Crystal Ball Gazing – Using Contingency Planning

As furtive steps are taken away from the worst economic meltdown since the Great Depression, can we look forward to steady sailing for the foreseeable future?  Probably not.  Most firms remain at risk from a plethora of economic, political and environmental shocks as well as the continuation of existing mega trends.

Very likely we already know, as was the case with asset bubbles and global warming, which shocks loom over the horizon.  However, knowing your risks and doing something about it in advance is another matter.  Despite dire warnings and market signals in 2007/08, the vast majority of companies were unprepared to deal with the impact of the  financial crisis.  Given that, how can firms then deal with unforeseen shocks that (seemingly) come out of the blue? That’s where contingency planning (CP) comes in.  CP is a process that:  identifies key trends and potential contingencies;  determines how they will negatively or positively impact the business and; drives strategy development to preempt or mitigate the impact.   

CP delivers many benefits to the organization: 

  1. Reduces business risk through: driving regular financial assessments; triggering preemptive planning and; minimizing the latency period between impact and management action;
  2. Enables firms to preempt or shape threats before they occur;
  3. Catalyzes ‘out of the box’ strategic thinking to deal with unexpected or unorthodox threats (and opportunities);
  4. Improves corporate morale by reducing uncertainty and anxiety

What are some best practices in CP? According to Wharton Business School and Quanta Consulting research, firms need to:

Think differently 

Although CP is not necessarily new, it is often not practiced in a systematic or non-biased way. In many Companies, most trends are followed in an opportunistic and relatively unstructured way. Unfortunately, a great deal of effort, or a serious shock, is often needed to spark a change in the CP approach.

Get the timing right

Short CP analytical periods are sub-optimal.  They limit the number of potential scenarios, don’t take full account of ongoing trends and restrict available strategic options. On the other hand, overly long planning periods lack predictive confidence, introduce too many variables and have difficulty garnering internal attention and credibility. 

Prioritize major trends and potential scenarios

With CP, strategic priority should be towards those scenarios or trends that are extremely impactful on the business yet highly uncertain in their timing. Contingencies should be analyzed in terms of their impact on the key business inputs, continuity and enablers (e.g., price of oil, availability of broadband or free flow of goods through borders). Ongoing, high priority scenarios and trends should be tracked through an early warning system based on customer, market, media and government data feeds.

Provide strategic options

So that executives have strategic flexibility during threats, a variety of offensive and defensive options should be developed for each priority scenario.  In some cases, preemptive plans could take advantage of contingencies to get you in front of your competitors and improve your market position. The CP exercise should become a part of the ongoing strategic planning process and structure for maximum alignment.  

With the right approach and a little discipline, there is no excuse for Companies to be caught blind-sided by many contingencies. Executives must heed the old adage:  “people don’t plan to fail…they fail to plan”


3 comments so far

  1. leanexecution on

    Contingency planning is a critical tool. While preparing the contingency plan, one is forced to think of reasons why the original plan may fail. As such, preventive steps can be incorporated into the original plan to assure its success.

    A thorough Failure Mode Effects and Analysis (FMEA) may also serve to provide insights into preparing an effective contingency plan. FMEA’s can be used to identify the greatest risks to the plan using the Risk Priority Number (RPN) to further identify higher risk items and prioritize actions accordingly.

    Some may even discover that the contingency plan is the better plan.

    • mitchellosak on

      Abolsutely agree with your sentiments. However, my experience with failure analysis suggests that not all organizations or leaders can honestly and comprehensively address why things go wrong. I have studied this phenomena in the military and have a few thoughts on its applicability to business, which are found at

  2. leanexecution on

    The Naval Reactor program certainly learned to implement very stringent controls due their lack of understanding in Nuclear Technology at the time. It was the lack of knowledge that drove strict adherence to standard procedures and a high level of discipline that would tolerate nothing less.

    Three Mile Island and certain NASA shuttle missions are rife with tolerance for the unknown – opportunities for learning dismissed until catastrophe strikes.

    There is an expression that the same level of intelligence cannot be used to solve the problem …

    Thanks for sharing.

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