Contingency Planning
Formal strategic planning is typically based on events and possibilities with a high likelihood of occurring. However, it often overlooks less likely events that, if they occur, can significantly impact the business. These events (e.g., a hostile takeover attempt, a key executive leaving the organization, a stock crash, etc.) may require actions and approaches that differ entirely from the long-term plans and strategies of the business. Often, these events require managers to make strategically important decisions in a very short time, leaving no room for analysis and deliberation.
Contingency plans are essentially preparations to take specific actions when an event not accounted for in the usual planning process actually occurs. Such plans place managers in a better position to make the necessary decisions. Contingency planning eliminates fumbling and delays in emergency situations and enables a more rational response. For example, a 'Corporate Defense Black-book' outlines the tasks managers must undertake if a takeover threat is identified. This ensures that managers can respond quickly when the need arises. As a proximal benefit, the contingency planning process forces managers to consider all possible environmental dimensions. This exercise, combined with their experience in normal strategic planning, enhances managers' ability to handle emergency situations.
There are a few disadvantages of contingency planning as well. Contingency planning requires managers to think about pessimistic possibilities and may foster a negative and skeptical attitude. Some contingency plans, if revealed, may generate fear within the organization. For example, contingency plans related to job cuts in case of a drastic fall in sales or a plan to tackle a labor strike in the organization may cause morale problems among employees.
Contingency Planning Process:
1. Identifying the Contingencies:
The most crucial part of contingency planning is identifying those rare events which, if they happen, can pose a serious problem or a lucrative opportunity for the organization and will require a quick response. The range of events and conditions fitting these characteristics is quite broad, so it is important to identify the events for which plans are to be made. Both the degree of criticality and the degree of probability must be considered when choosing an event for contingency planning. Various methods can be used to identify such events.
What-If: A common 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 the company loses an important legal battle? What if the stock price crashes? These questions help identify the 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, often witness possibilities of adverse events that don't actually occur just by 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 consider the implications that might have occurred.
2. Formulating Plans:
Once the events to be planned for have been identified, possible actions should be analyzed. Based on the analysis, an ideal set of actions should be formulated. However, one should not forget that most of these events have a very small probability of occurring, and even when they do occur, there is a probability of them occurring in a different form than expected. Hence, the contingency plan often provides a broad idea to the decision-maker, and their 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 times, contingency conditions occur gradually, and there is a chance of natural recovery without needing the contingency plan. This presents a dilemma for managers, which may cause delays in action. Hence, a trigger point for a particular contingency plan ensures quick action as and when required. Deciding these trigger points (e.g., a particular level of share price to make some public announcement) is, however, a tough job.
4. Documentation:
There is no single correct method for documenting contingency plans. Sometimes it may be in the form of a booklet, sometimes a public notice board, or sometimes it may just be in the minds of executives. If required, such plans should be documented in a booklet with all the necessary details, important contacts, designated decision-making authority, etc.
Contingency plans, when exercised, usually result in short-term actions. However, contingency planning is crucial for preventing the organization from losing track of long-term plans due to some short-term crisis. This also indicates that even contingency plans should be made with the organization's mission and vision in mind.
From India, Ludhiana
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7Formal strategic planning is typically based on events and possibilities with a high likelihood of occurring. However, it often overlooks less likely events that, if they occur, can significantly impact the business. These events (e.g., a hostile takeover attempt, a key executive leaving the organization, a stock crash, etc.) may require actions and approaches that differ entirely from the long-term plans and strategies of the business. Often, these events require managers to make strategically important decisions in a very short time, leaving no room for analysis and deliberation.
Contingency plans are essentially preparations to take specific actions when an event not accounted for in the usual planning process actually occurs. Such plans place managers in a better position to make the necessary decisions. Contingency planning eliminates fumbling and delays in emergency situations and enables a more rational response. For example, a 'Corporate Defense Black-book' outlines the tasks managers must undertake if a takeover threat is identified. This ensures that managers can respond quickly when the need arises. As a proximal benefit, the contingency planning process forces managers to consider all possible environmental dimensions. This exercise, combined with their experience in normal strategic planning, enhances managers' ability to handle emergency situations.
There are a few disadvantages of contingency planning as well. Contingency planning requires managers to think about pessimistic possibilities and may foster a negative and skeptical attitude. Some contingency plans, if revealed, may generate fear within the organization. For example, contingency plans related to job cuts in case of a drastic fall in sales or a plan to tackle a labor strike in the organization may cause morale problems among employees.
Contingency Planning Process:
1. Identifying the Contingencies:
The most crucial part of contingency planning is identifying those rare events which, if they happen, can pose a serious problem or a lucrative opportunity for the organization and will require a quick response. The range of events and conditions fitting these characteristics is quite broad, so it is important to identify the events for which plans are to be made. Both the degree of criticality and the degree of probability must be considered when choosing an event for contingency planning. Various methods can be used to identify such events.
What-If: A common 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 the company loses an important legal battle? What if the stock price crashes? These questions help identify the 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, often witness possibilities of adverse events that don't actually occur just by 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 consider the implications that might have occurred.
2. Formulating Plans:
Once the events to be planned for have been identified, possible actions should be analyzed. Based on the analysis, an ideal set of actions should be formulated. However, one should not forget that most of these events have a very small probability of occurring, and even when they do occur, there is a probability of them occurring in a different form than expected. Hence, the contingency plan often provides a broad idea to the decision-maker, and their 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 times, contingency conditions occur gradually, and there is a chance of natural recovery without needing the contingency plan. This presents a dilemma for managers, which may cause delays in action. Hence, a trigger point for a particular contingency plan ensures quick action as and when required. Deciding these trigger points (e.g., a particular level of share price to make some public announcement) is, however, a tough job.
4. Documentation:
There is no single correct method for documenting contingency plans. Sometimes it may be in the form of a booklet, sometimes a public notice board, or sometimes it may just be in the minds of executives. If required, such plans should be documented in a booklet with all the necessary details, important contacts, designated decision-making authority, etc.
Contingency plans, when exercised, usually result in short-term actions. However, contingency planning is crucial for preventing the organization from losing track of long-term plans due to some short-term crisis. This also indicates that even contingency plans should be made with the organization's mission and vision in mind.
From India, Ludhiana
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