What is a contingency plan? A guide to contingency planning

No one wants Plan A to fail—but having a strong Plan B in place is the best way to be prepared for any situation. With a solid backup plan, you can effectively respond to unforeseen events and get back on track as quickly as possible. 

A contingency plan is a proactive strategy to help you address negative developments and ensure business continuity. In this article, learn how to create a contingency plan for unexpected events and build recovery strategies to ensure your business remains healthy.

What is contingency planning?

How can teams tackle challenges like power outages, natural disasters, and market fluctuations that disrupt operations and cause productivity losses? The key lies in effective contingency planning. This strategic approach is designed to identify potential risks and develop actionable response plans to mitigate disruptions caused by unforeseen disasters and escalating problems.

What is a contingency plan? 

A contingency plan is a strategy that outlines how your organization will handle unexpected events that disrupt your original plans. Done right, it can reduce risks and help your business get back on track quickly. Many are familiar with contingency plans for natural disasters; businesses and governments often prepare for floods, earthquakes, or tornadoes.

However, contingency plans are equally vital for business-related risks. They can address challenges like a major competitor merger, losing a key client, or even smaller but impactful events, such as an extended software outage. Having a contingency plan for business helps you stay prepared and ready to adapt.

Contingency planning vs risk management

Think of project risk management as planning for the little bumps along the way. It involves identifying potential risks early, monitoring them closely, and preparing a plan of action. This usually means setting up a risk register to track issues and tackle them before they become big problems.

A contingency plan, on the other hand, takes a bigger-picture view. It’s designed to handle risks that could impact multiple projects or even entire departments. Contingency planning makes sure the whole business stays on track no matter what.

Contingency planning vs crisis management

Contingency planning is all about staying ahead of the game—identifying possible threats and putting strategies in place before anything goes wrong.

Crisis management, though, kicks in when things actually go sideways. It involves taking immediate action, minimizing damage, and making difficult decisions quickly. While contingency planning helps you stay ready, a crisis management plan deals with the unexpected to keep the business afloat.

Why every business needs a contingency plan

Let’s face it—no matter how much planning goes into running a business, unexpected events can still throw everything off course. That’s where a solid contingency plan comes in. Having a contingency plan is not just about having a backup plan, but also about being prepared to respond quickly and maintain the direction of your business when unexpected events occur.

A well-thought-out contingency planning process helps protect your bottom line, reassure your stakeholders, and make sure continuity of operations can resume with minimal disruption.

Key benefits of a contingency plan:

• Keeps critical business functions running smoothly when disruptions occur.

• Helps reduce financial costs associated with emergencies, such as lost revenue and recovery efforts.

• Shows clients, investors, and employees that your business is prepared for the worst.

• Fulfills regulatory and compliance obligations (like NIST or other .gov guidelines) for risk preparedness.

• Reduces panic and confusion by providing a clear emergency response plan during times of crisis.

Ultimately, the purpose of having a business contingency plan is not only to prevent disasters, but also to maintain control.

Don't wait for disaster to strike; start a backup strategy now to protect your business operations and achieve long-term success.

5 contingency plan examples

There are a variety of reasons you’d want to set up a contingency plan. Rather than building one contingency plan, you should build one plan for each type of large-scale risk or disaster that might strike.

1. Business contingency plan

A business contingency plan is a specialized strategy that organizations develop to respond to particular, unforeseen events that threaten to disrupt regular operations. It's kind of like a business continuity plan, but there's one key difference. 

While business continuity plans aim to ensure the uninterrupted operation of the entire business during a crisis, contingency planning in business zeroes in on procedures and solutions for specific critical incidents, such as data breaches, supply chain interruptions, or key staff unavailability. 

Examples of contingency plans in business could include:

• Strategies to ensure minimal operational disruption during crises, such as unexpected market shifts, regulatory compliance changes, or severe staff shortages.

• Partnerships with external agencies that can provide support in scenarios like environmental hazards or public health emergencies.

• A comprehensive communication strategy with internal and external stakeholders to provide clear, timely information flow during crises like brand reputation threats or legal challenges.

2. Environmental contingency plan

While severe earthquakes aren’t particularly common, being unprepared when “the big one” strikes could prove to be catastrophic. This is why governments and businesses in regions prone to earthquakes create preparedness initiatives and contingency plans.

A government contingency plan for an earthquake could include: 

• The names and information of the people designated to handle certain tasks in advance to ensure the emergency response is quick and concise

• Ways to educate the public on how to respond when an earthquake hits

• A timeline for emergency responders.

3. Technology contingency plan

If your business is particularly data-heavy, for example, ensuring the safety and cybersecurity of your information systems is critical. Whether a power surge damages your servers or a hacker attempts to infiltrate your network, you’ll want to have an emergency response in place.

A tech or SaaS business contingency plan for a data breach could involve: 

• Steps to take and key team members to notify in order to get data adequately secured once more

• The names and information of stakeholders to contact to discuss the impact of the data breach and the plan to protect their investment

• A timeline to document what is being done to address the breach and what will need to be done to prevent data breaches in the future

4. Supply chain contingency plan

Businesses that are integral parts of the supply chain, such as manufacturing entities, retail companies, and logistics providers, need an effective supply chain contingency plan to continue functioning smoothly under unforeseen circumstances.

These plans hedge against supply chain disruptions caused by events like natural disasters or technological outages and help organizations reduce downtime and ensure real-time operational capabilities. 

A supply chain contingency plan could include:

• Secure critical data and systems while promptly notifying key team members, such as IT staff and management, for immediate action.

• A predetermined list of essential stakeholders, including suppliers, customers, investors, and authorities, should be contacted to inform them about the disruption and steps being taken.

• A detailed timeline is essential for documenting the immediate response and outlining long-term strategies to prevent future disruptions in the supply chain.

5. Pandemic contingency plan

In the face of a global health crisis, a pandemic contingency plan is vital for organizations in healthcare, retail, and manufacturing. This plan focuses on mitigation strategies to minimize operational disruptions and ensure the safety of employees while maintaining business continuity. 

A pandemic response plan could include:

• A comprehensive health and safety protocol for employees that integrates regular health screenings, detailed risk analysis, and emergency medical support as key components.

• Flexible work arrangements and protocols for remote operations and digital communication.

• A list of key personnel and communication channels for immediate response and coordination.

• Regularly reviewing and adapting the pandemic contingency plan as part of an ongoing disaster recovery plan to address evolving challenges and lessons learned.

How to write a contingency plan

Having a plan in place can significantly impact outcomes when things go awry. Our step-by-step contingency planning guide breaks down how to make a contingency plan that keeps your business prepared for anything—from operational hiccups to major disruptions. Whether you're dealing with cybersecurity threats or supply chain issues, this guide will help you stay ahead and minimize downtime.

1. Make a list of risks

Before you can resolve risks, you first need to identify them. Start by making a list of any and all risks that might impact your company. Remember: there are different levels of contingency planning—you could be planning at the business, department, or program level. Make sure your contingency plans are aligned with the scope and magnitude of the risks you’re responsible for addressing. 

A contingency plan is a large-scale effort, so hold a brainstorming session with relevant stakeholders to identify and discuss potential risks. If you aren’t sure who should be included in your brainstorming session, create a stakeholder analysis map to identify who should be involved.

2. Weigh risks based on severity and likelihood

You don’t need to create a contingency plan for every risk you lay out. Once you outline risks and potential threats, work with your stakeholders to identify the potential impact of each risk. 

Evaluate each risk based on two metrics: the severity of the impact if the risk were to happen and the likelihood of the risk occurring. During the risk assessment phase, assign each risk a severity and likelihood—we recommend using high, medium, and low. 

3. Identify important risks

Once you’ve assigned severity and likelihood to each risk, it’s up to you and your stakeholders to decide which risks are most important to address. For example, you should definitely create a contingency plan for a risk that has high likelihood and high severity, whereas you probably don’t need to create a contingency plan for a risk that has low likelihood and low severity. 

You and your stakeholders should decide where to draw the line.

4. Conduct a business impact analysis

A business impact analysis (BIA) is a deep dive into your operations to identify exactly which systems keep your operations ticking. A BIA will help you predict what impact a specific risk could have on your business and, in turn, the response you and your team should take if that risk were to occur. 

Understanding the severity and likelihood of each risk will help you determine exactly how you will need to proceed to minimize the impact of the threat to your business. 

For example, what are you going to do about risks that have low severity but high likelihood? What about risks that are high in severity but relatively low in likelihood? 

Determining exactly what makes your business tick will help you create a contingency plan for every risk, no matter the likelihood or severity. 

5. Create contingency plans for the biggest risks

Create a contingency plan for each risk you’ve identified as important. As part of that contingency plan, describe the risk and brainstorm what your team will do if the risk comes to pass. Each plan should outline all the necessary steps to resume normal business operations.

Your contingency plan should include information about:

• The triggers that will set this plan into motion

• The immediate response

• Who should be involved and informed?

• Key responsibilities, including a RACI chart if necessary

The timeline of your response (i.e. immediate things to do vs. longer-term things to do)

For example, let’s say you’ve identified a potential staff shortage as a likely and severe risk. This would significantly impact normal operations, so you want to create a contingency plan to prepare for it. Each person on your team has a very particular skill set, and it would be difficult to manage team responsibilities if more than one person left at the same time. Your contingency plan might include who can cover certain projects or processes while you hire a backfill or how to improve team documentation to prevent siloed skillsets.

6. Get approval for contingency plans

Make sure relevant company leaders know about the plan and agree with your course of action. This is especially relevant if you’re creating team- or department-level plans. By creating a contingency plan, you’re empowering your team to respond quickly to a risk, but you want to make sure that course of action is the right one. Plus, pre-approval will allow you to set the plan in motion with confidence—knowing you’re on the right track—and without having to ask for approvals beforehand.

7. Share your contingency plans

Once you’ve created your contingency plans, share them with the right people. Make sure everyone knows what you’ll do, so if and when the time comes, you can act as quickly and seamlessly as possible. Keep your contingency plans in a central source of truth so everyone can easily access them if necessary.

Creating a project on a work management platform is a great way of distributing the plan and ensuring everyone has a step-by-step guide for how to enact it.

8. Monitor contingency plans

Review your contingency plan frequently to make sure it’s still accurate. Take into account new risks or new opportunities, like new hires or a changing business landscape. If a new executive leader joins the team, make sure to surface the contingency plan for their review as well. 

9. Create new contingency plans (if necessary)

It’s great if you’ve created contingency plans for all the risks you found, but make sure you’re constantly monitoring for new risks. If you discover a new risk and it has a high enough severity or likelihood, create a new contingency plan for that risk. Likewise, you may look back on your plans and realize that some of the scenarios you once worried about aren’t likely to happen or, if they do, they won’t impact your team as much.

Common contingency planning mistakes—and how to avoid them

A contingency plan is a powerful tool to help you get back to normal business functions quickly. To ensure your contingency planning process is as smooth as possible, watch out for common pitfalls, like: 

• Lack of buy-in: A contingency plan takes effort, so make sure you have executive support from the start. Keep your sponsors in the loop to address key risks and build confidence in your action plan.

• Bias against “Plan B” thinking: Some teams resist backup plans, believing Plan A will always work. But having a Plan B is like checking the weather before sailing—it’s better to be safe than sorry in case of a negative event.

• One-and-done contingency plans: It’s easy to think the job is done once your plan is written, but that’s a mistake. Regular reviews help keep it relevant and ready for new challenges.

Get started on your contingency plan today

A contingency plan can be a lot of work to create, but if you ever need to use it, you’ll be glad you made one. In addition to creating a strong contingency plan, make sure you keep it up-to-date.

Being proactive can help you mitigate risks before they happen—so make sure to communicate your contingency plan to the team members who will be responsible for carrying them out if a risk does happen. Don’t leave your contingency plan in a document to collect dust—after creating it, you should use it if need be!

Once you’ve created the plan, make sure you store it in a central location that everyone can access, like a work management platform. If it does come time to use one of your contingency plans, storing them in a centrally accessible location can help your team quickly turn plans into action.

FAQs about contingency planning