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A contingency plan is a plan of action or “Plan B” for businesses to implement in extraordinary circumstances. Contingency plans most frequently go into effect during or after adverse events such as economic recessions, natural disasters, fraud activities, terrorist attacks, or a pandemic.

Read on to learn more about what a contingency plan involves, how it helps businesses, and how to create one for your business. 

What Is a Contingency Plan?

A contingency plan outlines how your business will respond in an emergency or other extraordinary circumstances. Contingency plans are often created to deal with unexpected events, such as natural disasters, IT-related issues, or power outages. 

This type of plan can help businesses avoid or minimize the impact of an emergency by documenting how teams should act and what steps they’ll take when faced with an emergency. A well-structured contingency plan can also reduce the time it takes for businesses to recover from an emergency, which could save on company budgets and resources like employee productivity.

Types of Contingency Plans

There are several different approaches businesses can use for contingency planning. Here are a few of the most commonly used contingency plan types and what they mitigate:

Emergency plan

This plan is designed to navigate a disaster, such as an earthquake or flood. It includes instructions on contacting people and resources to use in case of an emergency. It should specifically cover what steps are necessary to protect individuals and important assets in the event of danger.

Business contingency plan

A business contingency plan helps companies prepare for unexpected situations that could threaten business operations or cause damage to property or equipment. Strategies for contingency planning include identifying critical systems and network components that will need to be recovered most urgently in the event of a service interruption caused by external events. Events can range from floods to major security breaches.

IT disaster recovery plan

An IT disaster recovery plan outlines the necessary steps to recover systems after a significant disruption. There should be a plan in place for each server so that if there’s downtime for one, IT admins can manually copy data from backup drives onto newly configured servers within 24 hours.

What Is a Contingency Plan in Project Management?

Contingency planning is an important part of the project management process. It’s an activity that should occur after a project team has completed their risk management plan and during the risk identification, analysis, and response planning stages of projects. When structuring a contingency plan, it’s essential to keep track of all potential risks that could affect the project by creating a comprehensive list of each project risk and how it can be mitigated.

Why Is Contingency Planning Important? 

Contingency planning is an essential part of preparing for worst-case business scenarios and limiting operational impact. Here are a few key reasons why all businesses should engage in contingency planning:

Identify new risks and disaster outcomes

Contingency plans help companies identify risks they may not have considered prior to planning For example, natural disasters are an expected part of business, but most businesses do not prepare for disaster outcomes like lengthy network outages. Thoughtful contingency planning forces companies to document how they will respond to a variety of disaster outcomes.

Proactively optimize business tools and resources

Contingency plans outline steps that need to be taken before an incident occurs to minimize its impact on critical tools and resources. Through the process, businesses identify their most critical resources and what they need to do to protect them. In many cases, businesses discover current inefficiencies, security problems, and other business issues and fix them while preparing a contingency plan.

Clarify key stakeholders and access needs

Contingency planning helps businesses know who can access critical information and which key stakeholders need access to different business resources. With the right team members in place, companies can limit user error and unauthorized access and increase the likelihood that the right person has the access to detect and address future problems.

How to Create a Contingency Plan for Your Business 

Here are 3 ways businesses can build a successful contingency plan:

1. Identify the risks: Specify the risks your business currently faces and the possible consequences of those risks if they turn into reality.

2. Develop a response to risks: Develop a contingency plan for each identified risk so all team members are aware of the who, what, when, and how behind each risk resolution.

3. Test your contingency plan: Businesses should simulate real-world scenarios to test the quality of their contingency plans. This allows businesses to assess what additional adjustments need to be made before a real disaster occurs.

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