A contingency plan is a course of action (sometimes referred to as a Plan B), created to help an organization or a specific group of people to effectively respond in case of an unpredictable event.

It may also be a backup plan, useful in cases when the expected results fail to materialize. 

The COVID-19 pandemic has taught us many lessons. The main one is that we completely depend on circumstances and often fail to predict the next day.

And even if you have an “I need 300 dollars now” problem, you can solve it only if circumstances allow you to do that.

If you have other people you’re responsible for, as well as important business partners, you want to keep the party going, when you’re unavailable. That’s what the contingency plan is for.

7 Steps of Contingency Plan

The standards of contingency planning include plan design and development.

Having a clear plan structure, you’ll spend less time working on the same format. 

Here’s the list to get you started: 

• Contingency planning policy statement — provides the outline and authorization details for a plan;
• Business impact analysis — identifies the systems, that are critical for organizing business functions;
• Preventive controls — the measures preventing system disruptions; having preventive controls in hand, you can reduce the costs related to a contingency lifecycle;
• Contingency strategies — to ensure the system recovers in a short term after disruption;
• Contingency plan — a call to action. It has procedures for dealing with a damaged or unavailable system. The contingency plan is tailored to the system’s security and recovery requirements;
• Testing, training, and exercises — testing for evaluating recovery capabilities, training for ensuring personnel is ready to plan activation, and exercises for finding the planning gaps;
• Plan maintenance — to keep up with the system enhancements, you should regularly update the plan.

Additional elements of contingency planning include risk assessment, awareness training, auditing, and continuous improvement.

The message here is to ensure the plan meets the operational needs of an organization.

The Perks of an Estate Planning

The first and very important step of a contingency plan is taking care of real estate.

You have to review the foundational estate planning documents, which include wills, possibly a revocable living trust, and financial and medical powers of attorney.

The attorneys suggest taking a look at the mentioned documents at least every 5 years. 

In case you don’t have the necessary documents or they’ve expired, you should work with an estate planning attorney and your advisor to have them drafted.

This way, you will have control over the disposition of your estate in case of your incapacity or untimely death. 

The core documents are a last will and testament. They declare how your assets will be disposed of and who will be responsible for settling your estate.

Upon your death, the will becomes a public document; it goes through a process named probate (to prove that it’s valid).

Dealing with Unexpected Expenses

The share of adults, who can withstand financial difficulties, was relatively stable before the pandemic.

However, many Americans faced a substantial setback in 2020; they lost their jobs and were unprepared for a challenge.

Among laid-off workers, Black and Hispanic workers and those with less education, in particular, faced challenges covering additional financial emergencies. 

To understand the situation with household expenses, sometimes it’s enough to ask if people can pay their monthly bills on time.

According to a few surveys, more than one-fourth of adults have at least one bill they didn’t pay on time and every fifth person couldn’t pay his energy bill last year.

It may have serious consequences for both financial and emotional health. 

One common measure of financial resiliency is whether people have savings sufficient to cover three months of expenses if they lost their primary source of income.

However, those who experienced a layoff may have dipped into those funds or not had them in the first place.

Talking to Business Owners

The contingency plan sounds good for family members, but how does it look if you’re a business owner?

Somebody must run the company in case of your absence, and this person should be aware of the preliminary actions to complete.

Don’t leave the staff worrying about the bad consequences; just give them a checklist they can align with! 

What’s the best way to come up with a contingency plan? Imagine being absent from the office for a week.

What will the employees do? What must they pay attention to? If you play out this scenario in your head, it will be easier to spot the gaps that need to be filled. 

If a business is running thanks to more than one owner, the rest of the partners may not want to become linked to a surviving spouse.

Creating a buy/sell agreement can help to avoid an uncomfortable situation; it should outline the process of transferring responsibilities and be clear on who will purchase the owner’s shares.

Why a Contingency Plan Is Important

Without a contingency plan, you are exposing the business to a variety of risks.

Here you may find the reasons for your business to have an emergency plan: 

• Minimizing damage — having a plan will put you in a great position to face unpredictable events
• Quickly bouncing back — if you know exactly what to do when a disaster strikes, you can face any challenge and get back to normal in no time
• Receiving confidence — once you can tackle any challenge, things are easier to handle. A working contingency plan will boost your team’s confidence reducing the fear of the unknown. 

It’s time to put the knowledge about contingency plans into action. Let’s summarize the above points!

Summary

The contingency plan is a strategy created by management so that businesses will be able to face any challenge.

A strong contingency plan helps to minimize the impact of unwanted events and carry out a normal workflow with less disruption. 

To start working on a contingency plan, you have to evaluate the potential risks and prioritize them based on their impact.

While the whole process seems overwhelming, if you finish it, your business partners and loved ones will be always ready for inevitable changes.

Talk to your advisor, address your lawyer, and devote some time to making it work!