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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 . We have heard the term “Plan B” before and this in its simplest way, is a contingency plan.

Table of Contents

• 1 Contingency Plan Examples
• 2 What is a contingency plan?
• 3 Contingency Plan Templates
• 4 When to use a contingency plan?
• 5 Using a contingency plan example in risk project management
• 6 Business Contingency Plan Templates
• 7 Steps in contingency planning
• 8 Creating your contingency plan
• 9 Contingency Plan Samples
• 10 The challenges that may come with contingency planning

What is a contingency plan?

The steps taken by an organization when an unexpected situation or event occurs is a contingency plan. A contingency plan example may be positive like when there’s an unexpected surplus in the cash flow. But more often than not, the contingency planning process mostly refers to negative events.

The events which might have a bearing on the organization’s financial health, reputation or on its ability to continue with business operations. Such events may include natural disasters, fire, network failure, and a data breach, to name a few.

Having a contingency plan template helps you make sure that there’s always a continuity in the business. Most of the bigger business organizations have sets of business contingency plan templates for various potential threats. These undergo extensive research and the resulting appropriate responses get subjected to full practice even before the crisis occurs.

You can consider a contingency plan as a proactive approach as compared to crisis management, which is more of a reactive approach. Having a contingency plan ensures that you’re always prepared for any eventuality. Conversely, a plan for crisis management enables you to control the response after the eventuality occurs.

Contingency Plan Templates

When to use a contingency plan?

Also, keep in mind that the design of a contingency plan template is only for risks that can you can identify and not for unknown or unidentified risks. This is for the simple reason that you cannot make a plan if you don’t know the risk.

It’s also worth noting that contingency plans don’t only exist in anticipation should things go wrong but you can also create one to make the most of strategic opportunities.

For instance, you have come to know of a new type of software for training that’s about to get released soon. Should this occur during the project, you can create a contingency plan on how to include this into the training stage of your project .

Using a contingency plan example in risk project management

As mentioned earlier, a contingency plan example responds to a negative event that might affect or tarnish the reputation of an organization or its financial standing. In business, however, a business contingency plan template isn’t always negative. There are cases of positive contingency plans too.

Also, keep in mind that the contingency planning process is a proactive strategy, unlike crisis management which is a reaction to something that has happened. A contingency plan accounts for any disruptive events to ensure that the company is always prepared if and when such events should occur.

Contingency plans are usually part of the risk management department and project managers should know that the plan is simply an outline. However, there are times when the project may extend beyond this. This means that the manager can be more prepared to make changes in the plan if he deems it would be more effective.

Risk management isn’t the same as the contingency planning process. Risk management is more about establishing, assessing, mitigating, avoiding, sharing, transferring, and accepting risks, whereas a contingency plan focuses on developing steps for when a risk occurs. But they share a common aspect. They both describe the steps to take in such an occurrence.

In its simplest form, a contingency plan definition is what you should do when an unexpected event takes place. Simpler still is “What if….?”, then creating an outline of the steps that answer this question.

Business Contingency Plan Templates

Steps in contingency planning

Project management always involves several entry points for risks that you have to consider for a contingency plan example. Here are some risk factors that you should take into account for a contingency plan template:

• The physical aspect where losses can happen caused by damage to facilities, equipment or information because of natural disasters or an accident.
• Technical issues may be a risk factor too, where the system stops functioning as needed for the delivery of the project as scheduled and within the budget.
• Human resources can be another risk too as teams may leave projects, get sick or get terminated.
• In a much larger scale, risk factors beyond the project manager’s control are social and political changes. As an example, you can work with a contract which can drastically change depending on who’s in control. Nothing remains stable with risk factors. Communities can even protest against projects and bring them to a halt.
• There are also liability issues where there are potential threats in the form of compensation plans and legal actions.

Here are the basic steps in the contingency planning process:

• Make it a point to know which resources can you use in the event of an emergency and in which part of the contingency plan you can apply these resources.
• Identify important dates that, if you miss, might negatively affect the plan. For instance, getting approval from committees which rarely meet.
• Know your plan. Check its weaknesses and strengths. Identify slack which you may find.
• Check for any points in the plan where you can apply alternative routes and evaluate each scenario to make your plan more flexible.
• Use your knowledge and experience in discerning patterns in the ebb and flow of the activities in your project to make it more efficient.

Creating your contingency plan

You need a lot of planning and research when creating a contingency plan example. But planning ahead, with each plan makes things easier for you. When creating one for your company, follow these steps:

• Identify your resources and prioritize them Do research throughout the organization so you can identify then prioritize the integral resources in your organization.
• Identify the most significant risks You need to identify any potential threats to the researched resources. If you need to, meet with executives, and employees to get more a holistic picture of how events can affect your resources. To be more precise, bring with you a consultant or a specialist in the identification of risks.
• Draft a contingency plan template Although you may come up with plans for each of the risks individually, it’s recommended to begin with the threats you consider high priority. This refers to the ones which have a high likelihood of occurring and would have the most significant impacts. As time goes by, you may start working toward coming up with plans for the lower-priority risks. When drafting plans for identified risks, start asking yourself about the steps to take so that the organization can go back to normal operations. Take into account factors like employee activity, communications, timelines , and staff responsibilities. Based on these, you can then make a plan for each of the risks.
• Share the plans Make sure that all employees and stakeholders have access to each plan as soon as you’ve completed them and had them approved. You may want to consider using a mobile application for this very important step. This could make the contingency plan together with similar documents directly available to all of the employees through their mobile service. This method also ensures that every employee has easy access to the updated plans for when the need arises.
• Maintain the plans As the organization undergoes changes, make sure that you reflect such changes in your business contingency plan template. There’s also a need to rehearse the plan with stakeholders regularly so that the key players know their roles and responsibilities.

Contingency Plan Samples

The challenges that may come with contingency planning

Managers will always get confronted with challenges that they should consider before and while creating contingency plans. These challenges include:

• Only focusing on “Plan A” By nature, people only want to work on a single solution. This may be the reason why a contingency plan doesn’t get the proper attention it deserves. They all hope “Plan A” succeeds and they think that focusing too much on “Plan B” might potentially be damage their success. As managers, they should stress how important a contingency plan is as it serves as your safeguard to help facilitate success instead of obstructing it. This means that the contingency plan should never get shelved. Instead, you must make it readily accessible.
• A small probability of using the plan Because of the small probability that you will ever use the contingency plan, many believe there’s no urgency in creating one. That means the plan could find itself at the very bottom of the company’s list of tasks if anyone will create it at all. There is a need for this plan for any project, even if the company has to invest a little more in it. When you decide to create a comprehensive contingency plan, you will feel the pay off when you end up needing it.

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

Updated: Jun 15, 2024, 12:20pm

Table of Contents

What is a contingency plan, benefits of contingency planning, 3 contingency plan examples, how to create a contingency plan in 7 steps, bottom line, frequently asked questions (faqs).

Many companies take the time to create a business plan and then follow it. This is touted as a way to achieve your goals successfully. However, unexpected incidents can derail the plan’s progress. This is why a contingency plan is so important. Learn what a contingency plan is and how to go about creating one for your company.

A contingency plan is a “plan B” that helps a business address specific situations or incidents that may or may not be out of its control. A contingency plan is the way that your team should react if there is something that interrupts the normal course of business. Contingency plans are often found as part of emergency planning, disaster recovery and risk management. It’s important to know how you want to proceed when the situation prevents you from running things as business as usual.

Contingency Planning vs. Crisis Management

Contingency planning is the process of creating a backup plan or several possible plans. This differs from crisis management, which is the actual response to a crisis. The actual response often utilizes one of the contingency plans created but addresses the incident in real time.

Contingency Planning vs. Risk Management

Contingency planning and risk management are closely related but different processes. Contingency planning addresses the “what if” situations and develops a plan that will work around those situations. Risk management is a proactive approach that companies use to prevent loss or disasters. So rather than being reactive like a contingency plan, a risk management plan looks to stop adverse events from happening in the first place.

Businesses need to be agile to remain successful in a variety of market and work conditions. Here are some benefits of contingency planning that you should consider:

• Saves time: Management is not stopping to develop a plan. All they need to do is assess the situation and implement the contingency plan.
• Saves money: Downtime for a business is costly. Contingency plans limit the costs of being forced on the sideline.
• Quick recovery time: Contingency plans redirect everyone so what they are doing is productive despite the adverse incident.
• Minimizes damages: A contingency plan can reduce the effects of a disastrous situation that would otherwise lead to massive damages to the business’s property and equipment.
• Avoid negative press: When things go wrong, the press can get wind of it, which can be negative publicity for the company. Contingency plans keep the business running with minimal impact on operations.

Let’s look at some examples to illustrate better why contingency plans are necessary and how businesses reacted.

Example 1. A Pandemic Hits

The Covid-19 pandemic forced many businesses to come up with a contingency plan on the fly. Many white-collar jobs were sent home for employees to do their job from the safety of their homes. Other businesses, such as restaurants, had to pivot to expanding their take-out operations and slowly opening up dining experiences.

Example 2. A Supplier Has a Delayed Shipment

Many businesses rely on a supply chain to provide certain materials in order to create and deliver their products. When there is an issue with the supply chain, the business must be prepared to deal with it. This could mean shifting a marketing focus on other products not affected or anticipating delivery delays and notifying customers of the issues and perhaps offering them a promotion for their patience.

Example 3. Majority of Staff Calls In Sick on the Same Day

When a bug is going around, it can be challenging to keep it from affecting your entire staff. If it happens that everyone gets sick on the same day, you need to have a plan in place to address the issue. This could mean having a temporary staffing agency already vetted out for help or having the employees who are on duty do double duty, taking on additional tasks to get the job done.

Creating a contingency plan doesn’t need to be difficult. Follow these seven steps to develop your contingency plan, from creating a policy state and implementing preventive controls to testing and training employees and maintaining your contingency plan.

Here’s how to create a contingency plan in seven steps:

Step 1. Create a Policy Statement

A policy statement is the outline of the authorization that exists to develop a contingency plan. This might be something as simply stating a possible scenario and noting that owners have put this plan in place.

Step 2. Conduct a Business Impact Analysis

This step digs into what would happen if no contingency plan existed. It prioritizes the systems that are imperative to the business functions.

Step 3. Implement Preventative Controls

This step is designed to mitigate any adverse scenario’s impact on the business. The goal is to reduce the costs associated with running the business on a contingency plan basis.

Step 4. Develop Contingency Strategies

These are recovery strategies that help the business ensure that it will recover quickly and efficiently after a disruption occurs. Contingency strategies may be specific to the type of disruption that happens.

Step 5. Write Out the Contingency Plan

This step takes the strategies and writes out an action plan that is designed to overcome the disruption. It is a detailed response that allows the business operation to continue to work.

Step 6. Test and Train Employees

Every contingency plan should be shared with employees well in advance of needing to enact the plan. Employees should be trained on what to do in specific scenarios and help keep the business operations running as smoothly as possible.

Step 7. Maintain the Plan

Keep the plan updated based on current systems and organizational changes. You don’t want to implement the plan and then run into a hiccup because a key employee is no longer with the firm or the system doesn’t allow you to do what you want to do.

You can’t control many disastrous situations that can occur, but you can plan for them. Remember to think about your resources and how you can overcome obstacles to keep your business operations running smoothly after a disaster happens.

What is the purpose of a contingency plan?

A contingency plan exists to deal with unexpected adverse situations, which are often disasters that disrupt your ability to run your business.

What is a good contingency plan?

Good contingency plans address the many possible disasters that may happen. It might address natural disaster scenarios or supply chain issues. A good contingency plan helps you address many different types of disruptions.

What is another term for contingency?

Other terms for contingency planning include crisis management, emergency planning and risk management.

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What Is Contingency Planning? [+ Examples]

Updated: January 13, 2023

Published: April 30, 2021

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.

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.

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.

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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

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 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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What is a Contingency Plan & How Do You Create One? [2024]

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, also known as an alternate plan or plan B, 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?

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 planning vs. crisis management

Contingency planning and crisis management both aim to maintain continuity of operations but serve different functions. Contingency planning involves preparing detailed, strong contingency plans before issues arise, ensuring your business returns to normal operations as soon as possible.

While crisis management deals with imminent threats and the emergency response plans needed during an actual crisis. An example of this could be the Department of Justice’s post-disaster recovery plan.

Contingency planning vs. risk management

While both are integral to strategic planning, contingency planning focuses on developing adequate plans and actionable responses for potential disruptions, like having a backup strategy for normal operations.

Risk management , on the other hand, involves ongoing oversight of potential risks and implementing practices to mitigate them, ensuring that business operations and essential services continue smoothly.

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

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 action 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 backup 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 a variety of negative events including:

• Natural disasters
• Technological failures
• Economic downturns
• Supply chain disruptions
• Sudden market changes
• Public health emergencies
• Government shutdowns

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 key 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 be 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.

( 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)

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 of 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. Test the contingency plan

Once you create a detailed plan it’s super important to actually test it to make sure that it will work as your intend it during a crisis. These tests help identify any weaknesses and ensure that all parts of the plan are actionable.

For example, running simulations for your drought contingency plan or pandemic contingency plan enables you to reassess and refine your recovery strategies. This preparation is essential to keep normal operations intact and provide critical services like medical services and operational HR services without interruption.

7. 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 about your contingency program on your shared internal communication channels.

8. 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.

This involves conducting a business impact analysis to update key elements of the plan and ensure that recovery strategies are robust. Regular reviews also provide the opportunity to incorporate new insights and improvements, guaranteeing that your contingency plan remains a reliable tool for maintaining business operations and navigating through times of crisis.

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 

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.

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

You need to minimize potential threats to your business by creating a comprehensive contingency plan for each business unit for every unforeseen event.

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.

Is a contingency plan the same as a backup plan?

A contingency plan is sometimes called a backup plan because it involves an alternative list of actions or activities to do in case of an emergency or if an unexpected risk occurs to a business.

What should a good contingency plan include?

A good contingency plan should include a comprehensive business impact analysis, identifying key risks and their potential effects on normal operations. It must also outline actionable response plans, recovery strategies, and the roles and responsibilities of team members during an emergency.

What comes after a contingency plan?

After creating a contingency plan, the next step is to implement and regularly test the plan to ensure its effectiveness. Continuous monitoring and periodic reviews are essential for updating and refining the plan based on new risks and evolving business needs.

Who writes a contingency plan?

Typically, a contingency plan is written by a team of experts, including senior management, risk management professionals, and department heads responsible for critical business functions. Collaboration with various stakeholders ensures the plan covers all aspects of business operations and provides a comprehensive emergency response strategy.

How long is a contingency plan?

The length of a contingency plan varies depending on the complexity and size of the organization, as well as the scope of risks addressed. Generally, it is detailed enough to cover all essential business operations, but compact enough to be practical and actionable during an emergency.

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The Easy Guide to Creating a Business Contingency Plan

Updated on: 2 October 2024

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 mind mapping tool 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.

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.

Step 3: Create Contingency Plans for Each Event

In this step you’ll create separate plans that outline the actions using action plan template , 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 and timeline maker to create timelines. It would be easier for everyone to comprehend.

Step 4: Share and Maintain the Plan 

Once you have completed the contingency plans using work plan template , 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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Businesses need a plan to get back on track when a disaster interrupts daily operations. Contingency plans, also known as “business continuity plans,” “emergency response plans” and “disaster recovery plans” help organizations recover after a disruption.  

Whether they’re preparing for a global outbreak of a deadly virus, crisis management around a data breach or the loss of an important client, contingency plans help organizations bounce back after a negative event.

Companies create many kinds of recovery strategies for everything, from the merger of key competitors to the insolvency of the bank that processes its employee payroll. In India, the government was busy designing a contingency plan as a drier-than-expected monsoon season approached.¹ Meanwhile, in Hong Kong, a large bank was preparing a plan b in case a host of new sanctions were levied as the result of a recent geopolitical development.²

This guide summarizes what sustainability-forward organizations look for in their ESG software platform to help achieve their goals.

Register for the ebook on ESG reporting frameworks

Here are five steps companies use to create effective business contingency plans.

The contingency planning process begins with a risk assessment to gauge the potential impact of each risk. Typically, business leaders and employees conduct risk analysis.

Team members begin with a brainstorming session where they discuss potential risks, courses of action and the company’s overall preparedness. During this stage, it’s important to be clear about the scope of the project and invite all relevant stakeholders to give input. Companies don’t need to create a risk management plan for every threat they face, just the ones deemed highly likely and with the potential to interrupt business operations.

Effective business impact analysis (BIA) is critical to understanding different business functions and how they will react to unexpected events. For example, while a shortage in micro-processors might be devastating to a part of a business that deals with the manufacture of gaming consoles, it likely has little to no impact on the same company’s HR department.

To assess the urgency of creating an action plan for this specific threat, the company would need to know how much of its revenue was being generated from the part of the business threatened by the microprocessor shortage. If gaming consoles are a high percentage of their revenue, they will put a strong plan in place soon.

A well-developed BIA helps stakeholders assess risk and better understand which parts of their business are most critical to daily operations.

After identifying the risks their company faces, determining the likelihood and severity of each risk and conducting a BIA, business leaders can follow a simple, three-step process to build their backup plan.

Identify the triggers that set their plan into action: For example, if a hurricane is approaching, at what point does the approaching storm trigger the contingency plan? When it’s 50 miles away or a 100? They must make clear decisions so the teams they put in charge of execution know when to start their work.

Design an appropriate response: The threat the business prepared for arrives. Teams must know exactly what’s expected of them so the company can recover quickly. Compile clear, accessible instructions, protocols that are easy to follow and a way for everyone to communicate with each other.

Delegate responsibility clearly and fairly: Like any other initiative, contingency planning requires effective project management to succeed. In the case of an existential threat such as a natural disaster, everyone involved in helping the company recover must know their role and be properly trained to perform it.

For example, in the case of a fire, it wouldn’t be fair to expect employees untrained in firefighting to pick up a hose. However, with the right training, they might conduct headcounts or go floor-to-floor to ensure that other employees have evacuated.

One way to improve workflow among teams when designing a plan is to create a RACI chart . RACI stands for responsible, accountable, consulted and informed and is a widely used process to help teams and individuals delegate responsibility and react to crises in real time.

While it can be hard to justify the importance of putting financial resources into something that might never happen, these past few years have taught us the value of good contingency planning. Think of all the supply chain problems, critical shortages of personal protective equipment and financial havoc wreaked by the pandemic. What would have been different if organizations had had effective contingency plans in place?

Cost and uncertainty are significant barriers when convincing business leaders of the importance of making an investment in contingency planning. Since all costs for contingency plans are estimated—there’s no way of knowing precisely how events will disrupt a business—decision-makers are understandably hesitant.

Different industries have different ways of approaching this problem. In the construction industry, it’s common to set aside 10% of the overall budget of a project for contingencies. Other industries use different methods.

One popular method estimates risks according to a percentage of how likely they are to occur. By this method, if there’s a 25% risk of an event occurring that will result in USD 200,000 in recovery costs, the company must set aside 25%—or USD 50,000—to be in compliance with their contingency plan.

Markets and industries are constantly shifting, so the reality that a contingency plan faces when it is triggered might be different than the one it was created for. For example, after the 9/11 terror attacks, many of the contingency plans that the US government had in place were suddenly irrelevant because they had been prepared decades before.

To avoid a similar disconnect between plans and threats, businesses need to constantly test and reassess the plans they’ve made. For example, IBM’s guidelines mandate that plans should be tested at least once annually and improved upon as necessary. If new risks are discovered and their severity and likelihood is deemed high enough, the old plans might be scrapped altogether.

When businesses are hit with an unexpected disruption, a strong contingency plan gives much-needed structure to the recovery process. Disruptive events cause chaos and decision-makers and employees are often left scrambling to understand what is happening and how best to respond to it. Having a strong plan to turn to can help restore confidence and show the way forward.

Here are a few benefits business leaders who create strong contingency plans can expect:

Businesses that create strong plans recover faster from a disruptive event than businesses that don’t. When a negative event occurs, the faster the business recovers and gets back to business-as-usual, the lower the risk to the company, its customers and its employees.

A good contingency plan minimizes the damage to a company—both reputational and financial. For example, while a data breach will undoubtedly damage a bank’s reputation, as well as its bottom line, how the bank responds will play a critical role in whether its customers decide to continue doing business with it.

Many organizations use a strong contingency plan to show employees and customers that they take preparation seriously. By planning for a wide range of potentially damaging events, business leaders can show investors, customers and workers that they’ve taken the necessary steps to minimize risk.

Many plans focus on natural disasters such as floods, earthquakes or fires. Others deal with data breaches, unexpected network downtime or the loss of a key employee such as a CEO or founder. Here are a few examples of contingency plan templates that deal with broadly different scenarios across a range of industries.

Severity and likelihood of risk: The manufacturers have been following the news in a region where they source specific airplane parts and have deemed the likelihood of disruption there “high.” They initially conduct a search for another supplier but quickly learn that it takes months—even years—to find one. Since the part is necessary for the construction of all their airplanes, they label the severity of this disruption “high” as well.

Trigger: Suppliers make the manufacturer aware that they will soon run out of the needed part due to a disruptive geo-political event in its country of origin.

Response: The manufacturer begins the search for a new supplier of the much-needed part in a more stable country.

Severity and likelihood of risk: The managers of a bank know of a vulnerability in their app that they are working to fix. If the app is hacked and their information systems are compromised, they are likely to lose vital customer data. They rate the likelihood of this event as “high” since, as a financial institution, they are a desirable target.

They also know from watching their competitors face similar situations that the potential for disruption to their business in an event like this is great. They rate the severity of this risk as “high” as well.

Trigger: IT makes the bank’s managers aware that the bank’s app has been hacked and their customers’ data is no longer secure.

Response: The app is immediately shut down and customers are notified that their data has been compromised. They are made aware of the steps that the bank is taking to ensure that they have access to their money and that their personal information is not available to anyone on the dark web. An on-call team of specially trained security experts come in to restore the bank's systems and secure customer information.

Severity and likelihood of risk: The plant’s managers know that severe flooding might spread un-treated water into the city’s streets and public waterways. Both the severity of this risk and its likelihood given the impending storm are deemed “high. ”

Trigger: The hurricane’s path turns toward the city and approaches to less than 100 miles away with wind speeds higher than the threshold rated “safe.” The plant’s contingency plan is put into action.

Response: All necessary workers are recalled to the plant 24/7 and measures are taken to treat as much of the water as possible before the hurricane arrives. According to their plan, whatever is left over will be pumped into holding tanks that are designed to withstand a hurricane. When windspeeds rise to a certain velocity, the plant itself is shut down and all workers evacuated.

Help your business respond quickly to changing conditions with IBM Maximo, an integrated cloud-based solution that harnesses the power of artificial intelligence (AI), Internet of Things (IoT) and advanced analytics to maximize performance and minimize costs and downtime.

Learn more about the process of disaster recovery planning and Disaster-Recovery-as-a-Service.

Discover how global supply chains responded to the COVID-19 pandemic and are developing better ways to balance efficiency and resilience.

See how businesses are leveraging AI and other emerging technologies to maintain business continuity amid disruption and uncertainty.

Unlock the full potential of your enterprise assets with IBM Maximo Application Suite by unifying maintenance, inspection and reliability systems into one platform. It’s an integrated cloud-based solution that harnesses the power of AI, IoT and advanced analytics to maximize asset performance, extend asset lifecycles, minimize operational costs and reduce downtime.

1  “ El Nino contingency plan being readied for farmers and output ” (link resides outside ibm.com), Elara Securities Pvt Ltd., 27 April 2023.

2  “ HKMA has prepared contingency plans in case of severe sanctions ” (link resides outside ibm.com), UBS Global Research and Evidence Lab, 5 May 2022.

An overview of business contingency plans

Reading time: about 3 min

Natural disasters, data hacking, theft—your organization has likely prepared for major catastrophes.

Less significant events can also be majorly disruptive—say your biggest customer suddenly switching to a competitor or your entire sales staff getting food poisoning at their annual retreat.

Many circumstances have the potential to disrupt, or worse, shut down your business. A business contingency plan can save the day. Follow the steps below to develop a business contingency plan that will help you stay prepared for the worst.

What is a contingency plan?

A contingency plan is a roadmap created by management to help an organization respond to an event that may or may not happen in the future—whether it’s a large-scale event like a natural disaster or a small-scale roadblock like employee theft.

The purpose of a business contingency plan is to maintain business continuity during and after a disruptive event. A contingency plan can also help organizations recover from disasters, manage risk, avoid negative publicity, and handle employee injuries.

By developing a contingency plan, your business can react faster to unexpected events. The faster your organization is able to get back up and running, the less impact you'll see on profits and revenue.

How to write a contingency plan

There are many factors to consider when building a contingency plan. These four steps are a good place to start preparing for the unexpected.

1. Identify the risks

Before you can prepare for a disaster, you need to understand what types of disasters you’re preparing for. Think about all the possible risks to your organization, including natural disasters, sudden changes to revenue or personnel, or security threats.

2. Prioritize the risks

Make sure you spend your time and resources preparing for events that have a high chance of occurring as you write and develop your contingency plan. For example, you may have listed earthquakes as a possible risk. However, if your area doesn't experience many earthquakes, you wouldn’t want to spend all your time preparing for this event. If your area is prone to flooding, you should spend more of your resources preparing for floods.

To determine which risks are more likely to occur, use a risk impact scale . This will help you to estimate the likelihood that an event will occur and determine where to focus your efforts.

3. Develop contingency plans

Once you’ve created a prioritized list, it’s time to put together a plan to mitigate those risks. As you write a contingency plan, it should include visuals or a step-by-step guide that outlines what to do once the event has happened and how to keep your business running. Include a list of everyone, both inside and outside of the organization, who needs to be contacted should the event occur, along with up-to-date contact information.

You can also create a list of ways to minimize the risk of these events now and start acting on it. 

4. Maintain the plan

Maintenance of your contingency plan is arguably the most important part of the process because it’s where the work happens to ensure you’re always ready.

Review your plan frequently. Personnel, operational, and technological changes can make the plan inefficient, which means you may need to make some changes.  

You’ll want to communicate the plan to everyone who could potentially be affected and clearly define what everyone's roles and responsibilities will be during a time of crisis. 

Buniness contingency plan example

To help you prepare for the unexpected, get started with these business contingency plan examples below. 

Ready to get started? Business contingency plans help you prepare your organization to handle anything unexpected. Give your employees a realistic plan for how they should handle any problem that arises. 

Learn the 5 steps to an effective risk management process.

About Lucidchart

Lucidchart, a cloud-based intelligent diagramming application, is a core component of Lucid Software's Visual Collaboration Suite. This intuitive, cloud-based solution empowers teams to collaborate in real-time to build flowcharts, mockups, UML diagrams, customer journey maps, and more. Lucidchart propels teams forward to build the future faster. Lucid is proud to serve top businesses around the world, including customers such as Google, GE, and NBC Universal, and 99% of the Fortune 500. Lucid partners with industry leaders, including Google, Atlassian, and Microsoft. Since its founding, Lucid has received numerous awards for its products, business, and workplace culture. For more information, visit lucidchart.com.

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How To Create a Business Contingency Plan for the Unexpected

A business contingency plan is a strategy for how your company will respond quickly to disruptive events so it can keep operating.

A plan for the unplannable. It sounds like an oxymoron, but that’s the concept behind a business contingency plan: Preparing for potential risks to your company to ensure as much business continuity as possible, even when the unexpected happens.

Every business faces upheaval, disruption, and unanticipated setbacks, some more surprising or serious than others. No matter the scope of these potential events, you can take steps to protect your company. Here’s what to know about a business contingency plan and how to develop a successful playbook—even if you hope never to use it. 

What is a business contingency plan?

A business contingency plan (or business continuity plan ) is a strategy for how your company will respond quickly to disruptive events and keep operating. A comprehensive plan lays out the steps management, employees, and other stakeholders would take in multiple scenarios to help minimize the impact on day-to-day operations and quickly recover. Minor unexpected events might include a technical failure that leads to a website outage for several hours or an illness sweeping through your customer service team and leaving it shorthanded.

Contingency plan vs. risk management

Contingency planning is related to risk management , though they differ in several important ways. A business contingency plan provides for a tactical response to a specific disruption, and it’s focused on ensuring business continuity while helping the company recover as quickly as possible. By contrast, risk management is a broader and ongoing process: brainstorming all the possible risks to your company, assessing the likelihood of each one, and implementing strategies to reduce or manage the risks. 

Contingency plan examples

Planning for natural disasters is an example of a contingency plan. Say some of your employees are based in the Midwest, and a tornado touches down where three of your workers are based. The same might hold true if a hurricane strikes the Florida coast, where your business has a large office. A designated staffer contacts those affected and confirms they’re safe, but they can’t return to their duties until roads are passable, the power outage ends and Internet service is restored. Management then reassigns any critical operations like order fulfillment to other staffers, who have been trained and prepared for these tasks to ensure business continuity.

5 steps for creating a contingency plan

• Assemble the planning team and brainstorm key risks
• Perform a business impact analysis (BIA)
• Develop response and recovery strategies
• Test the plans and train staffers
• Regularly review new risks and update plans as needed

Here’s a step-by-step guide for developing a contingency plan:

1. Assemble the planning team and brainstorm key risks 

The contingency planning process should include not only management but key personnel: leaders from IT, procurement, human resources, sales, or any other relevant teams. Company-wide representation is an important aspect of any brainstorming session for identifying possible threats because these workers understand details of the organization’s operations and the biggest risks. An open dialogue about business risks is a good way to start to create contingency plans both comprehensive and successful.

2. Perform a business impact analysis (BIA)

Analyzing your business’s normal operations can help you identify the most significant potential threats across the entire organization. Which business functions and systems are most critical? What’s the potential financial, operational, or reputational impact of each specific risk? What’s the worst-case scenario for each aspect of the company’s operations? How could that cascade to other parts of the business? Answering these hypotheticals will help you prioritize and begin shaping mitigation plans.

3. Develop response and recovery strategies

You can now develop a mitigation plan and recovery strategies for each of the scenarios you’ve identified so far. The process will vary depending on the crisis you’re facing, but it could include establishing emergency response procedures, data backup, alternate supplier options, remote work arrangements, natural disaster recovery, and supply-chain crisis management. This process can include designating who’s in charge of crisis communications after an unfavorable event.

4. Test the plans and train staffers

Conduct plan testing through simulation exercises to assess your contingency plan’s strengths and weaknesses and to determine if there is any need for changes, or even a backup plan or Plan B. If the plan is revised, inform key staff and train them in the new protocols. This could include natural disaster and fire drills, mandatory employee training on cybersecurity best practices and crisis response, or cross-training some staffers to perform other duties if needed. 

5. Regularly review new risks and update plans as needed

Because risks evolve, revisit and revise your plan to be better prepared to avoid disasters. Periodically reviewing new risks is an essential step in plan maintenance and includes implementing lessons from internal or external incidents, adjusting for changes in staff and operations, and considering new technology or tools. 

6 types of contingency plans

• Information systems
• Crisis communications
• Health/pandemic
• Supply chain

Contingency plans are unique to each business, but there are several major types of contingency plans, including:

1. Information systems

This is a primary plan for many companies because most organizations depend on computers, data storage, and the internet for daily operations. Risks include system outages, cyberattacks, and data breaches. The contingency plan may cover data backups and recovery, system redundancies, and hacking response procedures.

2. Disasters

These plans often address both smaller-scale disasters and major so-called act-of-God events. Lower-impact possible risks might include incidents like a burst pipe that renders the main office unusable for several days, while high-impact potential risks may be a major natural disaster like a hurricane that destroys an office or ruins warehouse inventory. Mitigation strategies may involve ensuring worker safety, restoring information technology (IT) systems, shifting staffers or critical business functions to other sites, and other steps to get business back to normal as quickly as possible.

3. Financial 

This part of the contingency plan addresses financial events that may be internal to the company or macro external factors. Risks include inevitable periodic economic downturns, which can hurt customer spending power and demand for your products. Other risks may be internal and potentially more damaging, like employee theft of funds or inventory. Each results in financial loss for the company. Contingency plans might include maintaining a minimum cash reserve, tapping a bank line of credit to improve your cash position, or boosting sales with strategies like new revenue streams or adjusted pricing.

4. Crisis communications 

This portion revolves around clear internal and external communication in times of crisis. Risks include a lack of internal alignment on messaging, confusion among employees about the company’s response or their part in it, and negative external attention or press coverage that harms your brand or reputation. This plan should include processes for clear communication channels to staffers and external stakeholders, training and briefing of designated spokespeople, and establishing a chain of command to manage messaging and keep important parties up to date on the crisis as it evolves.

5. Health/pandemic

The sudden spread of COVID-19 spurred most companies to develop plans for managing a pandemic or other health crisis. Measures could include employee safety protocols, rules for entering the workplace, communication with stakeholders, and shoring up remote-work support and technology.

6. Supply chain 

Your company’s ability to produce products and services may depend on access to materials or suppliers. If so, risks include disruptions like raw materials shortages, supplier failures, and trade restrictions. Mitigation plans may involve securing backup suppliers, tracking logistics challenges in the market, and maintaining an emergency supply of inventory or materials.

Business contingency plans FAQ

Why does a business need a contingency plan.

Every business faces upheaval, disruption and unexpected setbacks. Preparing for these events with a contingency plan can help the entire team work together to stay calm, execute the plan, and ensure as much business continuity as possible.

What’s the difference between contingency planning and crisis management?

These concepts are related but not the same. Contingency planning is about a proactive strategy: developing a plan for coping with potential disruptions or crises in the future. Crisis management, by contrast, is reactive and in the moment: the actions taken in response to an event, which often includes implementing steps in the contingency plan, if one exists.

How do I avoid contingency planning pitfalls?

Businesses can take a few steps to avoid pitfalls in contingency planning: involve key stakeholders inside and outside the business to develop the plan; prioritize risks based on likelihood and impact on the business; test the plan and revise it as needed; conduct periodic, comprehensive risk assessments; and train employees and make the lines of communication clear in case of crisis.

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Free Contingency Plan Templates

By Joe Weller | March 25, 2021 (updated October 2, 2024)

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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

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

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

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

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

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

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

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

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

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

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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The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed. 

When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.  Try Smartsheet for free, today.

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5 Steps to Create a Contingency Plan for Your Business

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8 min. read

Updated August 12, 2022

Any business that survived the pandemic had to adjust, readjust, and rethink their business as they dealt with shutdowns, supply chain issues, and ever-changing customer behavior. At the time, it could be seen as crisis or recovery planning . However, intentionally or not, these businesses were proactively creating contingency plans.

What is a business contingency plan?

A business contingency plan is an established strategy or backup plan designed to help organizations respond to possible future events. This contingency planning process encourages you to consider business and financial strategies for potential risks well in advance. It’s basically a lean business plan that takes into account unexpected scenarios that could affect your business. 

Doing so ensures that you aren’t caught off guard. Instead, when a negative event occurs, you can jump right into successfully navigating your business. A contingency plan can even address larger potential issues such as a natural disaster, a global pandemic, or a major security breach. 

Your contingency plan will want to address and cover:

Financial scenarios

Financial “what if” scenarios are based on the contingency you are planning for. The important part is to include your projected Profit and Loss statements as well as your Cash Flow Forecast. Adjust these financial statements around a potential issue to better understand what course of action you’ll need to take.

Are there increased costs of goods and services or do you need to change your pricing? Should you add a fuel surcharge if the contingency involves higher gas prices? 

Strategy adjustments

Understanding the financial effects is the first step. Next, you’ll need to address how you will adjust your business and marketing strategy to navigate the contingency, you are planning for. This is when you go from risk management to creating a plan that helps your business thrive rather than recover.

What changes will you need to make to your staffing, advertising, and marketing budgets? Will you need to change how you sell, market, and support your products and services to address the adverse events? 

Why is a contingency plan necessary?

By putting together a contingency plan and addressing risks to your business, you will be prepared and able to best address those risks when and if they happen. The last few years have taught all small business owners that we have no idea what is ahead. That the best possible way to plan for the future is to be ready for anything. 

A contingency plan for your business will help you step through the what-if scenarios that you might encounter. To start putting together solid plans that will help you overcome risks, fast-track disaster recovery, and even ensure there’s business continuity in place. 

What if gas prices double, and your run a delivery business? A contingency plan could help you model the financial scenario, make sure you have the right access to credit lines to pay for the increased costs, and plan for the right gas surcharge to add to your customer deliveries. 

How to create a contingency plan for your business

Writing a contingency plan doesn’t have to be a huge or stressful ordeal. All you are doing is taking your lean business plan, and making some adjustments to the strategy and the strategic forecast to plan for uncertainty. Here’s a step-by-step guide to write your own contingency plan.

1. Identify and list the risks

In the past few years, all business owners have experienced risks they never saw coming. Trying to account for everything can be overwhelming and time-consuming. Rather than anticipating anything that could happen to your business, focus on the next few years. 

Start with a comprehensive list, putting everything down that could possibly happen to your business in the next 12-24 months. Loss of an employee, a dip in sales, equipment failure, rising shipping costs, insurance increases, etc. Depending on your business, it may also be beneficial to consider larger unforeseen risks such as natural disasters, cyber-attacks, and economic downturns.

We can all look back at the beginning of the pandemic and learn from the events. Use that knowledge to think about potential future risks and build your list.  

2. Prioritize key risks

Now that you have all those frightening potentials listed, it’s time to prioritize. You need to think about your key risks. The ones that are most likely to happen or will cause the greatest hardship to your business. Realistically you should prioritize no more than 3-5 key risks. 

Remember, you can always use these initial contingency plans to help you explore additional risks. More than likely, several risks will have similar effects on your business functions. It’s much easier to adapt your contingency plans once you have them rather than starting fresh every single time. 

3. Outline contingency plans for each risk

Now that you’ve done the prep work, it’s time to jump into developing your plan. Take your prioritized list and focus on building contingency plans that outline how you and your business will tackle each risk. Here is what you should include in your contingency plan:

Financial forecasts for each risk

To truly understand how a specific risk impacts your business operations, you’ll need a full financial forecast . This will account for what the risk will do to your revenue, expenses, or both. Having a clear picture of your potential financial situation will help you answer questions such as:

Don’t worry about creating these forecasts from scratch. Instead, start with your current financial forecasts, make a copy, and adjust projections based on what you expect to happen. Be sure to take note of what adjustments you make. This will make it far easier to update your forecast scenarios whenever you bring in more recent real-world performance data for your business. 

Looking for a better solution? Learn how you can save more time and ensure greater accuracy when adjusting to actual performance using LivePlan .  

The one-page plan

With your forecasts in place, you can begin to define the actions you will take. Keep things simple and easy to follow by creating a one-page strategic plan for each risk. In it, you’ll address how the effects of each risk will impact your operations, sales, marketing, milestones, and even funding needs. This will help you answer questions such as:

Document your 12-24 month road map and the key changes you need to implement to keep your business healthy. Keep it lean and actionable to ensure that you and your team will actually be able to use it when the time comes. The LivePlan Pitch page is a perfect place to outline your one-page strategy. 

4. Connect them to your overall business plan

You’ve considered the risks. You have contingency plans in place that include financial forecast scenarios and a one-page action plan. It’s now time to connect your contingency plans to your overall business strategy and business plan. 

Ideally, you should have a simple, lean business plan that is helping guide your business over the next 12-36 months. If not, take 30-minutes to develop one based on your current expectations for your business. This will make it far easier to update and use when facing the risks you’ve identified.

Take this business contingency plan example for instance. If your unexpected event is about a financial risk (such as a dip in sales), connect that contingency plan with your financial plan as a potential fork in the road. You can easily do this same exercise with the two to three more contingency plans you have already built out. 

The end goal is to make this quick and painless so that you can spend less time planning and more time acting when a crisis you’ve planned for occurs. 

Think of it like attachments for a tractor. Where you have all of the right buckets and tools to get your yard in tip-top shape. You’re prepared to jump right in and take on everything from mowing and digging to laying down new gravel. All you need to do is add the right attachments ahead of time. That’s exactly how you want your contingency plans to function with your current plan. 

5. Share, review and revise

Once you have integrated the contingency plans into your overall business plan, it’s time to get your team on board. You want to be sure that they understand the ins and outs of your business plan, and how each contingency should be executed when the time comes. 

So how do you get your team on board? Try these three simple steps:

You can check out our guide on how to conduct a monthly plan review meeting for a more thorough explanation of how to set up this process. 

Preparation is everything

The hard work is done. You have thought about potential hurdles your business might face and you have a plan. Your team is engaged and you now have a regular review schedule in place to keep your business on track. 

All you have to do now is implement your lean business plan, watch for obstacles, and be ready to use your contingency plans if needed. Don’t worry, your regular review meetings will help you track your actual results against your plan and will give you an opportunity to revise your plan if need be.  Check out how LivePlan can help simplify this process and help you make better business decisions in any scenario.

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Sabrina Parsons

Sabrina has served as CEO of Palo Alto Software since 2007. She and her husband, Noah, founded a UK software distribution company in 2001 that was acquired by Palo Alto Software in 2002. Sabrina is a successful Internet expert, having served as Director of Online Marketing at Commtouch, Senior Producer at Epinions, and founder of her own Web consulting company, Lighting Out.

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Contingency Plan

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Table Of Contents

Contingency Plan Meaning

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.

It aims to minimize the impact of unexpected events like natural disasters, cyber-attacks, and equipment failures. By developing and implementing it, an organization can increase its resilience to unforeseen events and better prepare itself for future challenges.

Table of contents

Contingency plan in business explained, advantages and disadvantages.

• Contingency Plan vs. Mitigation Plan vs. Business Continuity Plan 

Frequently Asked Questions (FAQs)

Recommended articles.

• A contingency plan is a critical component of an organization's risk management strategy that outlines a plan for responding to unexpected events and minimizing their impact. 
• It includes risk assessment, response strategies, resource allocation, communication and training, testing and review, flexibility, and trigger points.
• It should be based on a comprehensive assessment of the organization's risks and threats. In addition, this assessment should consider each event's likelihood and potential impact.

The contingency plan for project management is critical to an organization's risk management strategy, as it helps minimize events' impact and ensure business continuity. Therefore, it is an essential aspect of an organization's risk management strategy.

Its importance can be seen in the following ways:

• Minimize harm : By anticipating potential unforeseen events, it helps organizations minimize damage to their operations, assets, employees, and stakeholders .
• Ensure business continuity : A well-prepared plan enables organizations to continue their essential operations and services, even when adversity is critical for maintaining customers' confidence.
• Facilitate recovery : The plan provides guidance and support for organizations to recover as quickly and effectively as possible.
• Maintain reputation : A well-prepared plan demonstrates an organization's ability to respond effectively and helps to maintain its reputation and credibility.

Despite these benefits, organizations face several challenges when developing and implementing such plans. For example:

• Lack of resources : Preparing a comprehensive and effective plan requires significant resources, including time, money, and personnel.
• Difficulty anticipating disruptions : Anticipating all potential disruptions and developing response plans for each can take time and effort.
• Keeping the plan up-to-date : The project must be regularly reviewed in light of changing situations and new threats.
• Implementation and execution : It is only effective if properly implemented and executed when an unforeseen event occurs. This requires clear lines of communication, well-defined roles and responsibilities, and practical training and testing.

The steps in developing a contingency plan are as follows:

• Identify potential disruptions: The first step in developing a contingency plan management is to identify the types of disorders the organization is most likely to face, like natural disasters, cyber-attacks, or equipment failures.
• Assess the impact: After identification of potential adversity, the organization should assess the potential impact of each, including the impact on operations, assets, employees, and stakeholders .
• Develop response strategies: After assessing the potential impact, the organization should develop response strategies for different adversities.
• Allocate resources : The organization should allocate the necessary resources, including personnel, equipment, and funding, to ensure the effective implementation of the plan.
• Test and refine the plan: Regular test ensures its effectiveness and identify any program weaknesses.
• Communicate and train : Communication with all employees, stakeholders, and personnel is of utmost priority.
• Review and update : It should be reviewed regularly to ensure relevancy in changing times.

Here are some contingency plan examples to understand the concept better.

Here's a how an ABC financial institution prepares a contingency plan. After a natural disaster, the institution's physical branches will be inaccessible, and its employees may need help to work, leading to a potential loss of business and customer trust. Therefore, it needs to implement a business continuity plan to ensure that critical operations continue. It may include:

• Allowing employees to work remotely using laptops, smartphones, and other mobile devices.
• Implementing a disaster recovery plan to restore systems and data as quickly as possible.
• Providing mobile devices to employees.
• Arranging cloud-based systems for remote work.
• Equipping with disaster recovery software and hardware.
• Conducting employee training on remote work protocols and disaster recovery procedures.
• Designating an employee for communicating with customers and other stakeholders about the disaster and the steps to restore operations.

As per recent reports  by Reuters, published in February 2023, a growing number of businesses reported being harmed by the tensions with China. Nearly half of them questioned by the American Chamber of Commerce in Taiwan are changing or planning to revise their plans for business continuity in response. 

Nancy Pelosi, the former U.S. House of Representatives speaker, paid a visit to Taipei in August. China, which sees democratically governed Taiwan as its country, has increased military exercises across the Taiwan Strait.

The advantages and disadvantages of it are discussed below.

• Business Continuity : A well-designed plan helps organizations minimize the impact of unexpected events and maintain business continuity, even in the face of adverse conditions.
• Improved Preparedness : By developing such a plan, organizations can identify potential risks and threats and develop strategies to mitigate their impact, resulting in enhanced preparedness and resilience.
• Increased Confidence : Having a plan in place can increase the confidence of employees, customers, and stakeholders, knowing that the organization is prepared for unexpected events.
• Cost Savings : Implementing a plan can help organizations to reduce the costs associated with unexpected events like downtime, data loss, and loss of customer trust.
• Improved Decision-Making : It provides a clear roadmap for decision-making in the event of a disruption, helping organizations to respond quickly and effectively.

Disadvantages

• Resource Intensity : Developing a comprehensive and effective plan requires significant resources, including personnel, equipment, and funding.
• Complexity : Developing a plan can be complex and requires a thorough understanding of the organization's operations, systems, and processes.
• Inflexibility : Once a plan is in place, it may be challenging to modify or update it as per changing circumstances.
• Implementing a plan : It can be challenging, especially if it involves significant changes to existing processes or systems.
• Resistance to Change : Employees, customers, and stakeholders may resist changes to existing processes or systems, making it challenging to implement a plan.

Contingency Plan vs Mitigation Plan vs Business Continuity Plan 

Contingency and mitigation plans focus on responding to and reducing the impact of unexpected events. A business continuity plan is a comprehensive plan encompassing both approaches. It ensures the organization's continued operation.

#1 - Contingency Plan

• It is a pre-determined action plan applied in an unexpected event.
• It aims to minimize the event's impact and ensure that essential operations continue.
• It typically outlines the steps that will be taken to respond to the event, allocate resources, and communicate with stakeholders.

#2 - Mitigation Plan

• A mitigation plan is a proactive plan to reduce the impact of an adverse event.
• A mitigation plan aims to prevent an event from occurring or to minimize its impact if it does happen.
• A mitigation plan typically outlines the steps that will be taken to reduce the risk of an event occurring and to prepare for its impact if it does happen.

#3 - Business Continuity Plan

• A business continuity plan is a comprehensive plan that outlines the steps that will be taken to ensure that an organization can continue to operate in the event of an unexpected event.
• A business continuity plan aims to ensure that critical operations continue and that the event's impact on the organization is minimized.
• A business continuity plan typically includes business contingency and mitigation plans. In addition, it outlines the steps that will be taken to respond to the event, allocate resources, and communicate with stakeholders.

The necessary steps in preparing such plans are – identifying risks, evaluating impact, developing response strategies, allocating resources, developing communication, testing and reviewing the project, and finally implementing the plan.

A good plan is comprehensive, well-designed, and effective in responding to unexpected events. Here are some characteristics of a good plan: relevant to the organization, risk-based, flexible, easy to understand, allocates resources effectively, tested regularly, and communicate effectively.

Trigger points are essential in such plans because they define the circumstances or conditions under which they will be activated. Trigger points serve as a mechanism to signal that a potential risk or threat has materialized and that the plan should be put into action.

This has been a guide to Contingency Plan and its meaning. Here, we explain its examples, steps, differences with mitigation and business continuity plan. You can learn more about it in the following articles –

• Corporate Planning
• Financial Planning
• Contingency Reserve

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• Business Plans

Contingency Planning: How to Develop Good Alternative Plans

Sometimes things just don't go to plan. And while disappointing, how you recover is typically half the battle. Having good contingency planning skills can save you a lot of headaches. 

No matter how carefully you plan something, there’s always a possibility of something going wrong. There’s even a Murphy’s Law that says:

“If anything can go wrong, it will”.

And in the business setting, there are plenty of things that can go wrong:

• Your website might crash right at the moment you announce your big sale of the year.
• Your sales team could get sick.
• One of your biggest suppliers could decide to close down shop.

The list goes on and on. 

But just because there are things that can go wrong, that doesn’t mean you should resign yourself to that fate and make peace with it. That’s where contingency planning comes in. 

In this post, we’ll explain what contingency planning is, what your contingency plan should cover, and how to develop and maintain your contingency plan. 

What Is Contingency Planning?

A contingency plan refers to a course of action or steps your business would take if something unexpected happens. An unexpected event can be a good one: such as surpassing your sales goals or booking more clients than you originally planned for. 

Those are good problems to have but as always, there’s the other side of the coin. There are also negative events that can happen that can impact your business operations. And the probably of encountering some risk factors is increasing. According to Dun & Bradstreet's  Global Business Risk Report for 2022:

"Our latest GBI score increased to 297 in Q1 2022, following a deterioration in the risk environment, indicating that the outlook for doing cross-border business remains relatively challenging."

The report goes on to list the top risk factors including global inflation, COVID19, and supply chain issues.

But even if you're running a small, local business you could face significant risks. 

For example, the building where your business offices are located might catch on fire. Or maybe your entire organization is a victim of a data breach. Or maybe, a natural disaster such as a flood or an earthquake leaves you without power or without an office for a while. 

In that case, your contingency plan should outline how your business will continue to operate until things return back to normal. 

A contingency plan ensures that your business is ready for anything. In essence, you’re future-proofing your business with some proactive planning. 

But before you develop a contingency plan, conduct a risk assessment. 

How to Conduct a Risk Assessment

Conducting a risk assessment may seem daunting. But it’s a necessary step that'll help you determine how to best prepare for worst-case scenarios. 

Start by identifying the processes and operations without which you couldn’t run your business. For example, if your business operates only online, then having a reliable internet connection is a business-critical operation. 

Similarly, if you manufacture furniture, then your supply chain is another business-critical operation. Or maybe you work in the healthcare industry and it’s imperative that your business is HIPAA compliant . 

Once you know what your critical, essential operations are identify the risks associated with them. For example, your main wood supplier might go out of business. Or, inclement weather could damage the power grid and you lose internet access. 

In some cases, you might end up with a very short list of threats. In other cases, you might end up with a long risk of threats. It all depends on the type of business you've got. But keep in mind that it might be impossible to create a contingency threat for all the risks you’ve identified. 

When that happens, you’ll need to prioritize and decide which threat to tackle first. You can use a probability chart to analyze the impact each risk would have on your business and the likelihood of it happening. Risks that have a significant impact on your cash flow are usually the ones you’d want to create the contingency plan for first. 

For more details on risk management, review our series on Managing Risk in Your Business .

What Should Your Contingency Plan Include?

As mentioned earlier, a contingency plan allows your business to continue operating even in the event of unexpected circumstances. As such, there are a few vital parts that every contingency plan should include: 

1. Different Scenarios 

The first things your contingency plan should include are the different scenarios that could negatively impact your business. For this part, you’ll want to refer to your risk assessment. Choose the risks that are most likely to happen or those that would cause the most disruption.

Keep in mind the five types of business risk:

• strategic risk
• compliance risk
• operational risk
• financial risk
• reputational risk

To learn more about the varies types of business risk, review this tutorial:

Once you've got those scenarios, plan the steps that should be taken for each scenario. A few examples of scenarios include:

• If you live in an area with frequent storms, what steps can you take to prevent your business from being unable to operate until the power is restored? ( Operational Risk )
• What would you do in case of someone hacking your computer? ( Operational Risk )
• How would your business deal with a major lawsuit? (Reputational Risk)
• What happens if the laws and regulations governing your business change? (Compliance Risk)

Contingency plans should be developed for each scenario you identify. For a detailed list of some potential disasters and emergencies, as well as tips on what to do for each one, study the emergency preparedness website, Ready.

2. Triggers

Once you've got those scenarios mapped out, you need to know when your contingency plan kicks into action. For example, if you plan for internet disruption, is your plan triggered when the Internet goes out or when you get a severe weather warning which could disrupt it? 

Keep in mind that some events may have many triggers. Those could trigger different parts of the plan or even need separate contingency plans altogether.

3. Response Strategy

Your contingency plan should also include how you’ll respond to the circumstances that triggered your contingency plan. This justifies the actions you’ll take and ask your employees to take. 

For a detailed discussion on how to plan responses, study our tutorial:

4. Who to Inform

Make a list of who needs to be informed immediately about what's happening. This list can include:

• your customers and clients
• even your local community 

In some cases, you might even have to notify the legal authorities so including them on this list as well as their contact information is crucial. 

5. Key Responsibilities and Timeline

Identify who handles each part of your contingency plan into motion as well as executing it. Be specific. 

You also need to provide a timeline of the events. Specify what tasks need to happen when your plan is put into motion and when each task should be completed. 

In some cases, it might be more complicated. For example, what if you need to deliver a large order fairly quickly? You discover that your delivery is running late due to a vehicle malfunction. Your timeline should not only include the estimated repair time, but also the new delivery date and how often you’ll keep your customer or client updated. 

How to Develop a Contingency Plan

So now you know what a contingency plan is and what it should include. But how do you actually develop a contingency plan? Let's take a look:

1. Consult People From All Departments

First, it’s a good idea to consult people from all your departments. It’s almost impossible for a single person to think of every possible scenario. That’s why you need to consult managers from each department as they would know first-hand what could go wrong. 

You can even ask employees directly as they would be best equipped to tell you what they need to continue to do their job. 

Aside from getting their input on potential risks, you should also share your contingency plan with them. They can provide you with direct feedback which in turn allows you to further solidify your plan. 

If necessary, schedule regular drills to test the plan and assess how effective it is. This can also show you what needs to be improved in your plan. 

2. Make Sure Everyone Agrees

If everything works as it should, it could be difficult to get everyone on board with Plan B. This poses a challenge to both your plan as well as your ability to successfully operate when the unforeseen happens. 

The best course of action is to explain the importance of having a Plan B and what happens if there's none. Take charge and complete at least some planning tasks on your own to motivate others and lead by example. 

3. Communicate Clearly

Use plain and simple language to write your contingency plan. The last thing you want is ambiguity, which will prevent people from doing what needs to be done. Keep it simple and keep it general. You never know when you’ll need to use the contingency plan. As such, if you use names, your plan will fall apart if that person is no longer employed when disaster strikes. 

Another reason why your contingency plan needs to be simple is managing stress. Remember that disasters are always stressful. If your plan is difficult to put it place, it'll only add to the stress which jeopardizes the success of your implementation. Plus, clear communication minimizes the chances of gossip and rumor spreading. 

How to Maintain Your Contingency Plan

Once your contingency plan is done, you need to continually maintain it if you want it to be useful and valid. 

1. Account for Relevant Changes

First, consider all relevant technological, personnel, and operational changes in your business. Then, reassess the risks and either update the original plan or come up with a new one.  

2. Make Sure New Employees Are on Board

Whenever you hire a new employee, make sure they get a copy of the contingency plan. This can be a part of their onboarding packet. It ensures they know what to do in the event a disaster occurs. 

3. Schedule Regular Reviews

Needless to say, make it a point to schedule regular reviews of your contingency plans. While you don’t have to review them every month, it’s a good idea to build this process into your annual review. 

4. Keep Your Plans Safe

Lastly, keep your plans in a safe and accessible location. People who are responsible for putting the plan into action should have immediate access to your contingency plan. This means there should be no complicated passwords or access rights that could hinder the plan from being put into motion. 

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Envato Elements gives you the best value for your money. And thanks to the unlimited downloads, you can try out a variety of different styles as you create your business documents. 

Premium templates from Envato Elements come with features such as:

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In short, Envato Elements premium templates will help you deliver professional-looking documents so you can make a great first impression. 

Develop Good Contingency Plans to Future-Proof Your Business

Contingency plans are necessary if you want to reduce and even mitigate risks in your business. The key to a good contingency plan is to conduct a risk assessment first and then create a plan that addresses each of the potential threats. You also need to store your plan in a safe location and update it regularly to ensure it’s always current. 

Use the tips outlined in this article to help you create a good contingency plan and future-proof your business. 

Editorial Note: This content was originally published in March 2022. We're sharing it again because our editors have determined that this information is still accurate and relevant.

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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

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

Investopedia / Julie Bang

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 ."

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What Is Contingency Planning? Creating a Contingency Plan

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What is contingency planning, what is a contingency plan, contingency plan example, how to create a contingency plan, business contingency plans, project contingency plans.

Contingency plans are used by smart managers who are aware that there are always risks that can sideline any project or business. Without having a contingency plan in place, your organization won’t be well prepared for risk management .

The term contingency planning refers to the process of preparing a plan to respond to any risks or unexpected events that might affect an organization. Contingency planning starts with a thorough risk assessment to identify any risks and then develop a contingency plan to resolve them or at least mitigate their negative impact.

Contingency planning takes many shapes as it’s used for helping businesses and projects across industries. Even governments use contingency plans to prepare for disaster recovery or economic disruption, such as those caused by natural disasters.

A contingency plan is an action plan that’s meant to help organizations mitigate the negative effects of risks. In simple terms, a contingency plan is an action plan that organizations should execute when things don’t go as expected.

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Now that we’ve briefly defined what contingency planning is, let’s take a look at a contingency plan example involving a manufacturing project.

Let’s imagine a business that’s planning to manufacture a batch of products for an important client. Both parties have signed a contract that requires the manufacturer to deliver the products at a certain date or there may be negative consequences as stated on the purchase agreement. To avoid this, the business leaders of this manufacturing company start building a contingency plan.

To keep this project contingency plan example simple, let’s focus on three key risks this company should prepare for.

• Supply chain shortages: The supply chain is one of the most important business processes for this manufacturing company. Therefore, one of the most impactful risks is a raw material shortage which may occur if their main supplier is unable to deliver the materials they need on time. To prepare a contingency action for this risk, the business owners decide to reach out to other suppliers and place standing purchase orders which give them the opportunity to ask for a certain quantity of materials at some point in the future. If the risk of a supply chain shortage occurs, they’ll have multiple sources of raw materials available in case their main supplier can’t keep up with their demand levels.
• Machinery breakdown: Another risk that might halt production is the malfunction of machinery. To prepare for this, business leaders hire extra maintenance personnel and order spare parts for their production line machinery as part of their contingency plan. If the risk of machinery breakdown becomes a reality, the organization will have the labor and resources that are needed to mitigate it.
• The team is not meeting the schedule: If the manufacturing team members are failing to meet their goals on time for whatever reason, the manufacturing business will need to allocate more resources such as extra labor and equipment to complete the work faster. However, this contingency action will generate additional costs and reduce the profitability of the project.

ProjectManager has everything you need to build contingency plans to ensure your organization can respond effectively to risks. Use multiple planning tools such as Gantt charts, kanban boards and project calendars to assign work to your team and collaborate in real time. Plus, dashboards and reports let you track progress, costs and timelines. Get started today for free.

Like a project plan , a contingency plan requires a great deal of research and brainstorming. And like any good plan, there are steps to take to make sure you’re doing it right.

1. Identify Key Business Processes and Resources

To create an effective contingency plan you should first identify what are the key processes and resources that allow your organization to reach its business goals. This will help you understand what risks could be the most impactful to your organization. Research your company and list its crucial processes such as supply chain management or production planning as well as key resources, such as teams, tools, facilities, etc., then prioritize that list from most important to least important.

2. Identify the Risks

Now, identify all the risks that might affect your organization based on the processes and resources you’ve previously identified. Figure out where you’re vulnerable by brainstorming with employees, executives and stakeholders to get a full picture of what events could compromise your key business processes and resources; hire an outside consultant, if necessary. Once you’ve identified all the risks, you should use a risk log to track them later.

3. Analyze Risks Using a Risk Matrix

Once you’ve identified all the risks that might affect your processes and resources, you’ll need to establish the likelihood and level of impact for each of those risks by using a risk assessment matrix . This allows you to determine which risks should be prioritized.

4. Think About Risk Mitigation Strategies

Now, write a risk mitigation strategy for each risk that you identified in the above steps. Start with the risks that have a higher probability and higher impact, as those are the most critical to your business. As time permits you can create a plan for everything on your list.

5. Draft a Contingency Plan

Contingency plans should be simple and easy to understand for the different members of your audience, such as employees, executives and any other internal stakeholder. The main goal of a contingency plan is to ensure your team members know how to proceed if project risks occur so they can resume normal business operations.

6. Share the Plan

When you’ve written the contingency plan and it’s been approved, the next step is to ensure everyone in the organization has a copy. A contingency plan, no matter how thorough, isn’t effective if it hasn’t been properly communicated .

7. Revisit the Plan

A contingency plan isn’t chiseled in stone. It must be revisited, revised and maintained to reflect changes to the organization. As new employees, technologies and resources enter the picture, the contingency plan must be updated to handle them.

We’ve created an contingency plan template for Excel to help you as you go through the contingency planning process. With this template, you can list down tasks, resources, costs, due dates among other important details of your contingency plan.

A business contingency plan is an action plan that is used to respond to future events that might or might not affect a company in the future. In most cases, a contingency plan is devised to respond to a negative event that can tarnish a company’s reputation or even its business continuity. However, there are positive contingency plans, such as what to do if the organization receives an unexpected sum of money or other project resources .

The contingency plan is a proactive strategy, different from a risk response plan , which is more of a reaction to a risk event. A business contingency plan is set up to account for those disruptive events, so you’re prepared if and when they arrive.

While any organization is going to plan for its product or service to work successfully in the marketplace, that marketplace is anything but stable. That’s why every company needs a business contingency plan to be ready for both positive and negative risk management.

In project management, contingency planning is often part of risk management. Any project manager knows that a project plan is only an outline. Sometimes, unexpected changes and risks cause projects to extend beyond those lines. The more a manager can prepare for those risks, the more effective his project will be.

But risk management isn’t the same as contingency planning. Risk management is a project management knowledge area that consists of a set of tools and techniques that are used by project managers to create a risk management plan.

A risk management plan is a comprehensive document that covers everything about identifying, assessing, avoiding and mitigating risks.

On the other hand, a contingency plan is about developing risk management strategies to take when an actual issue occurs, similar to a risk response plan. Creating a contingency plan in project management can be as simple as asking, “What if…?” and then outlining the steps to your plan as you answer that question.

Using ProjectManager to Create a Contingency Plan

ProjectManager has the project planning and risk management tools you need to make a reliable contingency plan that can quickly be executed in a dire situation.

Use Task Lists to Outline the Elements

Use our task list feature to outline all the elements of a contingency plan. Since a contingency plan likely wouldn’t have any hard deadlines at first, this is a good way to list all the necessary tasks and resources. You can add comments and files to each task, so everyone will know what to do when the time comes.

Reference Dashboards to Monitor the Contingency Plan

Our dashboard gives you a bird’s eye view of all of the critical project metrics. It displays live data so you’re getting a real-time look at how your project is progressing. This live information can help you spot issues and resolve them to make sure that your contingency plan is a success. Which, given that it’s your plan B, is tantamount.

If you’re planning a project, include a contingency plan, and if you’re working on a contingency plan then have the right tools to get it done right. ProjectManager is online project management software that helps you create a shareable contingency plan, and then, if you need to, execute it, track its progress and make certain to resolve whatever problems it’s addressing. You can do this all in real time! What are you waiting for? Check out ProjectManager with this free 30-day trial today!

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What Is a Business Contingency Plan?

Small Business Contingency Plans Explained

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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.