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When do you need a Contingency Plan?

Follow this simple 3-Point Rule…..

First things first, let’s look at this from an impact and likelihood standpoint:

High Impact – High Likelihood - - Strategic Plan;

Low Impact – Low Likelihood - - Operations Plan and;

High Impact – Low Likelihood - - Contingency Plan.

Using this 3-point rule you can quickly assess the likelihood of occurrence and the potential impact.  The Contingency Plan is all about the “Who does what when IF “_____“should occur?   Here you should list out what events/triggers can change the business?  Authors Nolan, Goodstein & Goodstein suggest that events stem from either the:   1) External environment and 2) Internal issues.  Most organizations have the Strategic and Operational Plans but they miss out on the Contingency Plan development.   

For example, during an acquisition, the target is identified and you start working away quietly.  You may need a contingency plan to deal with a second bidder, assuming the impact to your business is high if you lose out.  If you do not plan, in this case, for a second bidder and one appears, then emotion can be left unchecked and price escalation is the result.  Or the outright loss deeply affects your competitive position in the future.  Take another....  An organization is planning to have a contract renewed, assuming it will be as management knows that the service levels are good and there have been no supply disruptions - business as usual, right?  Then "Suprise!" 

Management teams today should develop Contingency Plans as potential changes that are of high consequence, albeit a low likelihood of occurrence are out there. "Surprise!" does happen…..