It is becoming increasingly clear that the events of the COVID-19 pandemic will have a lasting impact on our lives. Almost every industry experienced some sort of shock as a result of the pandemic. Yet this is especially true for businesses. As such, it is important to act while the lessons of COVID-19 are still fresh in our heads. In doing so, a business can devise a contingency plan for 2021 to be ready for the next crisis that strikes. Furthermore, a business should aim to develop a plan that will increase its long-term sustainability.
In this article, we will discuss what a contingency plan is, what it should contain, and how to go about creating one. We’ll also give examples of how some businesses have already set about creating their post-pandemic contingency plans.
Have you Updated your Business Contingency Plan for 2021?
Business contingency plans are not actually a new concept. As proven in 2007, the economy does not require a pandemic to go into a recession. And of course, there are other factors aside from economic recessions that can lead to business crises. These factors might include poor management, a sudden change in industry, new competitors, etc.
For all of these reasons and more, it is very wise to develop a contingency plan for your business, especially for 2021. Have you been adversely affected by the COVID-19 pandemic? Hopefully in the future a contingency plan will mitigate the damage of the next crisis that comes your way.
If you have not updated your plan yet, or if you have not yet created one, this is a great time to start.
The Steps to Create a Good Business Contingency Plan for 2021
First, we should officially define what a business contingency plan is.
It is, as alluded to, a plan mapping out the steps that your business will take in the event of unforeseen events. This almost always refers to a negative event taking place. This could refer to a pandemic, a natural disaster, a data breach, or any number of other crises.
It is common, especially among large organizations, to have multiple contingency plans. These then would outline the course of action the company will take in case any number of scenarios occurs.
For smaller businesses, it might not make sense to devote the time and energy into creating as many contingency plans as a larger company would. However, it is still highly recommended to have at least a plan or two outlining disaster mitigation in case of emergency.
There are four basic steps involved in creating an effective business contingency plan.
Step 1: Identify risks
The first is the same as the first step in almost every business plan you create: identifying your risks.
This is an important step to spend time on, as it will dictate and shape the contents of the rest of your plan. Make sure to have multiple stakeholders in place for this initial conversation. Employees, board members, investors, and management will likely all have varying opinions on what your key risks are.
When devising a list of risks, you want to consider:
- the nature of your business
- the goods and services that you provide
- your employees
- the clientele you serve
Brainstorm events that would negatively impact your organization, employees, customers, equipment, etc. Maybe you have previously worked with a business consultant, and/or have the funds to hire one. If so, this is a great place to involve someone from the outside with an objective view of your greatest risks.
Step 2: Prioritize risks
Once you have identified major risk factors, the second step is to prioritize them.
Ideally, with the same team that helped you identify your risks, work through this list and discuss and decide on how likely each negative event might take place. Once you collectively determine the likelihood of each potential threat, it is time to determine the impact that each will have upon your business.
Of course, it is impossible to accurately predict this. But together your team should be able to come up with a basic idea of the odds of various unexpected events occurring. After you have all agreed upon both of these metrics, put your identified risks in order of priority.
At the top would be the threats with the greatest likelihood of occurring, thus having the greatest negative impact on your business.
Step 3: Develop actions for each risk
The third step is to develop a plan for each risk that you have included in your list. This process will take a while, but is so worth it in the long term.
Although it may sound tedious, it is common sense that your contingency plan for a natural disaster versus an IT disaster will be very different. And what good would it do to develop a contingency plan if you don’t distinguish between the various risks that you face?
We recommend starting with your top priority risk and working your way down. For each threat on your list, make sure that you create a plan that identifies the prior risk management techniques that you will employ. In addition you should create a planned course of action to keep the negative impacts to a minimum if the risk does, in fact, occur.
This is a step during which it will be helpful to have your full and diverse team on board. Different players in your company will likely have different insights into what you can do to prepare for and address various risks. There are almost certainly a sizable handful of easy, inexpensive, practices you can start employing to mitigate future risks.
Step 4: Make the plan accessible and clearly communicate it
And last, make sure that you share your contingency plan with others.
This is important for several reasons:
- Sharing and presenting it to others will force you as the business owner to be quite familiar with your plan
- Opening it up to more people means that you will receive more input and quite possibly some very helpful suggestions, comments, and critiques
- Sharing your plan and making it easily accessible to employees and other stakeholders means that everyone necessary will have the chance to familiarize themselves with the plan as well
A contingency plan is not effective if only the business owner is familiar with it. Encourage your employees to read the contingency plan and make suggestions to it. Doing so will allow them – and the company as a whole – to be better prepared when you need to use it.
The last thing to remember in this step is that your contingency plan is a living document. As such, it is a good idea to build checkpoints into it where you will re-read, review, and revise the plan.
After all, many things will change next year. And it is likely after six months or a year there will be slight tweaks you want to make, or maybe even new risks to add. To make this plan as effective as possible, it should be quite flexible and open to change.
How Are Businesses Creating Contingency Plans for 2021?
So, we’ve discussed the logistics and procedural side of a business contingency plan.
Now, let’s briefly look into how businesses are using the lessons they have learned thus far from the COVID-19 pandemic. These lessons have proved valuable in creating and updating their contingency plans.
According to a survey conducted by Deloitte Insights, only 16% of respondents felt that their business contingency plans worked well in terms of handling the impacts of the COVID-19 crisis. The most common area in which respondents felt that their plans were lacking was in the ability to anticipate responses specific to a global pandemic. But more importantly, to be prepared with regard to shelter in place orders.
Already this is very useful information in developing a new, more effective contingency plan. Another notable survey response was that only a few of the businesses surveyed had plans that focused on pandemics.
One huge takeaway that businesses have had in creating contingency plans for the post-pandemic era is to always have a course of action mapped out if their employees need to shelter in place.
Planning for the future
The lack of planning and preparedness surrounding the abrupt shift to remote work for an unknown amount of time was very disruptive to many businesses. The sudden transition opened many up to IT and technology security nightmares.
This points to two major issues in devising future contingency plans:
- having a plan for remote work as mentioned
- investing in technology
Ensuring that your company’s digital capacity is strong enough to handle an entire shift to online business is critical. We were moving in this direction even before the pandemic, certainly. But it has now solidified the importance of a strong digital presence and an investment – both financially and otherwise – in technology and innovation.
We Can Help with a Financial Business Contingency Plan for 2021
We know this is a lot to consider. Developing a business contingency plan has never been easy, 2021 will be no exception. This is why it is more important than ever to take the time and put in the work necessary to ensure that your business is prepared for the upcoming year.
We know it’s hard work to own a business, and we’re here to help. Our team of business financial advisory experts are ready to work with you to figure out the best plan for you.
At Saddock Advisory, we can help determine if your business is financially healthy. Get in touch with us here to find out more.