Disruptions in business operations can lead to serious financial losses if they are not addressed quickly, and as a result of not being adequately prepared, many entrepreneurs have found themselves on the receiving end of operation issues that have been costly. One Datacore survey highlighted that an enormous 54% of businesses they spoke to had experienced ‘a downtime event that lasted more than 8 hours’!

From these stats, it is easy to get an idea of why contingency plans are crucial and can be so helpful for organisations that want to be prepared for and ready to respond to unforeseen events which can disrupt their work for sometimes shockingly long periods of time. Without a solid strategy in place then, companies run the risk of significant setbacks that will lead to cash flow problems and financial losses. What entrepreneurs can do to make their contingency plans more robust is try and ‘expect the unexpected’, or at least have a wide range of ideas of things that could go wrong based on their industry and sector to plan for unforeseen events.

Key Concepts to Consider Today

• Contingency Planning: The process of getting ready for future events that could disrupt business operations and damage cash flow.
• Risk Management: Recognising and evaluating, then prioritising risks followed by coordinated efforts to reduce their impact.
• Business Continuity Planning: Ensuring that critical business functions can carry on during and after the hours of a crisis.

Understanding Contingency Planning

A contingency plan itself is written up as a set of predetermined actions that a business should take in response to events that are threatening its operations, and it will effectively be the – go-to – option in the case of a specific type of event occurring (examples below). This means a plan should ultimately be designed to reach the fastest recovery of a problem with the least disruptions involved. The more thorough it is, and the more a business owner knows about the potential threats that could affect their business, the more effective the plan will be at resolving issues.

Types of Contingency Plans

• Budget Contingency: Anything financial related will involve setting aside an amount of extra funds needed to cover unforeseen expenses. Because they are ‘unforeseen’, depending on the industry, leaders can consider the worth of their capital and other factors like insurance to get a realistic idea of the budget.
• Schedule Contingency: It is very easy for schedules to fall off track, so allowing additional days in project timelines to accommodate potential delays can be very helpful.
• Business Continuity Plans: Back to those 8-hour delays we spoke about earlier, thorough tactics should be drawn up to sustain operations during disruptions, and most industries will involve options like backup generators to sustain power supplies.
• Supply Chain Contingency Plans: Not much can be done when events like the recent Suez Canal blockages occur. However, more local business options might include finding alternate suppliers or anything else that would minimise an interruption and cause operations to halt.

Steps to Create a Contingency Plan

Let’s take a deeper look now at what business owners can consider if they intend on writing up their own contingency plans, although remember that any one plan can be focused as deeply as you need on a single area of business, so for these steps I’ll keep things general with some examples to illustrate:

Identify Critical Business Functions

It is best to start out by outlining all the processes necessary for keeping your business operation alive, and for most will likely touch on the points we previously spoke about, including everything from supply chain management, all the way through to customer service. Any one thing that could disrupt your business from making money should be understood functionally as they will make up the groundwork of your plan.

Conduct a Risk Assessment

For each area you intend to write a contingency plan for, it is important to identify all the risks that could impact that part of your operation. Depending on your industry and sector, these could range from cyber-attacks to market fluctuations and won’t necessarily be restricted to just one. Things like natural disasters can be common across plans, whereas a cyber-attack might not be too worrisome on a building site.

Develop Response Strategies

Regardless of how small a risk might seem, it is worth outlining specific detailed actions that can be used in any given situation to mitigate impacts. We already discussed the potential use of different suppliers for local businesses. If an operation’s staff are physically interrupted but are capable of doing so, something like remote work could be suggested to avoid any disruptions.

Assign Responsibilities

This is more relevant to growing SMEs, however involving staff who are interested in taking on responsibilities for certain parts of a contingency plan can help ensure their effectiveness, and by encouraging all parts of a team to be interested and aware of a contingency plan, each part of the team will know their role and be ready to act when needed.

Communicate the Plan

It is partly related to the last point, but regardless of who is interested in taking on a role of responsibility, ensuring your contingency plans are shared across all parts of the business and having communication channels prepared (again depending on the enterprise’s size), will help ensure everyone understands proceedings in the event of a problem.

Test and Review the Plan

It can help to ‘test’ your plans throughout the year through drills or simulations, and within reason of course, if it is practical and won’t in itself cause a disruption of operations – unless you have a contingency plan for a planned contingency plan! By regularly testing and updating your plans you will also maintain their relevance and effectiveness.

Examples of Contingency Plans

Next, let’s analyse some examples of what might be included in a contingency plan for some different scenarios, bearing in mind that you may wish to make your own plans much more thorough if the specific problem demands it or more relevant to your niche market:

1. Project Contingency Plan

It is quite common for larger businesses to see key team members unexpectedly leave, and it can even affect startups and SMEs in some unfortunate situations, so project contingency plans are very popular and might include some of the following steps:

• Identifying who is the most appropriate person to take over the departing member’s tasks.
• Assessing any additional resources needed to achieve whatever workload the departing individual takes with them.
• Providing training sessions for other team members who are stepping into their new roles.
• Notifying stakeholders about the change and management if it is a significant loss or necessary for any other reason.

2. Business Continuity Plan

Not often all that relevant to the UK, although the recent flooding across the East-Midlands might suggest otherwise – in the event of a natural disaster disrupting operations at your main place of work, business continuity plans might typically involve:

• Ensuring employees have access to necessary tools and systems for remote work.
• Regularly backing up essential data to the cloud.
• Identifying backup office spaces if remote work is not practical for some.
• Establishing professional communication channels with staff for updates and instructions.

3. Supply Chain Contingency Plan

Continuing with the topic of supply chains and looking a little deeper, if your logistics depend on a few key suppliers, a supply chain contingency plan might include the following:

• Maintaining relationships with multiple suppliers at once.
• Keeping a buffer stock of essential components.
• If relevant, find shipping companies that offer expedited options.
• Including delay penalties in supplier contracts.

Common Pitfalls and How to Avoid Them

Regardless of how thorough your contingency plan is, there will be a number of steps to take to ensure it performs effectively, if at all when the time comes to put it into action.

• Lack of Executive Buy-In: It is always crucial to have the backing of top level executives from the beginning. Keep them in the loop regularly to ensure you’re addressing the correct risks and your action plan is solid.
• Gaining Executive Support: For larger enterprises it can be a good idea to get support from stakeholders whenever you draw up plans that may have large scale effects and could seem drastic. Make sure to provide them with updates on managing risks and maintaining an action plan.
• Bias Against Plan B Thinking: Foster a culture that appreciates having backup plans. Highlight the importance of being ready for worst case scenarios to prevent people relying heavily on ‘Plan A’, and then finding shortfalls if problems do crop up.
• One-and-Done Plans: Contingency planning is an ongoing process, so business leaders should encourage regular updates to their plans to account for new risks and changes in any business operations.

Parting Thoughts

In all, being well prepared with a thorough contingency plan is not so much just about being prepared for business problems, but it is about fostering a community within your business that can be resilient and work together to ensure the continuity of operations in the face of multiple problems, and by following the steps outlined in our discussion today, you can be well on your way to preparing your business for long-term steadiness and success.

How Pulse Can Help in Your Contingency Plan

Make sure your business is prepared for any eventuality with Pulse. By integrating seamlessly with Open Accounting and Open Banking software, Pulse is capable of providing real-time data insights and personalised financial analytics. Our fintech tool for accountants, advisors, and business owners specialises in cash flow forecasting, performance reporting, and actionable financial insights, and through them Pulse empowers SMEs to create robust contingency plans that can handle unexpected challenges effectively. Sign up today to ensure your business is ready for anything!