Contingency Planning How to Prepare for the Unexpected

Because so muchenergy is put into the basic strategic and operational plans, plan-ning teams seldom give attention to a portion of the total plan thatcould put a company out of business.

Contingency Planning: How to Prepare for the Unexpected

Contingency planning is the fifth of the five types of businessplans (see Figure 11-1) While it is very important, it is also one

of the most neglected elements of a business plan Because so muchenergy is put into the basic strategic and operational plans, plan-ning teams seldom give attention to a portion of the total plan thatcould put a company out of business This chapter presents twotypes of contingency planning The first is long-term, true contin-gency planning that is designed to counter deviations from your

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business plans when your assumptions fail The second is morecommon and comes quickly to mind This is disaster planning orcrisis management planning, both of which are in vogue with cur-rent business and social trends.

Figure 11-1 The contingency component triggers when alternatives to the basic plan are needed.

For those planners who would tend to stop reading at thispoint, let me emphasize again the need to be prepared for thefuture No one can predict the future but we can be prepared for it.General Norman Schwarzkopf had this to say about prediction:

“The future is not always easy to predict and our record regarding

where we will fight future wars is not the best If someone hadasked me on the day I graduated from West Point, in June 1956,where I would fight for my country during my years of service, I’mnot sure what I would have said But I’m damn sure I would nothave not said Vietnam, Grenada, and Iraq.”1

Like all thinking executives, the general didn’t sit aroundunprepared Over a long and successful career he perfected his skills

as a leader, a manager, and a warrior When the day came for hiscountry to call upon his services he was prepared His execution ofDesert Storm places him in the history books with five-star col-leagues such as “Black Jack” Pershing, Dwight D Eisenhower, andDouglas MacArthur

C ONTINGENCY P LANNING : P REPARING FOR AN

U NPREDICTABLE F UTURE

Contingency planning is being prepared It is actually that simple.Philip Crosby said it with a little more eloquence: “The centurionswill have to learn how to manage so that they can deal with what-ever happens, and at the same time, anticipate what is coming.They will have to be in a permanent situation of awareness in order

to tell the difference between fads and reality.”2 One of the earlierstrategic planning gurus, George Steiner, also uses a simple but ele-gant explanation He defines contingency planning as “ prepa-rations to take specific actions when an event or condition notplanned for in the formal planning process actually does not takeplace.”3 If we listen to Steiner, anything that falls outside the con-ditions or goals of your strategic and operational plans should beconsidered a condition for contingency planning

This business planning model goes one step further.Contingency planning is not outside your planning process It is acritical component found inside the planning process to positionyour plan in case of deviation “The fundamental purpose of con-tingency planning is to place managers in a better position to deal

with unexpected developments than if they had not made suchpreparations.”4 Without this preparation managers are always in areactive mode

T HE F IVE K EY T ERMS U SED IN C ONTINGENCY

Contingency planning The overall activity that looks at

the complete situation and plans accordingly.

Contingency plan The documentation of contingency

planning, it is the hard copy of your thinking and intentions.

Crisis management Actions you take to manage the total

environment when facing a disruptive situation.

Crisis intervention Actions taken to correct a developing

situation As the name implies, there must be an entry into the process of the situation.

Disaster plan A step-by-step plan of action available

for immediate implementation in times of crisis or disaster.

T HE T WO C OMMON W AYS T HAT P LANS R UN

A MISS

This business planning cycle and model uses contingency planning

as the overall umbrella term to describe what has to be done Therange of contingency situations you’ll face can be broken downinto two categories, each of which seems to be connected to thetime period involved Trend deviation is connected to the strategicportion of your business plan whereas the crisis element seems to

be connected to the tactical or operational plan because of its term orientation A full range of the model is shown in Figure 11-2

short-Figure 11-2 The map of different contingency situations can help you tailor your responses.

Trend Deviation: When You Miss the Mark

One type of deviation is experienced when the results of your ning are not developing as you expected Bluntly speaking, you aremissing the mark You may not be hitting your sale goals because ofinternal company behavior; maybe management is not performing.Another reason could be due to outside influences Still a third rea-son is that the market is moving in a different direction from whatyou assumed, expected, or planned for In any case your plan is introuble

plan-Crises: Circumstances Beyond Your Control

A second major type of deviation is the abrupt or sudden disruption

of your plan because of circumstances or events usually beyondyour control These crises are usually related to natural disasters andcatastrophic events These situations are usually the ones that come

to mind when we think of disruptions and dangers to order and bility

sta-T HE N INE C RITICAL C OMPONENTS OF A

S UCCESSFUL C ONTINGENCY P LAN

The 1-Page Contingency Plan must have at least nine basic nents (see Appendix F) Certain considerations are important whenfacing a deviation from plan over a longer period of time; othersbecome especially important when in a crisis mode These ninecomponents must be reviewed in a contingency situation no mat-ter what triggered the requirement In developing your contingencyreactions, ask the following questions:

compo-■ Facilities Will you have enough physical support? Are

your warehouses and offices located in the right places?

■ People Will you have enough people with the right core

competencies to carry on the work? What will be theburnout time for people who must work around theclock?

■ Information Do you have enough facts to make decisions?

How risky is it to initiate actions on what information isavailable? Are you able to get the information you need?

■ Time How fast must you react to the situation before it

gets even worse?

■ Image What must you do to protect the public perception

of your company during the situation?

■ Technology Can you leverage technology as a replacement

for time or people?

■ Tools and Equipment What special tools are needed to

carry out your mission? Is any special equipment needed?Where and when will the tools and equipment be needed?

■ Leadership and Managership What leadership and

man-agership behaviors are needed to instill the confidence ofthe public in your company?

■ Assumptions What assumptions have failed, requiring you

to take action? What is the antidote for these best guessesyou have made about your business?

T HE T WO T OUGH Q UESTIONS FOR T ARGETING

P OTENTIAL P ROBLEMS

When preparing a contingency plan the management team mustconsider all possibilities and potential target areas, then cut the listdown to what is reasonable, realistic, and practical To start thereview, the team asks itself two very hard questions:

1 What is the one thing that could put us out of business? Every

organization has a weak spot or area of potential danger.Look for the one thing considered the most dangerous toyour operation Account for this happening in your con-tingency plan If you work in the software business, a newcode or program could put you out of business

2 What is the one thing that could seriously damage our

busi-ness? There are other events that will not bankrupt you

but can nonetheless do enormous damage to your ability

to conduct business Each of these must be accounted for

in your contingency planning Write specific situationsand actions for these variations An example might bewhen funding for a project is not approved by the board

of directors

A good technique is to conduct a think tank or “blue sky” sion to get the management team to examine the problem A week-end retreat in a nice creative environment would be a way to get thecreative juices flowing and out-of-the-box thinking to occur Thinkhow powerful a two-question agenda could be for the participants

ses-T HE F IVE A REAS T HAT A RE V ITAL TO Y OUR

C OMPANY ’ S W ELL -B EING

Next the team determines where the answers to the two questionsare found in the following list of five conditions From this list,develop actions to form your contingency plans:

T HE S IX C ONDITIONS T HAT C AN T RIGGER THE

N EED FOR A C ONTINGENCY P LAN

To effectively sort out the possible deviations from a well-writtenbusiness plan, there must be some logical grouping of informationinto more detail than just two broad crisis or trend types I identifysix kinds of events:

1 Natural disasters

2 Violence

3 Sudden shifts in business paradigms

4 Unknown problems

5 Known potential problems that are ignored

With some time and effort, reactions to these natural disasterscan be planned and implemented The problem seems to be thatplanners are misjudging the scope and scale of the natural occur-rences The hurricanes that wiped out the Mississippi Gulf Coastand did extensive damage to Louisiana in the 1960s and 1970s werenot predicted There have always been floods in the Houston area,but did anyone expect the extent of the one in 2001? The AmiteRiver has always flooded the town of Denham Springs, Louisiana,but no one expected the two or three floods in the early 1980s thatset new 100-year flood levels The message for the disaster contin-gency planner is to think big, then think even bigger If the flood issmaller, your excessive planning is okay

Violence

Unfortunately, violence in the workplace, both on-site and off-site,

at home and abroad, is more than a headline in the newspapers It

is a sad reality for many organizations and thus should be a part ofyour contingency plan

Hijacking

D B Cooper set the stage for what has become a major threat tocommercial vehicles, especially those that carry passengers Heboarded a commercial aircraft, held it hostage for a huge ransom,then bailed out over a remote mountain range Although fragments

of the money have been recovered, no trace of the man has everbeen found The story still rates as the most intriguing vanishingact of modern day with D B Cooper becoming a sort of folk hero.Hijacking of boats, trains, and planes has become a pastime forsome people Terrorist groups have elevated it to a fine art The fear

of hijackings has left the world tied in knots over security dures Contingency planning for such incidents includes extensivepreventive measures prior to departure and onboard aircraft

proce-Returning from Vietnam on September 8, 1970, I hand-carried

an SKS carbine, a K-54 Chicom pistol, and a Randall six-inch bladefighting knife These were all duly registered, legitimate war tro-phies that I declared I carried them from Saigon to Baton Rouge,Louisiana, onboard military and commercial aircraft It was perfect-

ly normal at the time Just entering an airport with a weapon of anytype today could get a traveler a quick set of metal bracelets cour-tesy of the security police

Contingency planning to prevent a hijacking is difficult atbest, but it is getting better Technology is a great assistance.However, the bad guys simply move to other targets or wait untilthe vigilance wears off to strike again

Scotland required extensive preparation The Oklahoma Citybombing was a deliberately planned incident with a great deal ofeffort on the part of the terrorists On the other hand, a powercompany reportedly experienced acts of sabotage at the accessentrances to its nuclear power plant during an ice storm inDecember 1998 Devices were scattered on the roadway thatcaused a large number of flat tires on vehicles moving up anddown the roads Management considered the incident dangerousenough to declare it a terrorist act and put all employees on alert.Was it a “terrorist” act by the popular definition? Probably not bylay standards, but nuclear power stations view such incidents in ano-nonsense fashion.

Workplace Violence

“Going Postal” is slang term that is a tragic commentary on thestate of affairs in some businesses Over the past decade, the U.S.Postal Service has had a number of incidents leading to deaths andinjuries in the workplace The slang term developed as a directresult That’s sad on two accounts First, the fact that any deathsand injuries occurred is the ultimate tragedy Also tragic is the glob-

al tarnishing of the reputation of one of the finest postal systems inthe world

But the post office is not the only business that has to contendwith violence in the workplace This is a serious new set of devel-oping behaviors that must be countered with contingency plan-ning There are consultants and consultant companies expert in thearea of workplace violence They will tell you strict protocols forprevention and swift actions when incidents occur are necessary tosurvive with any sort of respect, dignity, and support

Sudden Shifts in Business Paradigms

Sudden changes in business patterns can also be disruptive to yourorganization Your contingency plan should take them intoaccount Two examples are disruptive technology and bad mentalmodels

Disruptive Technology

Two ways to counter disruptive technologies are to constantly vest in your own research, always looking for new ideas and ulti-mately new products, and to continuously improve the productsyou have By looking outward you are keeping a finger on the pulse

rein-of what is happening in other industries The approximations toyour business become apparent if you pay attention If you reinvest

in your own research, you may find the solution first or you maybecome the disruptive influence for another industry Finally, byreinvesting you make it difficult for the competition to enter themarket by setting the standard for the product Make the cost ofentry so high for competitors that it is not worth the effort

Bad Mental Models

Often businesses are forced into contingency planning becausethey have been operating with bad mental models Peter Senge firstbrought the concept of mental models to the general public aware-ness.5 The same concept applies to how a company does business

It is a bad sign when emergency actions are required and there is noplan An unplanned emergency situation comes from a companywith lethargic management Several things may be happening atone time

One thing to watch for is discounting or downplaying the sibility of danger Management teams sometimes discount the pos-sibility of a serious situation ever happening to their company Itwill always happen to the other company Not so Downplaying orunderestimating the problem is equally dangerous The rule ofthumb in business is that a problem doesn’t go away It only getsbigger

pos-A contemporary example is the Bridgestone/Firestone recall of6.5 million tires in August 2000 Tire tread separation is not a newproblem, having been identified years ago Only after nearly fiftydeaths, more than 200 accidents, and government interest did thecompany take decisive action The company dragged its feet for