Contingency planning, or ‘what-if’ analysis, is all about how you would handle possible, although in many cases unlikely, scenarios that could significantly impact the organization. As a relatively extreme, although for many small businesses experience that they had to go through, how you would continue to operate if you had to close your physical location for a relatively prolonged period (… potentially due to a global pandemic).
Identifying critical components of your business
One of the best ways of identifying contingencies is to systematically think through all of your external stakeholders and critical resources, and to think through what would happen if these external stakeholders were to change their relationship with you, for example, to cut their ties.
Possible contingencies that are worth considering how you would respond to:
- Losing a major customer: If you are relatively dependent on one or a few large customers what would happen if you were to lose one of them.
- Gaining a large customer: How would you cope if you were to suddenly gain a major client.
- A supplier goes out of business: Would you be able to easily switch to a competitor?
- The rent suddenly increases: Would you be able to handle an increase, or adjust your location accordingly.
- Sudden bad publicity: How would you handle a spate of bad publicity or negative reviews.
- A key employee suddenly leaves: Are certain individuals so critical to the organization that others would not be able to fill in to take their place.
- You are barred from selling on one of the major platforms you rely on: Are you very dependent on a particular platform, or could you change to a different sales platform.
- Your social media accounts are restricted: How would you handle the situation if your social media accounts are restricted, hacked, or suspended.
Analyzing the impact of possible contingencies
Beyond the immediate impact of the scenario is the knock-on consequences. Sometimes situations that may appear relatively minimal (e.g., gaining a major new customer), can have a significant impact on the firm, including the company cash-flow, staffing requirements, or the ability to increase resources sufficiently.
The more you have through possible contingencies, the better placed you will be to identify how you to manage the situation, and in turn, better manage such a situation if it were to arise.
Considering what you would do in these situations
Once you have a detailed understanding of the situation, you can begin to think through how you would handle the situation if it were to arise. What would be the immediate actions that you can take to help reduce the immediate impact of a particular situation, and what would be more long-term approaches that you can take to adapt to the situation.
Considering you can help reduce the impact of these situations occurring, or the impact of them happening
As well as thinking through how you would handle certain situations impacting the organization, it can also be useful to consider ways of actually preventing the negative event from happening in the first place, or already having procedures in place to mitigate the impact should it occur.
For example, one way that large organizations can reduce the impact of a supplier disruption (as well as reduce the power of their suppliers) is via dual sourcing. Establishing multiple supplier relationships – and reducing your dependency on any particular one – can go a long way in ensuring that you are not significantly impacted by any particular one.
What-if analysis (contingency planning) is an important analysis to perform to ascertain the extent to which your supply chain is susceptible to various disruptions, and how you would handle disruptions should they arise.
What are the situations where multi-sourcing has advantages? This article examines the times when multiple suppliers are particularly important.
This article explores which components and materials it is particularly important to consider dual sourcing for.
A major strategic change by a competitor can often cause firms to re-evaluate their own approach. This article explores questions you should ask when your competitors change their approach.
This article explores some approaches for reducing the power of your suppliers, by keeping your options open.
Why do some firms look to buy from multiple suppliers? This article explores the reasons for dual sourcing, where companies seek multiple suppliers for key inputs.
This article explores some goals of social media for small businesses – and how it can set your firm apart from established companies.
What are the differences between single and multi-sourcing? This article examines the situations for single and multi-sourcing.
What is meant by single sourcing? This article explores the concept of single sourcing and when it makes sense for firms.