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What is Business Contingency Planning?

written by: •edited by: Jean Scheid•updated: 6/24/2011

Remember Y2K where everyone thought computers everywhere would stop working as soon as the year 2000 hit? Although not much happened, wise companies didn't have to ask, what's your backup plan. Smart companies had a discussion on business contingency planning prior to Y2K.

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    Business Contigency Planning: A Definition

    One company may define a contingency plan one way and another a different way. No matter the size of the company, contingency planning means planning for what could go wrong. When those wrongs are identified, a good contingency plan outlines everything from disasters to impacts to losses to options to recovery plans. A contingency plan should also allow for the unexpected that can't be fixed.

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    Back Up Plans by Art La Flamme 

    Something that can't be fixed, like a building destroyed by fire might be discussed in the contingency plan with a phase two on handling the situation or for larger firms it can be part of the contingency plan. Smaller firms and big companies need to define each process that occurs in each department, who handles the process, and what to do if the ball is dropped.

    New small business owners are perhaps the most in need of a contingency plan. They may be unsure of their market, their services, and how their advertising will affect customers. They may hire the wrong employees or jump in with much thought or the follow through of a business plan. Small business owners often leave catastrophe handling to an employee which can be devastating.

    Contingency plans will get the small business owner back on their feet after failures or mishaps.

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    Contingency Plans: An Outline

    Here's an example on how to build your contingency plan:

    1. Who will lead it? If you're a small business owner, you may need to take the lead. Taking the lead doesn't mean you write the entire plan, it allows you to overview written contingency plans for each process that takes place within your company.
    2. Assign. Identify your departments and if you have department heads or supervisors, have them outline everything their department does, who they connect with, what they deliver, and time schedules. If you don't have a department head appoint one for this purpose.
    3. Departmental issues. Through the department head or supervisor, ask them to write down every task that is completed by their department, daily, weekly, and monthly. Or in different intervals as you see fit. For example, your payroll department does more than just handle payroll. This department may hire, terminate, deal with unemployment claims, health insurance and anything else that encompasses human resources. No matter how small the task within each department, make sure it's included in each supervisor's report. Supervisors should include the task and the process along with the person who completes each task.
    4. Computer evaluation - Supervisors should also include how much computer work is involved in each task? Who is trained on each computer program used? Who understands how your business technology works?
    5. Prioritize - After your supervisors have made their lists, they should prioritize each task or procedure with a level of importance. A one would indicate a high priority, a two would be a medium; a three, a low priority.
    6. Hold a meeting with your supervisors and take the time to discuss each list, and identify (write) how you plan to deal with a priority if something fails. For instance, if you're computer mainframe goes down, can anyone manually complete payroll?

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    Contingency Levels

    You will see during the writing of your contingency plan that some process that fail can be handled immediately or on the department level. For example, a reaction in your contingency plan might be assigning a different person to a flawed process. For higher levels of contingency planning, you, as the business owner, will have to become involved. If you've planned correctly, you might find you can produce X-number of widgets for a profit of Y. If during an internal review, you are no where near the profit of Y, as the owner, you need to find out where the problem lies. A good contingency plan can identify problem areas so they can be quickly dealt with.

    High levels of contingency planning in order for them to be effective means you have to understand the process, procedure, and task that gets you to your desired profit of Y. In your contingency plan you may have a plan for reduced profits for an identified reason. Be specific on how you plan to deal with reduced income. Will the process, the resource, or the task be changed?

    You should also plan for acceptable losses. Some losses can't be helped but if they are identified upfront in your contingency plan, you can control them by revisiting the loss area or problem.

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    Testing Your Plan

    With every plan or implementation of a new procedure, as a small business owner, you should test it. The best way to test your contingency plan is in phases.

    • Owner review - You are the owner of your small business so select a department, offer up a loss or risk from your contingency plan and see if it works. If it doesn't, find out why and re-write your procedure.
    • Supervisor review - Have your supervisors within each department do the same. Supervisors and department heads work most closely with your employees and should be able to quickly identify something that isn't working in the contingency plan.
    • Intertwine supervisors - If you have more than one department, have supervisors switch roles for a day and present a loss that is in the contingency plan. Here you'll have an unbiased view of how things were controlled.
    • Technology reviews - It's hard to appoint one person to review possible technological problems with computers and other hardware. If you have an internal IT person, have them handle the review. If you utilize an outside vendor, ask them to take your server down and use the IT section of your contingency plan to help you define what to do if this happens.

    What's your backup plan? Should you discuss contingency planning and implement it at your business? The answer to both of these questions is absolutely yes! To aid you in writing your contingency plan, please visit our Media Gallery for a contingency plan template to help you get started.