Contingency Planning: How to Prepare for the Unexpected C ontingency planning is the fifth of the five types of business plans (see Figure 11-1). While it is very important, it is also one of the most neglected elements of a business plan. Because so much energy is put into the basic strategic and operational plans, plan- ning teams seldom give attention to a portion of the total plan that could put a company out of business. This chapter presents two types of contingency planning. The first is long-term, true contin- gency planning that is designed to counter deviations from your 297 CHAPTER 11 business plans when your assumptions fail. The second is more common and comes quickly to mind. This is disaster planning or crisis management planning, both of which are in vogue with cur- rent business and social trends. Seven Steps to a Successful Business Plan 298 Figure 11-1. The contingency component triggers when alternatives to the basic plan are needed. For those planners who would tend to stop reading at this point, let me emphasize again the need to be prepared for the future. No one can predict the future but we can be prepared for it. General Norman Schwarzkopf had this to say about prediction: “The future is not always easy to predict and our record regarding where we will fight future wars is not the best. If someone had asked me on the day I graduated from West Point, in June 1956, where I would fight for my country during my years of service, I’m not sure what I would have said. But I’m damn sure I would not have not said Vietnam, Grenada, and Iraq.” 1 Like all thinking executives, the general didn’t sit around unprepared. Over a long and successful career he perfected his skills as a leader, a manager, and a warrior. When the day came for his country to call upon his services he was prepared. His execution of Desert Storm places him in the history books with five-star col- leagues such as “Black Jack” Pershing, Dwight D. Eisenhower, and Douglas MacArthur. C ONTINGENCY P LANNING : P REPARING FOR AN U NPREDICTABLE F UTURE Contingency planning is being prepared. It is actually that simple. Philip Crosby said it with a little more eloquence: “The centurions will have to learn how to manage so that they can deal with what- ever happens, and at the same time, anticipate what is coming. They will have to be in a permanent situation of awareness in order to tell the difference between fads and reality.” 2 One of the earlier strategic planning gurus, George Steiner, also uses a simple but ele- gant explanation. He defines contingency planning as “. . . prepa- rations to take specific actions when an event or condition not planned for in the formal planning process actually does not take place.” 3 If we listen to Steiner, anything that falls outside the con- ditions or goals of your strategic and operational plans should be considered a condition for contingency planning. This business planning model goes one step further. Contingency planning is not outside your planning process. It is a critical component found inside the planning process to position your plan in case of deviation. “The fundamental purpose of con- tingency planning is to place managers in a better position to deal Contingency Planning 299 with unexpected developments than if they had not made such preparations.” 4 Without this preparation managers are always in a reactive mode. T HE F IVE K EY T ERMS U SED IN C ONTINGENCY P LANNING Early in this chapter we need to sort definitions to ensure we are not talking at cross-purposes with definitions. There are a number of terms to be used when writing about activities that cause devia- tion from the plan. Some of them and their definitions are: Seven Steps to a Successful Business Plan 300 Term Definition Contingency planning The overall activity that looks at the complete situation and plans accordingly. Contingency plan The documentation of contingency planning, it is the hard copy of your thinking and intentions. Crisis management Actions you take to manage the total environment when facing a disruptive situation. Crisis intervention Actions taken to correct a developing situation. As the name implies, there must be an entry into the process of the situation. Disaster plan A step-by-step plan of action available for immediate implementation in times of crisis or disaster. T HE T WO C OMMON W AYS T HAT P LANS R UN A MISS This business planning cycle and model uses contingency planning as the overall umbrella term to describe what has to be done. The range of contingency situations you’ll face can be broken down into two categories, each of which seems to be connected to the time period involved. Trend deviation is connected to the strategic portion of your business plan whereas the crisis element seems to be connected to the tactical or operational plan because of its short- term orientation. A full range of the model is shown in Figure 11-2. Contingency Planning 301 Figure 11-2. The map of different contingency situations can help you tailor your responses. Trend Deviation: When You Miss the Mark One type of deviation is experienced when the results of your plan- ning are not developing as you expected. Bluntly speaking, you are missing the mark. You may not be hitting your sale goals because of internal company behavior; maybe management is not performing. Another reason could be due to outside influences. Still a third rea- son is that the market is moving in a different direction from what you assumed, expected, or planned for. In any case your plan is in trouble. Crises: Circumstances Beyond Your Control A second major type of deviation is the abrupt or sudden disruption of your plan because of circumstances or events usually beyond your control. These crises are usually related to natural disasters and catastrophic events. These situations are usually the ones that come to mind when we think of disruptions and dangers to order and sta- bility. T HE N INE C RITICAL C OMPONENTS OF A S UCCESSFUL C ONTINGENCY P LAN The 1-Page Contingency Plan must have at least nine basic compo- nents (see Appendix F). Certain considerations are important when facing a deviation from plan over a longer period of time; others become especially important when in a crisis mode. These nine components must be reviewed in a contingency situation no mat- ter what triggered the requirement. In developing your contingency reactions, ask the following questions: ■ Facilities. Will you have enough physical support? Are your warehouses and offices located in the right places? ■ People. Will you have enough people with the right core competencies to carry on the work? What will be the burnout time for people who must work around the clock? Seven Steps to a Successful Business Plan 302 ■ Information. Do you have enough facts to make decisions? How risky is it to initiate actions on what information is available? Are you able to get the information you need? ■ Time. How fast must you react to the situation before it gets even worse? ■ Image. What must you do to protect the public perception of your company during the situation? ■ Technology. Can you leverage technology as a replacement for time or people? ■ Tools and Equipment. What special tools are needed to carry out your mission? Is any special equipment needed? Where and when will the tools and equipment be needed? ■ Leadership and Managership. What leadership and man- agership behaviors are needed to instill the confidence of the public in your company? ■ Assumptions. What assumptions have failed, requiring you to take action? What is the antidote for these best guesses you have made about your business? T HE T WO T OUGH Q UESTIONS FOR T ARGETING P OTENTIAL P ROBLEMS When preparing a contingency plan the management team must consider all possibilities and potential target areas, then cut the list down to what is reasonable, realistic, and practical. To start the review, the team asks itself two very hard questions: 1. What is the one thing that could put us out of business? Every organization has a weak spot or area of potential danger. Look for the one thing considered the most dangerous to your operation. Account for this happening in your con- tingency plan. If you work in the software business, a new code or program could put you out of business. Contingency Planning 303 2. What is the one thing that could seriously damage our busi- ness? There are other events that will not bankrupt you but can nonetheless do enormous damage to your ability to conduct business. Each of these must be accounted for in your contingency planning. Write specific situations and actions for these variations. An example might be when funding for a project is not approved by the board of directors. A good technique is to conduct a think tank or “blue sky” ses- sion to get the management team to examine the problem. A week- end retreat in a nice creative environment would be a way to get the creative juices flowing and out-of-the-box thinking to occur. Think how powerful a two-question agenda could be for the participants. T HE F IVE A REAS T HAT A RE V ITAL TO Y OUR C OMPANY ’ S W ELL -B EING Next the team determines where the answers to the two questions are found in the following list of five conditions. From this list, develop actions to form your contingency plans: 1. Business conditions a. What things are changing in your business that you see as trending patterns? b. What things are changing in your industry that you see as trending patterns? 2. Social conditions a. What influences are changing social conditions having on your business behaviors? b. What management behavior from the past is no longer considered socially acceptable? Seven Steps to a Successful Business Plan 304 3. Political conditions a. What kinds of government influences are you experi- encing that are different? b. How have the conservative or liberal government positions influenced your business? c. How have the conservative or liberal government positions influenced your industry? 4. Economic conditions a. What global economic incidents have influenced your bottom-line profits? b. What are the general economic conditions for your industry as compared with other professions or businesses? 5. Environmental conditions a. What environmental issue could put you out of business? b. What compliance situations are getting so restrictive that they endanger your operational behavior? T HE S IX C ONDITIONS T HAT C AN T RIGGER THE N EED FOR A C ONTINGENCY P LAN To effectively sort out the possible deviations from a well-written business plan, there must be some logical grouping of information into more detail than just two broad crisis or trend types. I identify six kinds of events: 1. Natural disasters 2. Violence 3. Sudden shifts in business paradigms 4. Unknown problems Contingency Planning 305 5. Known potential problems that are ignored 6. Excess growth In this section, let’s further define what creates the need or condi- tions for you to write a formal contingency plan. Natural Disasters Pick up the newspaper or turn on a news channel on any given day and it appears the weather world is in total chaos. El Niño dominat- ed reports for a major portion of 1998. Every disturbance, natural or unnatural, seemed to be blamed on that one phenomenon. The fall season brought hurricanes and extensive damage to parts of the east- ern coast of the United States. Texas experienced floods. In December 1998, Virginia was locked into a serious ice storm that left tens of thousands of people without power for several weeks. Tempers were frayed but sanity and order prevailed as the Christmas season came and went by in candlelight for many families. With some time and effort, reactions to these natural disasters can be planned and implemented. The problem seems to be that planners are misjudging the scope and scale of the natural occur- rences. The hurricanes that wiped out the Mississippi Gulf Coast and did extensive damage to Louisiana in the 1960s and 1970s were not predicted. There have always been floods in the Houston area, but did anyone expect the extent of the one in 2001? The Amite River has always flooded the town of Denham Springs, Louisiana, but no one expected the two or three floods in the early 1980s that set new 100-year flood levels. The message for the disaster contin- gency planner is to think big, then think even bigger. If the flood is smaller, your excessive planning is okay. Violence Unfortunately, violence in the workplace, both on-site and off-site, at home and abroad, is more than a headline in the newspapers. It Seven Steps to a Successful Business Plan 306 [...]... research, you may find the solution first or you may become the disruptive influence for another industry Finally, by reinvesting you make it difficult for the competition to enter the market by setting the standard for the product Make the cost of entry so high for competitors that it is not worth the effort Bad Mental Models Often businesses are forced into contingency planning because they have been operating... along the way Planning teams must watch for the signs, listen to the cues, and respond to the signals that their plan is off course THE SIX STEPS TO DIMINISH THE NEGATIVE IMPACT OF A TROUBLED SITUATION Several actions are necessary if you have to initiate a contingency plan in the deteriorating situation Here are six of them: 1 Review all information to make a determination of the accuracy of the data... for business plan deviation and the other for crisis management 321 Contingency Planning If you don’t take the time to adequately prepare a formal contingency plan, at least learn the six rules for behaving when a crisis does happen THE KEY QUESTIONS: PREPARING A SOLID CONTINGENCY PLAN The following questions are important to your developing a solid contingency plan They are intended as triggers to. .. dump their holdings During a crisis situation you don’t need a run on your stock 3 Customers The people who buy your goods and services need to be reassured They are looking for faith in the products Will they be harmed if they Contingency Planning 317 continue to buy the goods? Are they getting their money’s worth? Is the product still effective? 4 Competition A crisis situation is a good time for. .. product Another thing to watch for: History is replete with examples of creeping into progress Today many appear humorous after the fact We laugh at the shortsightedness of the business thinkers of the day Western Union turned down Alexander Graham Bell’s invention to carry voice by wire when offered for sale When it realized the mistake a year later, it was too late The inventors of Corian sat on the technology... be willing to go the extra steps for contingency planning? 3 How can I make contingency planning exciting and not a fearful exercise? 4 Is my team mentally tough enough to survive a crisis situation? THE PRACTICAL APPLICATIONS: DEVELOPING YOUR CONTINGENCY PLAN As a result of working with the information in this chapter you will have developed two items: 1 A 1-Page Contingency Plan for either a long-term... used these standard techniques in the December 1998 briefing of Operation Desert Fox Secretary Cohen would initially face the press, then turn the detailed briefing over to a team of experts Contingency Planning 319 5 Maintain congruency The fastest way to get into trouble with anyone listening to your story is to be incongruent Discrepancies stand out Information reported as facts that doesn’t seem to. .. dollars reserved for out-of-court settlements is cheaper than a massive recall or discontinuing the product You have to make your own decisions If you decide to play the odds, you need a contingency plan to cover the probability of a class-action suit Excessive Growth: Too Much, Too Soon Not all contingency plans are for bad conditions and bad times There needs to be thought given to what happens if... Practice for perfection Prepare for the real thing by practicing as close to reality as possible There are two scenarios for rehearsals: I Business Situations Put together a team and practice simulated situations using scenario scripts This is a technique that has been around for years It is highly effective to get teams to think and practice how to respond to specific conditions found in contingency situations... attention If the Russians attacked the city we would not be reinforced or relieved We were on our own The major command in Heidelberg must have figured they couldn’t get to us across the Russian-controlled sector of Germany and the allied forces would have enough to do on their own fronts Our plan was to create as much rubble as possible and hold Berlin with a combat-in-cities strategy The tactic was to fight . Contingency Planning: How to Prepare for the Unexpected C ontingency planning is the fifth of the five types of business plans. emphasize again the need to be prepared for the future. No one can predict the future but we can be prepared for it. General Norman Schwarzkopf had this to say