A business that anticipates only the best-case scenario isn’t likely to last long. This is because unforeseen events are bound to happen from time to time. Whether it’s prolonged power blackouts, medical emergencies, or seasonal revenue drops, these occurrences are beyond an organization’s control. Anticipating these disruptions and preparing for them is crucial to ensuring your business strategy has a wide enough vision necessary for its survival.
A contingency is any event that occurs outside the range of normalcy, and that is likely to affect an organization’s ability to operate. Contingency planning is, thus, any activity undertaken to prepare for unusual events and ensure minimal disruption of the organization’s daily operations. In essence, a contingency plan is like a “plan B” for dealing with adversities and emergencies in the case expected results fail to materialize.
Importance of Contingency planning
Presently, having a comprehensive contingency plan is imperative for the survival of any business organization, regardless of its size. Not only is the business environment harsher and more competitive, but it is also dynamic with constant innovations and changes. Therefore, only those businesses that can adapt through proper planning will be able to survive the many challenges the business world presents.
Below, we elaborate some of the benefits of having a contingency plan in any organization today.
1. It lessens panic and promotes action
When a crisis happens, the easiest and most natural reaction is to panic if you do not have a clear plan of action to follow. However, with a well-thought-out plan, employees can react faster, think on their feet and speed up recovery operations to avert the crisis in good time. Rather than wait for instructions from elsewhere, everyone knows where to go, what to do, and how to do it so that order is restored promptly. In the end, this quick and orderly reaction minimizes losses, saves on costs and ensures timely restoration of business operations.
2. It increases flexibility
Besides increasing your organization’s general preparedness, contingency planning gives your organization the flexibility to shift focus from unpromising business prospects to more promising ones. This is to ensure proper alignment with the changing market needs. Instead of taking too long to move from ineffective business models to more effective ones, contingency plans save you time by guiding you through the transition process into better systems and strategies that are more profitable. In this sense, a contingency plan is like a gear lever for switching business gears and finding a more profitable solution.
Without contingency plans, your organization will forever remain locked in the same money-draining business strategies that no longer work. This is why contingency planning should be a critical component of your business strategy.
3. Allows exploitation of opportunities
Contingency planning not only entails preparing for disasters, but it also encompasses opportunity planning. Opportunity planning is a methodical approach that involves analyzing different market parameters to identify opportunities your organization can exploit. By identifying and taking advantage of these opportunities, your organization will maximize its profit potential and gain new customers in the process. Integrating opportunity planning into your organization’s contingency plans makes it easier to spot opportunities in good time and act on them to gain a competitive advantage.
4. Improves your organization’s reputation
Regardless of the size of your enterprise, your customers are likely to run away when they realize you’re not prepared to meet crises. Take for instance a bank. If it cannot assure its customers of the security of their funds regardless of future circumstances, then the customers will presumably take their money elsewhere. But with a contingency plan, the bank can convince its customers of their preparedness to handle future disasters/ problems without affecting their service delivery. This will, in turn, improve their reputation and retain customers.
In the same way, having a contingency plan for your organization will help you improve your reputation with your customers, employees and even stakeholders.
5. Boosts insurance and credit credibility
Insurance and access to credit are among the most important things for the continued survival of any business. Easier access to credit ensures a business can meet its capital demands while access to insurance enables a business to secure its assets against theft or damage. Business continuity and disaster recovery plans, which are both products of contingency planning, are very effective for gaining better insurance services at reduced premiums. This is because contingency planning significantly reduces the risks associated with covering certain organizational products or services.
Besides this, credit lenders are more willing to lend to organizations with contingency plans as opposed to those without. This is because the former are at a better position to repay their loans due to proper planning as compared to the latter who have no plans whatsoever for the uncertain future.
6. Contingency plans keep your business running
Disruptions such as lack of working capital, machine breakdowns, and natural disasters are among many other factors that can cause your business to come to a halt. Having a well-thought-out contingency plan can help weather these crises without having to shut down your business. Whether you have to dig into your contingency reserve to assist with your poor cash flow or transfer your production to another location to cater for machine breakdown, having a contingency plan will always keep you fulfilling customer orders.
Day to day business operations may be too demanding for you to carve out some time for contingency planning. But as experience has shown, disasters come when you least expect them and to save your business then; you have to be proactive now by starting to develop your contingency plan.