INTRODUCTION
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Often times when things are rosy and business is booming, we get carried away and forget to plan for bad times or happenings that can disrupt or shut down the business. To reduce the impact of such disruptions, it is important to have a business contingency plan.
Contingency plan are the set of actions to be taken by an organization or business to respond to unexpected events or situations that may happen in the future. It helps foster business continuity and assists with risk and disaster management.
Contingency plan assists organizations and businesses to prepare for unplanned happenings and reduce their impact when they eventually happen. It helps to stay better prepared for that which may come.
Practical meaning of Business: “Business comprises of all profit seeking activities and enterprises that provides goods and services necessary to an economy. It is the economic pulse to a nation striving to increase society’s standard of living.
Profits are a mechanism for motivating these activities”[i].
The term business can be referred to as coordinated efforts and activities of individuals (team work) which could be commercial, industrial or professional activities for profit.
“Business may be defined as an activity which different persons exchange something of value, whether goods or services for mutual gain or profit”[ii].
Merriam-Webster dictionary defines business as;
- Commercial or mercantile activities engaged in as means of livelihood (trade line).
- Commercial or sometimes an industrial enterprise (the business district).
- Dealings or transactions especially of an economic nature.[iii]
Flowing from the above business are different activities involved in by people with the aim of providing solutions to human need and making profit in return. Every nation depends on business activities to grow progress and move forward in development and economic activities. To this end, we can say business is an integral part of the society and it can be said to be as old as the society itself.
Contingency; what it means
It is a potential negative event which may occur in the future, such as a natural disaster, economic recession, terrorist attack, or fraudulent activity. This is a proactive measure in business for risk mitigation. It gives room for planning and future containment of loss.
Business Contingency Meaning, Causes and Action Plan
Meaning of Business Contingency
It is the event of an emergency, disaster, system failure, unforeseen circumstance that poses itself as risk vulnerabilities and threats, it is a weakness in a business system, security procedures or internal controls, which can be exploited by a threat source, it may take a form of natural event such as the present coronavirus, flood, tornado, earthquake or hurricane, or it may assume a technical or man-made form that may be radiological, chemical, biological, mechanical or electrical in nature, it may also be an international act such as an act of terrorism, a demonstration, a bomb, assault, theft or a computer incident.
Causes of Business Contingency
Flowing from above, business contingency been an unforeseen situation can be said not to have a specific cause, it is an unanticipated event in the course of business using the current scenario of the ravaging Coronavirus, the year 2020 started out for most businesses on a smooth note and the year must have been assumed to continue on a smooth sail and then came the ravaging pandemic which met so many businesses unprepared for, which has disrupted the operations of several companies, government establishment, economic activities and also put employees at risk as many companies couldn’t meet up with certain financial obligations
ACTION PLAN
By action plan it means Business Contingency Plan. Business Contingency plans are form of business continuity plan and also an essential part of Risk Assessments, Management and Mitigation. They are back up plans that businesses activates, only when a disaster or unforeseen situation disrupts the operation of the company or put employees at risk. There is a good chance that a business never has to make use of it Contingency Plans. It is still important to have one because the future is unpredictable.
It is not always perfect, but it is always a pointer to move business forward peradventure the impossible happens. It is always a backup plan or plan B option. Contingency can be prepared for, but most times the nature, scope and concept of such negative events are unknowable in advance. Investors and corporations plan for various contingencies through analysis and implementation measures. A contingency plan might include arranging a company’s affairs so that it can sieve negative outcomes with the least distress possible.
WHY CONTIGENCY PLAN?
- For better preparation: Businesses can be protected from a number of harmful and risky scenarios, through efficient and preemptive planning.
- For better flexibility: Contingency plans not only aid business in preparing for the worst, but also enables organization to become more flexible to any foreseeable challenges that may arise in the future e.g New Government Policy, or Changes in the Economy
- For a quicker reaction: A business with a contingency plan is more likely to restore quickly to unplanned events, when the real challenges arise, such businesses are able to overcome the problem with little or no damage to their operation and this also motivates employees to think effectively and efficiently and come up with best and most efficient solutions.
- For preventing panic: People panic not because of danger but because there are no situation in place, which most likely can be more disastrous than the danger itself. However Contingency Plans helps to implement a solution, which allows for quick recovery even in the worst of situations and this goes a long way in reducing the panic level, maintaining order and preventing crisis from disrupting corporate events.
- For loss minimization: Having a contingency plan goes a long way in minimizing losses that accompanies unforeseen circumstances which makes the difference between a business that survives disaster and the one that collapses.[iv]
Effective contingency plan is important because it ensures the functionality and continuity of business if Plan A fails as such contingency plan is said to be an alternative plan [Plan B] should there be an unforeseen circumstance that is likely to impact the business negatively, it helps to minimize losses and maintain normal function.
STEPS TO DEVELOPING A WORKABLE CONSTINGENCY PLAN
- Draft a contingency planning policy statement: A contingency policy statement provide clear guidelines to follow for all employees and team members to be in accord when reacting and responding to the unplanned circumstance, this can also be said to be a roadmap that determines the quality of response and reaction from the employees/team, it is a guidance, authority or stereotype to develop an effective contingency plan
- Analyze organization’s unique resources: For a contingency plan to be effective, an organization has to identify and outline the resources that distinguishes the company this can be done through the application of a SWOT analysis, the role of SWOT analysis is to help identify hidden/unique resources of an organization which can be likened to the strength of such an organization because it’s easier to analyze and work with what is already known. The application of this resources aids in recovery from an event of emergency.
- Conduct a Risk Assessment: Risk Assessment and analyses helps determines the likelihood of an unforeseen circumstance and its potential impact on an organization, it helps identify whether the impact is quantifiable or unquantifiable. A risk assessment can identify future risk which aids the organization to effectively plan ahead.
- Put in place preventive control: In the business world not all risk or unforeseen circumstance can be totally averted, but putting in place preventive measures and controls helps reduce disruption of operations and contingency life cycle cost.
- Create contingency recovery strategy: contingency recovery strategy is an organized cause of action that is to be taken in an unforeseen situation or when the unexpected happens, in other to ensure business continuity and risk mitigation.
- Testing, Training and Exercising: This validate recovery capabilities and prepare employees/personnel for plan activation and exercise which helps identify planning gaps and helps figure out possible loopholes in other to improve the effectiveness of such plan and overall organizational readiness.
- Review and update plan: It is important to review contingency plans from time to time, this enables the organization to revise and amend the plans as needed so as to adjust to revolving technological, political, economic, environmental changes as they emerged.[v]
- Periodic Meeting: Management team should set up periodic meeting in other to brainstorm on other possible events with likelihood of occurrence to ensure the organization has what it needs if the most disastrous happens.
CONCLUSION
Having Business contingency plans is very important to organizations and businesses as it helps them make realistic plans for dealing with unexpected and unplanned problems or situations that may arise.
By Tobi Olagunju Esq . Email; tobiolagunju1@gmail.com. Phone; +2347038941020
[i] Business Definition by Boono & Krutz
[ii] Business definition by Peterson and plowman
[iii] Merriam-Webster dictionary
[iv] Contingency Plans: Reasons why Every Business Should Have Them By Waraq Hassan
[v] Contingency plan by Margaret Rouse.
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