Identify key risks to the business.
Business leaders know the future is uncertain. The sharpest ones sketch out contingency plans for the things that could go wrong at the company. They could be external changes, such as recession, technological change, different social attitudes, new regulations, or upstart competitors. Some of the risks are internal: a critical machine goes down, the sales manager quits, or a supplier cannot deliver. The good business leader also knows that luck happens. Some external change could help the company, and the internal operations could click like they never have before.
With inherent uncertainty, the business leader sketches out contingency plans for both downside risks and upside opportunities. The leader probably thinks about contingencies in the shower, in the car and listening to a boring report. But it’s not enough for the top executive to think through possibilities, unless it’s a one-person organization. The other people at the company, who will implement the various contingency plans, need to participate in the exercise.
The best way to start is to ask the key managers. Ask them what the risks and opportunities will be. When the boss brings up a subject, like the possibility of recession, subordinates will simply nod their hods. But if the leader asks each manager to come to the meeting with a list of risks and opportunities, they need to stop and think for themselves. The team can sort through the various issues and prioritize them.
The next step is to sketch out a contingency plan for each uncertainty. “Sketch” is the key concept. Detailed plans such as would go into a three-ring binder will likely be out of date by the time the issue comes to pass. And many risks never occur, so too much time spent planning will be wasteful.
However, sketching out contingency plans for risks and opportunities provides two key advantages for the business. First, plans developed in advance will be implemented more quickly. That can make all the difference in the world. Executives at companies that go bankrupt are rarely surprised. They usually see their problems developing, but delay taking action. Developing a contingency plan ahead of time really helps.
The second benefit to contingency plans comes from the relaxed atmosphere in which they are created. Recessions, for example, trigger great fear and panic. Decisions usually are not best when made in a highly emotional state of mind. But when people can kick around an idea in a relaxed atmosphere, they can prioritize the business’s long-term goals and corporate values.
The managers who will be charged with implementing the contingency plans must own them. First, they should not be surprised. The top leader should not pull out a secret plan and direct the subordinate to implement it. Second, the managers have to believe in the plan. After involving them in contingency plan development, they may not concur with every element, but they will have seen how the plan was developed and the reasons for the tradeoffs chosen.
The managers responsible for portions of the continency plan will be able to communicate with rank and file employees the basis for the plan: why it was developed and what values it tries to maintain. That will help employees better execute the plan. Similarly, when the company’s suppliers and customers are impacted by the contingency plan, their company contacts will be able to communicate the reasons for the plan.
When the day comes to implement a contingency plan, the one sheet of paper must be dusted off and reviewed. Some important aspects of the business may have changed, and the person who will implement the plan needs the opportunity to tell the CEO in what way the plan is obsolete. Usually just a quick adjustment is needed, but occasionally a major revision will be called for.
Like any business plan, it will not work out exactly as envisioned. The department manager who must execute the plan will—hopefully—see the change that is needed. Importantly, that manager will understand the goals of the plan, including maintaining the company’s vision and values. Modifying a plan goes more smoothly when the foundations of the plan are well understood.
After the contingency plan has been executed, it’s time to celebrate—and evaluate what was learned. That provides a natural basis for developing the next set of contingency plans.
