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What is a contingency plan and how do I create one?
Preparing for disasters or unfortunate situations is crucial for a small business or start-up owner. Any business is susceptible to some risks. For instance, the COVID-19 pandemic was unprecedented, but “Plan B,” or a contingency plan aided many organizations in having quick responses and solutions to working from home or going virtual. The meaning of contingency planning involves a business plan to maintain its core functions in the wake of unforeseen setbacks and recover quickly.
What is Contingency Planning?
Contingency planning, disaster recovery, and risk management are components of business continuity planning (BCP). These proactive plans assess a business’ potential threats and weaknesses in the event of disasters and the best practices to adapt and address these concerns. In the event of a natural disaster, disease outbreak, cybersecurity threat, or other risks to normal operations, an effective contingency plan allows a business to continue serving fundamental functions to its customers while recovering as quickly as possible.
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How do I create a contingency plan for my business?
Creating a contingency plan for a small business is not quite as simple as it may be for larger corporations. Smaller companies often have limited ability and funding to have a course of action to keep all aspects of the business up and running during a disaster. For this reason, risk and business impact analyses are crucial for start-ups before beginning their contingency planning process.
The National Institute of Standards and Technology has curated a seven-step checklist for businesses to create informed, contextual contingency plans.
Step 1: Draft a contingency planning policy statement
The planning policy statement is an essential component of contingency planning because it defines the roles and responsibilities of those involved, as well as the resources required and plan maintenance schedules. This statement acts as a foundation to the planning process that an organization can fall back to if questions or concerns arise.
Step 2: Perform a business impact/risk analysis
A business impact analysis reveals which operations and systems should be the highest priority and which are not financially plausible through a thorough investigation of a business’ cash management, payables and receivables, budgets, financial planning, and due diligence documents in the event of a disaster.
Step 3: Establish preventative controls
By enacting preventative measures for various potential circumstances, system downs or unavailability can be avoided, providing a smooth transition and recovery.
Step 4: Determine possible contingency strategies
Proactively strategizing which procedures will be most effective in the face of a disaster ensures that a business will be prepared to respond and recover quickly and completely.
Step 5: Curate a business contingency plan
Developing a thorough contingency plan includes instructions and guidance on the steps to take should usual operations be threatened. Effective contingency strategies allow businesses to significantly reduce or eliminate downtime and respond quickly while minimizing unexpected recovery costs.
Step 6: Execute testing, training, and exercises on the plan before finalizing
Testing validates whether or not the contingency plan will be effective in the face of a disaster. Acting through the plan step by step and training employees to understand and carry it out will improve its speed and effectiveness.
Step 7: Implement routine plan maintenance
Contingency plans should be a living document. Each time a business updates its systems or alters its operations, the contingency plan must remain up to date to maintain its effectiveness in keeping its operations active.
Contact the expert financial officers at VFO
At VFO, we’ve seen it all regarding unforeseen business circumstances. A thorough and updated contingency plan can make a difference in a business’ ability to maintain operations and bounce back from unfortunate events. As experts in risk management, financial planning, and regularly updating a company’s financial documents, our outsourced CFO services play a vital role in contingency planning. To learn more about how our team of experienced virtual CFOs can optimize your business contingency plan, get in touch at support@vfo.co or schedule a free consultation online.