Contingency Planning
Formal strategic planning is normally done based on events and possibilities which have high possibilities of happening. How-ever it ignores many less likely happenings which if occur can have a very significant impact on business. These events (example a hostile takeover attempt, key executive leaving the organization, stock crash etc) may require actions and approach which may be entirely different from long term plans and strategies of business. These events many times require managers to take strategically important decisions in very short span of time, leaving no time for analysis and thinking.
Contingency plans are basically preparation to take specific actions when an event not planned for in usual planning process actually takes place. Such plans place managers in a better position to take required decisions. Contingency planning eliminates fumbling and time delays in emergency situations and enables much rational response. For example a 'Corporate Defense Black-book' lays down list of jobs to be done by managers in case a takeover threat is identified. This ensures that managers can respond quickly when the need arises. As a proximal benefit, contingency planning process force managers to look at all the possible dimensions of environment. This exercise combined with their experience in normal strategic planning, develops managers' ability to deal with emergency situations.
There are a few disadvantages of Contingency planning as well. Contingency planning requires managers to thing about pessimistic possibilities and may simulate a negative and skeptical attitude. Few contingency plans if revealed may generate fear in the organisation. For example contingency plans related to job cutting in case of drastic fall in sales or a plan to tackle labor strike in organisation may cause moral problems among employees.
Contingency Planning process:
1. Identifying the contingencies: The most important part of co
ntingency planning is to identify those rare events which if happen can pose a serious problem or a lucrative opportunity for organisation and will require a quick response. The range of events and conditions fitting these characteristics is quite wide and hence it is important to identify the events for which plans are to be made. Both the degree of criticality and degree of probability must be considered while choosing an event for contingency planning. There are various methods using which such events can be identified.
What-If: One very usual method of identifying possible contingencies is to ask What-if questions. Examples: What if government regulations change?, What if a key executive dies?, What if company looses an important legal battle? What if stock price crashes? etc. These quest
ions will helping identifying severity of various possibilities.
Near-miss reporting: This process, normally used in industrial setups to identify safety threats, can be very useful. Managers while carrying out day to day functions many times witness possibilities of some adverse events which don't actually occur just because of chance. These are very subtle possibilities and may easily go unnoticed. In near miss reporting people are encouraged to note down such events and then think over the implications that may have occurred.
2. Formulating Plans:
Once the events to be planned for have been identified, possible actions should be analyzed. Based on the analysis ideal set of actions should be formulated. But one should not forget that most of these events have very small probability if occurring and even when they occur there is probability of them occurring in a different form than the expectation. Hence the contingency plan many times provides a broad idea to decision maker and his own improvisation is needed to tackle the actual contingency.
3. Trigger Points:
It is also important to pre-determine the trigger point at which a contingency plan will be implemented. Many time contingency conditions occur gradually and chance of natural recovery on is also there without needing the contingency plan. This presents a dilemma in front of manager which may cause delay in action. Hence a trigger point for a particular contingency plan ensures quick action as and when required. Deciding these trigger points (ex: A particular level of share price to make some public announcement) however is a tough job.
4. Documentation:
There is not one correct method of documentation of contingency plans. Some times it may be in form of a booklet, some times a public notice board or some times it may be just in the brains of executives. If required such plans should be documented in a booklet with all the required details, important contacts, designated decision making authority etc.
Contingency plans when exercised are usually result in short term actions. But contingency planning may be very important for preventing organization from loosing track of long term plans due to some short term crisis. This also indicates that even the contingency plans should be made keeping in mind organization’s mission and vision
From India, Ludhiana
7Formal strategic planning is normally done based on events and possibilities which have high possibilities of happening. How-ever it ignores many less likely happenings which if occur can have a very significant impact on business. These events (example a hostile takeover attempt, key executive leaving the organization, stock crash etc) may require actions and approach which may be entirely different from long term plans and strategies of business. These events many times require managers to take strategically important decisions in very short span of time, leaving no time for analysis and thinking.
Contingency plans are basically preparation to take specific actions when an event not planned for in usual planning process actually takes place. Such plans place managers in a better position to take required decisions. Contingency planning eliminates fumbling and time delays in emergency situations and enables much rational response. For example a 'Corporate Defense Black-book' lays down list of jobs to be done by managers in case a takeover threat is identified. This ensures that managers can respond quickly when the need arises. As a proximal benefit, contingency planning process force managers to look at all the possible dimensions of environment. This exercise combined with their experience in normal strategic planning, develops managers' ability to deal with emergency situations.
There are a few disadvantages of Contingency planning as well. Contingency planning requires managers to thing about pessimistic possibilities and may simulate a negative and skeptical attitude. Few contingency plans if revealed may generate fear in the organisation. For example contingency plans related to job cutting in case of drastic fall in sales or a plan to tackle labor strike in organisation may cause moral problems among employees.
Contingency Planning process:
1. Identifying the contingencies: The most important part of co
ntingency planning is to identify those rare events which if happen can pose a serious problem or a lucrative opportunity for organisation and will require a quick response. The range of events and conditions fitting these characteristics is quite wide and hence it is important to identify the events for which plans are to be made. Both the degree of criticality and degree of probability must be considered while choosing an event for contingency planning. There are various methods using which such events can be identified.
What-If: One very usual method of identifying possible contingencies is to ask What-if questions. Examples: What if government regulations change?, What if a key executive dies?, What if company looses an important legal battle? What if stock price crashes? etc. These quest
ions will helping identifying severity of various possibilities.
Near-miss reporting: This process, normally used in industrial setups to identify safety threats, can be very useful. Managers while carrying out day to day functions many times witness possibilities of some adverse events which don't actually occur just because of chance. These are very subtle possibilities and may easily go unnoticed. In near miss reporting people are encouraged to note down such events and then think over the implications that may have occurred.
2. Formulating Plans:
Once the events to be planned for have been identified, possible actions should be analyzed. Based on the analysis ideal set of actions should be formulated. But one should not forget that most of these events have very small probability if occurring and even when they occur there is probability of them occurring in a different form than the expectation. Hence the contingency plan many times provides a broad idea to decision maker and his own improvisation is needed to tackle the actual contingency.
3. Trigger Points:
It is also important to pre-determine the trigger point at which a contingency plan will be implemented. Many time contingency conditions occur gradually and chance of natural recovery on is also there without needing the contingency plan. This presents a dilemma in front of manager which may cause delay in action. Hence a trigger point for a particular contingency plan ensures quick action as and when required. Deciding these trigger points (ex: A particular level of share price to make some public announcement) however is a tough job.
4. Documentation:
There is not one correct method of documentation of contingency plans. Some times it may be in form of a booklet, some times a public notice board or some times it may be just in the brains of executives. If required such plans should be documented in a booklet with all the required details, important contacts, designated decision making authority etc.
Contingency plans when exercised are usually result in short term actions. But contingency planning may be very important for preventing organization from loosing track of long term plans due to some short term crisis. This also indicates that even the contingency plans should be made keeping in mind organization’s mission and vision
From India, Ludhiana
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