Contingency Plan explained

Article by: Jorge Sagastume

Last update: July 26, 2023

Contingency Plan: this article describes the concept of a Contingency Plan in a practical way. It cover what a business disaster and a contingency plan are, what the components of a contingency plan are and who makes the plan. It concludes with two sample cases, what we can learn from them and a conclusion. After reading the article, you will understand the definition and basics of this strategy tool. Enjoy reading!

Introduction

Starting and owning a business is very exciting. But when we do a little research, we realize that majority of businesses and startups fail.

Another way to this point is, a majority of businesses show signs of failure at some point or other; some survive this phase and emerge even stronger while others sink into oblivion forever. When we dig deeper, we find out that companies that survive and thrive have a contingency plan prepared to combat business disasters.

What is a Business Disaster?

The cause of a business disaster can be anything; from a natural disaster to a technical fault and from a criminal activity to a fatal error by one or more of the work staff. It might also be a change in market trends; failing to keep up with the innovation and technology of the time.

What is a Contingency Plan?

A contingency plan enables a business to get back on its feet and start providing services and/or products without much time. Creating a successful business contingency plan involves a lot of planning and practice. Planning is important as it enables the businesses to put an extensive and practical plan on the paper. And practice, which is testing the plan through real-life drills, makes the plan more practical, relevant, and up to date.

While businesses may have some common practices, there is no hard and fast rule or a given template to devise a contingency plan. Every business has its own work ethic, operational requirements, and goals, so each will require an exclusively customized plan according to its requirements.

Components of a Contingency Plan

Every contingency plan should have three main aspects which are briefly explained here:

Recognizing disaster

First of all, we should know what a disaster is. A disaster for a business is when it stops delivering its services/ products to its customers.

Some disasters are evident such as a natural disaster or an operational mishap, while others may require some common sense from the members of an organization to realize. Here, the role organizational management is very critical in realizing that one or more of the business plans is not working properly.

Responding to disaster

It is important that every staff member should know his role when a disaster strikes, and should act upon it according to his capabilities.

Those staff members who act proactively in the wake of a disaster are an asset to any business. But it’s upon business leaders and managers to train their teams and make them fully equipped for any situation.

Planning for recovery

Recovery is only possible when businesses have already prepared for and left a space for the worst-case scenario. This phase usually requires taking tough decisions from the management such as laying off loyal employees, selling some valuable assets, taking loans, and so on. But most importantly, staying motivated and passionate about acquiring the business goals plays a vital role in the successful recovery.

Who Makes the Contingency Plan for a Business?

For a business of any scale, designing a contingency plan is not a single person’s job. From the planning to the execution, every single employee of a business organization, from the junior most staff member to the CEO, is an equally important stakeholder in every phase of contingency plan.

Business Disaster Cases

Let’s take two companies as sample cases to better understand the concept of business contingency plan. First, we will discuss Nokia, a Finnish company that once was every household’s name for mobiles, and had to close down in an unfortunate series of events.

And then we will move on to Apple, another mobile manufacturer whose start wasn’t as impressive as Nokia, but eventually changed forever the way mobiles are made and used.

Nokia Mobiles without a contingency plan

Nokia mobile is a perfect example of businesses that were running without a contingency plan and eventually had to bite the dust as a result. One of the most famous consumer mobile manufacturers in the history, Nokia made and broke all the records of sales and customer reachability around the globe.

It remained the top seller of mobile phones for 14 years but as the time passed; it kept sliding away from the scene and a time came when Microsoft acquired the company. The slide didn’t stop here and even after so many efforts and $10 billion investment, the brand failed to regain its lost position in the market.

While some may argue that Nokia’s case may not be a disaster, but business experts know that it is, in fact, a perfect example of business disaster. As we defined earlier, disaster is when a business seizes to provide services/products to its customers.

Why Nokia failed?
What actually happened was, while Nokia was too busy in managing its sales, the iPhone and other competitors came up with innovative ideas in the market. The introduction of iPhone in 2007 was the start of the Nokia’s end. With the introduction of iPhone, Apple actually defined what the phone for the future is.

Other competitors such as Samsung followed suit and manufactured smartphones that were cheap and full of smart features. The disaster for Nokia was the change in the market trend; and apparently, Nokia was unaware of the situation for many years, let alone making a contingency plan.

Apple

Best known for the iPhones, Apple is an American company that started its operations in 1976 as designer and manufacturer of computer hardware and software. It continued to catch some interest of the public with highly innovative ideas and products such as Macintosh Personal Computer but was never able to capture a sizable market throughout 70’s, 80’s and early 90’s.

In this period, Apple released many products and almost all of them were big flops. These include Macintosh Portable, a battery powered computer, and Newton, a personal digital assistant.

Apple got the first breakthrough in 1998 with the production of iMac computers. This series of personal computers was a success and brought the company to profitability. This followed with the release of Mac OS X, iPod, iPhone and MacBook; all of these were huge successes.

What Can We Learn From Apple and What Should You Include in Your Contingency Plan?

There cannot be a more interesting story than that of Apple. The company saw years of failure, showed years of perseverance, and eventually got success which can be foreseen for years to come.

There is a lot to learn for businesses and startups from the Apple’s case; let’s break them down into a series of points. If you own or manage a business, you might want to include these points in your contingency plan.

Only change is constant

No matter how good your service or product is doing right now, you should look for constant improvements and up gradations. The only known rule to survive and thrive is to adapt to the ever-changing business trends.

Companies that, despite failure, stick to their original work ethic, tend to succeed very rarely, whereas those businesses which decide to change their course with the market trends rule the market. The sample cases discussed in the previous section prove this very point.

Don’t be a sheep following the herd

All the successful companies that we see today have something common; they all had a unique idea that defied the common norms of businesses, and sometimes, the prevailing sense of logic.

Be bold and different

Majority of failing businesses today have also something common; they blindly follow one of the current trends in the market which then becomes obsolete in a short period and all the investments and efforts go down the drain.

Contingency Plan, the conclusion

Business is all about taking risks, being different, and showing perseverance in the time of loss. In the world full of risks and disasters, only those businesses succeed which devise a contingency plan and keep it updated with time.

Now It’s Your Turn

What do you think? What is your experience with a Contingency Plan? Do you recognize the practical explanation or do you have more additions? What are your success factors for making and executing a Contingency Plan?

Share your experience and knowledge in the comments box below.

More information

Crouhy, M., Galai, D., & Mark, R. (2006). The essentials of risk management (Vol. 1). New York: McGraw-Hill.
Kopp, E. (2017). Business Continuity Management Plain & Simple: How To Write A Business Continuity Plan (BCP). Kindle Edition. ekpublications.
Sagastume, J. (2016). Business Continuity Concerns when using Mission Critical SaaS Applications. Retrieved from https://www.escrowtech.com/blog/business-continuity-using-mission-critical-saas-applications/.
Wallace, M., & Webber, L. (2017). The disaster recovery handbook: A step-by-step plan to ensure business continuity and protect vital operations, facilities, and assets. AMACOM Div American Mgmt Assn.

How to cite this article:
Sagastume, J. (2018). Contingency Plan. Retrieved [insert date] from Toolshero: https://www.toolshero.com/strategy/contingency-plan/

Original publication date: 01/24/2018 | Last update: 07/26/2023

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Article by:

Jorge Sagastume

Jorge Sagastume is a Vice President at EscrowTech International, Inc. with 12 years of experience protecting IP and earning the trust of the greatest companies in the world. Jorge has been invited to speak on IP issues by foreign governments and international agencies.