Why Every Business Should Have Contingency Plans

The Resilient Enterprise

A well-known business maxim states: “Failing to plan is planning to fail.” Yet every plan is only as good as its backup. Why? Because in the ecosphere of complex global supply chains, risk is ever-present, and disruption is just around the next corner. That means you will be better able to manage risk events in your supply chain when you have a solid Plan B. Read on.

1. What is a contingency plan for a business?

Essentially, a contingency plan is your “Plan B.” It specifies what to do if your planned outcome is disrupted. Business contingency plans outline the steps for the company to take in response to negative events. For procurement and supply chain managers, these include natural disasters, but also man-made occurrences such as negative news about strategic suppliers.

Contingency plans detail what to do, how to communicate tasks, and who will coordinate efforts, so the organization can continue or resume business operations as quickly as possible. Positive events, such as skyrocketing demand, can also disrupt plans and leave companies scrambling. High demand is one contributor to the current semiconductor and plastics shortages, for example.

2. Why contingency plans are important

Contingency plans for business help companies handle unpredictability, manage potential threats and reduce the impact. The better your plan B, the faster and more efficiently you can react when something unexpected happens. Well-conceived contingency plans for supply chains prepare organizations for potential risk events at suppliers, their own locations, or along the supply path.

Similarly, contingency plans in project management are used to manage unpredictable events during a project. Negative occurrences include technical mishaps, as well as absences that could put the project behind schedule. And just as with supply chains, small disturbances or delays early on can cascade down the line to create much bigger problems later.

3. What does a contingency plan cover?

Ideally, your contingency plans cover events ranging from mild incidents to disasters or emergencies, and will contain the following elements:

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  • Crisis communication serves to notify employees, customers, and stakeholders as soon as possible. This is why you need real-time information – whether oncoming storm or impending port strike. The faster you become aware of an event, the faster you can distribute the news.
  • Occupant emergency plans guide personnel on what they should do during a critical situation, and how to evacuate visitors or other people onsite.
  • Disaster recovery protects IT-infrastruture, minimizes disruption to services or loss of data in events such as a natural diaster or cyber incident. Such protection can involve outsourcing operations and backups to remote servers or cloud solutions. Disaster recovery is supported by an information system contingency plan, which contains the details of critical processes, hard- and software systems, and data backups.

In a supply chain context, your contingency plan may also include proactive measures, such as setting finances aside to cover potential losses, adjusting schedules to accommodate delays, and ensuring that ample stocks of replacement inventory are available.

4. How to develop a contingency plan

Contingency plans belong to the larger proactive strategy and methodology of business continuity. Whereas business continuity focuses on business survival after an event, contingency plans include actionable steps defining what to do during and immediately after specific events. The assets you cover in your contingency plan will depend on what is most critical for your organization.

To begin, outline the purposes of your plan. Then break down your projects, processes, suppliers, or operations according to their significance to business survival. Here are five key steps:

  • Create a list of your business-critical infrastructures, equipment, suppliers or processes. Assess the impact of disruption to these though a scoring system.
  • Identify key risks that could stop your operations or cause serious problems. Prioritize the risks, so you can allocate resources and team members.
  • Assume various scenarios, such as natural disasters, loss of a supplier, or cyberattack. You’ll need different instructions and actions for each scenario.
  • Make detailed instructions. These include a management plan, in other words, who is in charge of what, the departmental course of action, as well as individual tasks. Use step-by-step instructions or checklists. People may have to perform their tasks in an emergency.
  • Discuss, practice, and refine your contingency plans. Make sure everyone knows where to find the plans. It’s critical that everyone involved clearly understands their role and tasks. Amend plans where necessary, and keep them up to date, including all contact information.
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5. Contingency plans and risk management

Contingency plans play a key role in mitigating the effects of unexpected events. Yet there are no substitutes for comprehensive supply chain risk management. Although you create contingency plans ahead of a risk event, they are basically reactive measures. In other words, many procedures kick in after your scenario occurs.

Holistic supply chain risk management includes more than crisis management. When you can identify threats in advance, and monitor events in real time, you are already in a position to avoid certain risks. For example, when you learn that there is an impending strike at a supplier’s site, you can have conversations with management to decide on alternative suppliers, or buy additional quantities from a different location.

6. Using The riskmethods Solution for creating a supply chain contingency plan

The AI-powered technology of The riskmethods Solution helps you identify, assess and mitigate risk. This assists you in various stages of your contingency planning. Among others:

  • Visualize your end-to-end supply network on a world map. Understand supply dependencies, multi-tier relationships, and create risk scorecards for your suppliers based on thousands of monitored sites, locations or supply paths. Assess risk criticality at the category level. This makes it easier to evaluate the likelihood of specific events.
  • Get a total view of risk. Stay up to date on financial, geopolitical, natural hazard, cyber, man-made, and reputational risk, which enables your scenario planning. Real-time monitoring and risk alerts let you set the right priorities. 
  • Have all risk information in one place. Get the complete picture of how threats impact your organization. Save time in critical situations. Also, advanced tools help you develop action plans. You leave nothing to chance.

In short, that is why every business should have contingency plans: to speed response to disruption and recover faster. Going one step further, every business that relies on suppliers and third parties should have comprehensive supply chain risk management. This empowers you to make better decisions, build preventative strategies, ensure business continuity, and strengthen supply chain resilience.

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