when creating a financial contingency plan for a startup, the probability of accessing the capital you need is relatively low.

  17. Contingency Plan Example (With Benefits and Planning Tips)

    A contingency plan example is a model scenario demonstrating how a business can prepare for different risks and respond to them. These examples can serve as a template for preparing your own plan.

  18. Business contingency plan example

    This business contingency plan example template can help you: - Understand your organization's contingency plan more clearly. - Communicate the plan to everyone who could potentially be affected. - Prepare your organization to handle anything unexpected. Open this template to view a detailed example of a business contingency plan that you can customize to your use case.

  19. Contingency Plan

    A contingency plan is a backup plan or a fallback option that is put in place to help businesses prepare for and manage unexpected events or disruptions. The objective of it is to minimize harm and facilitate a quick recovery. It outlines the steps that will be taken and the resources that will be mobilized in an emergency.

  20. What Is a Business Contingency Plan?

    A business contingency plan is designed to prepare for a worst-case-scenario situation. It anticipates the unexpected, and creates a series of clear steps and objectives that are necessary to ...

  21. What Are Contingencies and Contingency Plans? Definition and Examples

    Contingency is a potential negative event which may occur in the future such as a natural disaster, fraudulent activity or a terrorist attack. In finance, managers often attempt to identify and ...

  22. 7 Business Continuity Plan Examples

    Business continuity plan example for small business Imagine a small business specializing in digital marketing services, with a significant portion of its operations reliant on continuous internet connectivity and digital communication tools.

  23. Why every small business should have a contingency plan

    Putting a contingency plan in place not only gives you the peace of mind that everything could continue in your absence, or without key members of your team. It also makes for a better run and more organised business. Forcing yourself to have everything documented centrally builds a greater awareness of roles and responsibilities across the ...