The essential guide to understanding and creating contingency plans

Suppose your business faces a setback like a data breach or a key employee’s sudden departure. A solid contingency plan ensures your operations continue smoothly, employees confidently proceed and customers experience minimal disruption.

All of this helps to safeguard your company’s revenue and reputation – and it doesn’t happen without preparation.

In this guide, you’ll learn what a contingency plan is and why you need it, plus six essential steps to create one.

What is a contingency plan?

Acting as part of a broader project management approach, contingency plans serve as your business’s safety net and ensure smooth operations during disruptions.

Unlike a business continuity plan, which focuses on maintaining essential functions during and after a disaster, a contingency plan is more specific and targets specific risks that disrupt operations.

A well-crafted contingency plan addresses scenarios from natural disasters to tech failures, detailing step-by-step procedures for every necessary task (e.g., immediate actions and long-term recovery efforts). It identifies critical resources and sets communication protocols to avoid delays.

Contingency planning vs. risk management

Contingency planning and risk management are complementary organizational strategies that serve different purposes.

Risk management, which often incorporates integrated risk management principles, reduces the likelihood of issues. Contingency planning, on the other hand, prepares you to respond when problems occur.

Here’s a quick comparison of the two strategies.

Both strategies are crucial for ensuring business resilience and continuity. An integrated risk management plan reduces exposure to key risks, and contingency planning ensures you’re ready to act when unexpected events occur.

Contingency planning vs. crisis management

While contingency planning is proactive and focuses on “what if” scenarios before they occur, crisis management is the real-time application of these plans during an actual event. Essentially, your contingency plan is the foundation for your crisis management response.

Here’s a summary of their differences.

Integrating both approaches helps your business anticipate challenges and respond swiftly to them.

Benefits of contingency planning

Whether you’re preparing for a new product launch or managing potential staff resignations, a contingency plan acts as your Plan B.

Contingency planning gives businesses the tools to navigate uncertainty, stay stable and seize opportunities. These plans not only prepare you for crises but also provide ongoing benefits that strengthen your operations.

The advantages of effective contingency planning include:

• Reducing financial losses. Well-crafted plans reduce downtime and operational disruptions to protect revenue and control costs during crises. Anticipating issues helps you allocate resources efficiently and avoid costly last-minute fixes.

• Improving business continuity. Clear procedures keep essential functions running, ensuring productivity and efficient customer service management during challenges. A strong plan allows rapid transitions to backup systems or workflows, reducing confusion and delays.

• Enhancing reputation. Organized responses show competence and build trust with stakeholders. Crisis management guided by robust contingency plans turns PR issues into opportunities to demonstrate strength.

• Increasing employee morale. Clear roles and responsibilities in backup plans help employees act confidently in a crisis. Feeling prepared boosts job satisfaction and performance, even under pressure.

• Driving profit growth. Well-executed contingency plans mitigate losses and position businesses to thrive amidst challenging circumstances. According to Gartner’s 2023 Multichannel Marketing Survey, 44% of digital marketing leaders with a contingency plan during an economic disruption exceeded year-on-year profit growth.

Challenges of contingency planning

While many organizations recognize the importance of contingency planning, there’s often a disconnect between having plans and implementing them. The Gartner research shows that while 81% of marketing leaders have contingency plans, only 21% follow them.

The gap highlights the need to create practical, well-communicated plans that are ready for execution.

Here are some challenges with implementing contingency plans and dealing with them.

• Time- and resource-intensive: according to McKinsey’s The State of Organizations survey, the biggest obstacle for companies striving to build resilience is the lack of funds needed to create surplus capacity and contingency solutions. Developing plans pulls staff from duties and adds research, consultations and system setup costs. Prioritize critical areas and use a phased approach when creating your contingency plan.

• Difficulty identifying all risks: potential threats always come up, and you’ll need help understanding risks and not missing them. Even seasoned professionals struggle to anticipate all likely disruptions. Involve stakeholders from various departments in the risk identification process since their diverse perspectives can help pinpoint vulnerabilities.

• Pushback from employees: in the same McKinsey survey, a third of respondents identified limited organizational buy-in as a barrier to resilience. Staff members may see contingency planning as a distraction from their primary duties, while some might feel overwhelmed by extra duties or anxious about possible crises. Include employees early on and explain how contingency planning benefits the company and their roles.

• Lack of senior management support: senior managers might not see the immediate value of investing resources in planning for hypothetical situations. Their lack of involvement weakens the planning process. Present a clear business case for contingency planning and highlight potential cost savings and risk mitigation.

• Difficulty testing the plan: simulating crisis scenarios to test plans can be challenging and may interfere with ongoing operations. Regular updates based on tests can add complexity. Implement tabletop exercises or digital simulations to test plans without disrupting operations.

6 steps to create a business contingency plan

From natural disasters to cyberattacks, it’s not a matter of whether a crisis will strike but when. Creating a contingency plan will soften the blow of unexpected events and speed up your business’s recovery.

Here are six essential steps for creating a robust business contingency plan that protects your organization during a crisis. Each step includes a critical question to address at that specific stage.

1. Identify critical business functions

Start by identifying the essential functions that keep your business running. Map out your entire business process – to get the most accurate picture:

• Consult with department heads and team leaders

• Conduct surveys or interviews for employee feedback at various levels

• Organize cross-functional workshops to gather diverse perspectives

For example, retail operations rely on inventory management and point-of-sale systems, while a software company might prioritize development environments and client support.

Next, consider dependencies between functions. Your sales team might rely heavily on your customer relationship management (CRM) system. How will it affect their ability to close deals if that goes down?

Also, support functions may not generate revenue but are still critical. These could include payroll processing, IT infrastructure or regulatory compliance activities (crucial for GDPR compliance).

As you identify these functions, rank them in order of importance. Which ones would cause the most immediate and severe impact if disrupted? These will be your top priorities in your contingency plan.

Focus on the vital functions that form your operations’ backbone. Define these critical functions clearly to set a strong foundation for the rest of your contingency planning process.

2. Conduct a business impact analysis

A business impact analysis (BIA) identifies and evaluates the potential effects of interrupting critical business operations due to a disaster, accident or emergency. It helps develop recovery strategies, prioritize resources and develop plans.

Examine each critical function and determine the potential consequences and how quickly you need to recover each one.

For example, if your e-commerce platform goes down, you might have to deal with sales crisis management when you lose $10,000 in sales per hour. If your customer support system fails, you could face a backlog of 100 unresolved tickets daily, potentially damaging customer relationships.

Beyond the financial impact, consider reputational damage, legal consequences and employee morale. For instance, a data breach might result in fines, erode customer trust and lead to negative press coverage.

Next, determine your recovery time objectives (RTOs) to develop an effective emergency response and mitigation strategy. These objectives outline how quickly you must restore each function to avoid consequences. For example, your payment processing system might have an RTO of just a few hours, while your marketing analytics could be down for days with a less severe impact.

When everything comes together, here’s what a BIA chart looks like:

Include key stakeholders from different departments. Their insights will clarify how disruptions play out in specific areas.

By the end of your BIA, you should clearly understand which disruptions pose the greatest threats to your business, enabling you to prioritize your contingency planning efforts.

3. Develop a contingency plan template

A solid template ensures consistency and speeds up your response to unexpected challenges. Think of it as your go-to blueprint for tackling unexpected challenges.

Having a structured template can be the difference between a swift recovery and prolonged downtime.

Start with a clear, easy-to-follow structure. Your template should include sections for:

• Incident description. What’s happening?

• Impact assessment. How severe is the disruption?

• Response team. Who’s in charge of managing this situation?

• Action steps. What needs doing and in what order?

• Communication plan. Who should you inform and how?

• Resource requirements. What tools, systems or supplies do you require?

• Recovery time objectives. How quickly do you need to bounce back?

Use a mix of formats within your contingency project plan template. Flowcharts can visually represent decision-making processes, while checklists ensure you follow every crucial course of action.

Pipedrive’s customizable fields and workflow automation can streamline your contingency planning process. Plus, integrations with other tools improve your overall project planning and risk analysis capabilities.

The following section will explain how to use these features for contingency planning.

Include space for contact information, too. List key personnel, vendors and emergency services, including their roles and updated contact details.

Ensure your template is adaptable. While the template offers a reliable structure, tailor each plan to the unique demands of the situation so it remains effective in any scenario.

Creating a robust template sets you up for quicker, more efficient planning in the future. It’s a time investment that pays off when you need to develop or update plans rapidly for new potential disruptions.

4. Appoint a contingency plan coordinator

A contingency plan coordinator oversees its development, implementation and maintenance, leading the process and coordinating the response efforts during emergencies.

Your contingency plan coordinator should be able to see the big picture while managing intricate details. They must be highly organized, proactive in identifying risks and capable of leading under pressure.

Look for someone with:

• Strong project management skills to keep the planning process on track

• A solid understanding of your business operations and critical functions

• The ability to think critically and creatively about potential scenarios

• Excellent crisis communication skills to liaise with different departments and stakeholders

Consider appointing a senior manager or executive with the authority to make decisions and allocate resources as needed. Ensure they have enough bandwidth to give contingency planning the attention it deserves.

Your coordinator’s responsibilities will include:

• Overseeing the entire contingency planning process

• Facilitating meetings and workshops to gather input from various teams

• Ensuring regular reviews and updating of plans

• Coordinating training and drills to test the effectiveness of plans

For example, a contingency plan coordinator in a manufacturing company might develop strategies to mitigate supply chain disruptions.

During the COVID-19 pandemic, an adverse event affecting global logistics, the coordinator would have implemented alternative sourcing plans to maintain production despite shortages.

While one person leads the charge, contingency planning is a team effort. Your coordinator should be able to assemble a cross-functional team to contribute their expertise.

5. Communicate the contingency plan to employees

Executing the plan requires clear communication with your team. Clear communication helps everyone understand their roles and act decisively during challenges.

Clarity is especially crucial since knowledge workers spend 88% of their workweek communicating via emails, chats and meetings.

Start by organizing a companywide meeting to introduce the response plan. Explain its role in protecting the business and jobs. Simplify complex elements using flowcharts or infographics to illustrate key processes.

Follow up with department-specific training sessions and focus on relevant sections of the plan. Use role-playing exercises to help staff internalize their roles and build confidence. A targeted approach is critical, especially since 54% of professionals need help managing multiple work communications.

Ensure the contingency plan is easily accessible – distribute physical copies in common areas, upload digital versions to your company intranet and include remote workers.

Encourage questions and feedback throughout the process. Your team’s insights can uncover overlooked details and lead to valuable improvements.

Fostering dialogue and understanding will turn your contingency plan into an actionable strategy for the entire organization.

6. Test the contingency plan regularly

Regular testing is the lifeline of an effective contingency plan. Without it, even the best plan becomes a gamble.

Schedule regular tests to keep your team sharp and strategies current.

Start with tabletop exercises to simulate scenarios and identify gaps in your plan. Gather key players and walk through scenarios on paper. It’s a low-risk way to uncover weaknesses and spark improvement discussions.

Graduate to more complex simulations. These could involve shutting down systems temporarily or having team members work from alternative locations. While disruptive, these disaster recovery plans can provide invaluable insights.

After each test, conduct a thorough debrief. What worked well? Where did you stumble? Refine your plan accordingly.

As your business evolves, so should your contingency plan. Regular testing ensures your plan continually meets changing company needs and remains a living document ready to guide you through any crisis.

Contingency planning template with examples

Here’s a contingency plan template for every potential critical incident that may disrupt your business. Remember to collect feedback from other stakeholders to fill in information gaps and generate solutions.

1. Incident description

In this section, include the type of disruption, its impact and the events that may trigger it.

It’s generally best to create separate plans for each major type of incident, but you can group closely related scenarios if their responses are very similar. Focus on one primary event per plan to keep it clear and actionable.

• Type of disruption: identify the specific problem or crisis scenario (e.g., major IT system failure)

• Potential impact: describe the consequences if this disruption occurs (e.g., loss of access to customer data, inability to process orders)

• Trigger events: list possible causes or events that could lead to this disruption (e.g., server crash, cyberattack, power outage)

2. Response team

Outline who’s responsible for managing the incident and their roles. Identify backup personnel for each key role in case primary team members are unavailable.

• Team leader: identify the person in charge of coordinating the response efforts

• Team members and roles: list key personnel involved in addressing the incident

• Contact information: provide quick access to team members via email or phone

For example, this section might look like this:

• Team leader: Sarah Johnson, IT Director

• Team members and roles: John (Systems Admin), Emma (Customer Service Lead), Mike (Operations Manager)

• Contact information: [phone numbers and email addresses]

3. Action steps

Detail the specific actions team members must take in response to the incident. Prioritize these steps and consider creating a flowchart for complex scenarios.

• Immediate response: list the first steps to take as soon as you identify the incident (e.g., activate backup servers, notify all departments)

• Short-term actions: outline steps to mitigate the impact and begin recovery (e.g., assess damage, initiate data recovery, set up temporary workarounds)

• Long-term recovery: describe actions to fully resolve the issue and prevent future occurrences (e.g., repair/replace affected systems, update security measures)

4. Communication plan

Outline how to share information about the incident. Designate a single point of contact for external communications to ensure consistency in messaging.

• Internal stakeholders to notify: identify who within the organization needs informing (e.g., all employees via email, department heads via phone)

• External stakeholders to inform: list any outside parties you should notify (e.g., customers with pending orders, key suppliers)

• Key messages: specify the essential information to communicate (e.g., nature of the issue, estimated resolution time, alternative contact methods)

5. Resource requirements

Identify the resources needed to implement the plan effectively. Include both internal resources and potential external support that you may require. For instance,

• Personnel needed: list the staff required to address the incident (e.g., IT team, customer service reps for increased call volume)

6. Recovery time objectives

In this section, define the maximum acceptable downtime for critical business functions to prioritize recovery efforts. Consider interdependencies between functions when setting these objectives.

• Critical function: identify the essential business process or system (e.g., customer order processing system)

• Target recovery time: specify the timeframe for restoring the function (e.g., four hours)

7. Plan review and update

Specify how often the plan should be reviewed and updated and identify who’s responsible for this process. Regular drills or simulations can help identify areas for improvement.

• Last review date: record the plan’s last evaluation and update

• Next scheduled review: set a date for the following review to ensure the plan stays current

How to create a contingency plan in Pipedrive with Smart Docs

You can build, share and collaborate on your contingency plan directly in your Pipedrive CRM using Smart Docs, which is available as a feature or add-on (depending on your plan).

Here’s how to create a document for internal collaboration.

Step 1: access Smart Docs

Go to the “Documents” > “Templates” tab in a deal or contact’s detail view and click on “Document”. You can add yourself or the party responsible for overseeing the document as a contact.

Step 2: create the contingency plan

Format your document and use dynamic fields to automatically import data from your CRM, such as contacts and vendor company names.

Smart Docs allows basic formatting options like:

• Bold, italics and underline

• Headings and subheadings

• Lists and bullet points

You can structure your document as needed. For a contingency plan, follow the earlier sections (e.g., incident description, impact assessment, response team, etc.)

When you’re ready, click “Close” to save your template. You can also click “Use to create document” to apply the template immediately to another action.

Step 3: share with collaborators

Share your completed template with internal stakeholders. In the editing view, click on the “Permissions tab”.

There are two types of permissions you can set for users.

• Can use this template: users can view the template but not edit or delete it (useful for reviewing)

• Can edit this template: users can view, use, edit and delete the original template

Users will then see the template in their “Shared with me” view of the template gallery.

Final thoughts

Contingency planning helps businesses handle disruptions, maintain operations and protect their bottom line. A well-crafted plan can mean the difference between swift recovery and prolonged setbacks.

See how Pipedrive’s CRM can support your contingency planning with customizable templates and real-time collaboration. Start a free 14-day Pipedrive trial to learn how streamlined communication and actionable insights improve your organization’s resilience and readiness for any challenge.