Contingency plan: Definition, examples & how to create

Everyone hopes Plan A works out, but having a reliable Plan B is the smartest way to stay ready for anything. A good backup plan helps you handle surprises and get things running smoothly again as soon as possible. A contingency plan is a strategy that helps you deal with setbacks and keep your business running. In this article, you'll learn how to make a plan for unexpected events and build recovery steps to keep your business strong.

What is contingency planning?

Contingency planning is a strategic planning process that helps organizations identify potential risks and develop actionable response plans before disruptions occur. It addresses challenges such as power outages, natural disasters, and market fluctuations that can disrupt operations and reduce productivity.

What is a contingency plan?

A contingency plan explains how your organization will handle surprises that disrupt your plans. If done well, it lowers risks and helps your business recover quickly.

Common scenarios that require contingency plans include:

• Natural disasters: Floods, earthquakes, or tornadoes

• Competitive shifts: A major competitor merger or market disruption

• Client loss: Losing a key client unexpectedly

• Technical failures: Extended software outages or system downtime

Contingency planning vs risk management

Think of project risk management as planning for the little bumps along the way. It involves identifying potential risks early, monitoring them closely, and preparing a plan of action. This usually means setting up a risk register to track issues and tackle them before they become big problems.

A contingency plan looks at the bigger picture. It is meant to handle risks that could impact several projects or whole departments. This kind of planning helps keep the entire business moving forward, no matter what happens.

Contingency planning vs crisis management

Contingency planning is all about staying ahead of the game, identifying possible threats, and putting strategies in place before anything goes wrong.

Crisis management, though, kicks in when things actually go sideways. It involves taking immediate action, minimizing damage, and making difficult decisions quickly. While contingency planning helps you stay ready, a crisis management plan deals with the unexpected to keep the business afloat.

Why every business needs a contingency plan

Even with careful planning, unexpected events can still disrupt your business. A strong contingency plan helps you react quickly and keep your business on track during tough times.

A good contingency planning process protects your profits, reassures stakeholders, and helps your business get back to normal with as little disruption as possible.

Key benefits of a contingency plan:

• Keeps critical business functions running smoothly during disruptions.

• Helps reduce financial costs associated with emergencies, such as lost revenue and recovery efforts.

• Shows clients, investors, and employees that your business is prepared for the worst.

• Fulfills regulatory and compliance obligations (like NIST or other .gov guidelines) for risk preparedness.

• Reduces panic and confusion by providing a clear emergency response plan during crises.

In the end, a business contingency plan is about more than just avoiding disasters. It's also about staying in control when challenges come up.

Don’t wait for problems to happen. Start building a backup plan now to protect your business and set yourself up for long-term success.

When to use a contingency plan

Use your contingency plan when certain signs show there is a serious risk to your business. A good plan might not be needed for months, but when the time comes, your team should act fast and confidently.

Common triggers for activating a contingency plan include:

• A critical system failure that affects your ability to deliver products or services

• The sudden departure of key personnel with specialized knowledge

• Supply chain disruptions that threaten your production timeline

• Natural disasters or severe weather events affecting your facilities

• Cybersecurity breaches or data loss incidents

• Significant market shifts or the loss of a major client

The best contingency plans set clear rules for when to move from normal work to emergency response. For example, you might use your IT plan if your systems are down for over two hours.

By establishing these triggers in advance, you remove the guesswork and help your team respond faster when disruptions occur.

5 contingency plan examples

There are several reasons you'd want to set up a contingency plan. Rather than building one contingency plan, you should build one plan for each type of large-scale risk or disaster that might strike.

1. Business contingency plan

A business contingency plan is a special strategy organizations use to handle unexpected events that could disrupt normal work. It’s similar to a business continuity plan, but there is an important difference.

While business continuity plans aim to ensure the uninterrupted operation of the entire business during a crisis, contingency planning focuses on procedures and solutions for specific critical incidents, such as data breaches, supply chain interruptions, or key staff unavailability.

Examples of contingency plans in business could include:

• Strategies to minimize operational disruption during crises, such as unexpected market shifts, regulatory changes, or severe staff shortages.

• Partnerships with external agencies that can provide support in scenarios like environmental hazards or public health emergencies.

• A comprehensive communication strategy with internal and external stakeholders to provide clear, timely information flow during crises like brand reputation threats or legal challenges.

2. Environmental contingency plan

While severe earthquakes aren't particularly common, being unprepared when "the big one" strikes can be catastrophic. This is why governments and businesses in earthquake-prone regions create preparedness initiatives and contingency plans.

A government contingency plan for an earthquake could include:

• The names and information of the people designated to handle certain tasks in advance, to ensure the emergency response is quick and concise

• Ways to educate the public on how to respond when an earthquake hits

• A timeline for emergency responders.

3. Technology contingency plan

If your business is particularly data-heavy, for example, ensuring the safety and cybersecurity of your information systems is critical. Whether a power surge damages your servers or a hacker attempts to infiltrate your network, you'll want an emergency response plan in place.

A tech or SaaS business contingency plan for a data breach could involve:

• Steps to take and key team members to notify in order to get the data adequately secured once more

• The names and information of stakeholders to contact to discuss the impact of the data breach and the plan to protect their investment

• A timeline to document what is being done to address the breach and what will need to be done to prevent data breaches in the future

4. Supply chain contingency plan

Businesses that play a key role in the supply chain, like manufacturers, retailers, and logistics companies, need a strong supply chain contingency plan to keep things running smoothly when unexpected problems arise. Contingency plans protect against supply chain disruptions caused by natural disasters or tech outages. They help businesses reduce downtime and keep operations running in real time.

A supply chain contingency plan could include:

• Secure critical data and systems while promptly notifying key team members, such as IT staff and management, for immediate action.

• A predetermined list of essential stakeholders, including suppliers, customers, investors, and authorities, should be contacted to inform them about the disruption and steps being taken.

• A detailed timeline is essential for documenting the immediate response and for outlining long-term strategies to prevent future supply chain disruptions.

5. Pandemic contingency plan

In the face of a global health crisis, a pandemic contingency plan is vital for organizations in healthcare, retail, and manufacturing. This plan focuses on mitigation strategies to minimize operational disruptions, ensure employee safety, and maintain business continuity.

A pandemic response plan could include:

• A comprehensive health and safety protocol for employees that integrates regular health screenings, detailed risk analysis, and emergency medical support as key components.

• Flexible work arrangements and protocols for remote operations and digital communication.

• A list of key personnel and communication channels for immediate response and coordination.

• Regularly reviewing and adapting the pandemic contingency plan as part of an ongoing disaster recovery plan to address evolving challenges and lessons learned.

How to write a contingency plan

Having a plan ready can make a big difference when things go wrong. This step-by-step guide will show you how to create a contingency plan that prepares your business for anything, from small issues to major problems.

1. Make a list of risks

Before you can handle risks, you need to spot them. Begin by listing all the risks that could affect your company. Keep in mind, contingency planning can happen at the business, department, or program level.

A contingency plan is a large-scale effort, so hold a brainstorming session with relevant stakeholders to identify and discuss potential risks. If you aren't sure who should be included in your brainstorming session, create a stakeholder analysis map to identify who should be involved.

2. Weigh risks based on severity and likelihood

You don't need to create a contingency plan for every risk you lay out. Once you outline risks and potential threats, work with your stakeholders to identify the potential effect of each risk.

Evaluate each risk based on two metrics: the severity of the effect if the risk were to happen, and the likelihood of the risk occurring. During the risk assessment phase, assign each risk a severity and likelihood using a risk matrix; we recommend using high, medium, and low ratings.

3. Identify important risks

Once you've assigned severity and likelihood to each risk, it's up to you and your stakeholders to decide which risks are most important to address. For example, you should definitely create a contingency plan for a high-likelihood, high-severity risk. You and your stakeholders should decide where to draw the line.

4. Conduct a business impact analysis

A business impact analysis (BIA) is a deep dive into your operations to identify which systems keep your business running. A BIA helps you predict the effect of a specific risk and determine the appropriate response.

Understanding severity and likelihood helps you prioritize your contingency planning efforts:

5. Create contingency plans for the biggest risks

Create a contingency plan for each important risk you've identified. As part of that contingency plan, describe the risk and brainstorm what your team will do if the risk comes to pass. Each plan should outline all the necessary steps to resume normal business operations.

Your contingency plan should include information about:

• The triggers that will set this plan into motion

• The immediate response

• Who should be involved and informed?

• Key responsibilities, including a RACI chart if necessary

The timeline of your response (i.e., immediate things to do vs. longer-term things to do)

For example, let's say you've identified a potential staff shortage as a likely and severe risk. This would significantly affect normal operations, so you want to create a contingency plan to prepare for it. Your contingency plan might include who can cover certain projects or processes while you hire a backfill, or how to improve team documentation to prevent siloed skillsets.

6. Get approval for contingency plans

Ensure relevant company leaders are aware of the plan and agree with your course of action. This is especially relevant if you're creating team- or department-level plans. Pre-approval empowers your team to respond quickly and confidently without having to seek approval when a risk arises.

7. Share your contingency plans

Once you've created your contingency plans, share them with the right people. Make sure everyone knows what you'll do, so if and when the time comes, you can act as quickly and seamlessly as possible. Keep your contingency plans in a central source of truth so everyone can easily access them if necessary.

Creating a project on a work management platform is a great way to distribute the plan and ensure everyone has a step-by-step guide for implementing it.

8. Monitor contingency plans

Review your contingency plan regularly to ensure it remains accurate. Take into account new risks or opportunities, such as new hires or a changing business landscape. If a new executive leader joins the team, make sure to surface the contingency plan for their review as well.

9. Create new contingency plans (if necessary)

It's great if you've created contingency plans for all the risks you found, but make sure you're constantly monitoring for new risks. If you discover a new risk with high enough severity or likelihood, create a new contingency plan for it. Likewise, you may look back on your plans and realize that some of the scenarios you once worried about aren't likely to happen.

Common contingency planning mistakes, and how to avoid them

A contingency plan is a powerful tool for helping you quickly return to normal business operations. To ensure your contingency planning process is as smooth as possible, watch out for common pitfalls:

• Lack of buy-in: A contingency plan takes effort, so make sure you have executive support from the start. Keep your sponsors in the loop to address key risks and build confidence in your action plan. If you need help documenting next steps and responsibilities, a corrective action plan template can give your process more structure and follow-through.

• Bias against "Plan B" thinking: Some teams resist backup plans, believing Plan A will always work. But having a Plan B is like checking the weather before sailing; it's better to be safe than sorry in case of bad weather.

• One-and-done contingency plans: It's easy to think the job is done once your plan is written, but that's a mistake. Regular reviews help keep it relevant and ready for new challenges.

Get started on your contingency plan today

Creating a contingency plan takes effort, but if you ever need to use it, you'll be glad you did. Keep your plan up to date and communicate it to the team members responsible for carrying it out.

Store your contingency plans in a central location that everyone can access, like a work management platform. When it's time to act, a centrally accessible location helps your team quickly turn plans into action. Get started with Asana today to keep your contingency plans organized and accessible.

Frequently asked questions about contingency planning