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Contingency Planning: Expect the Unexpected

May 21, 2015 by Rich Armstrong 0 Comments

 

Contingency (1)

Too many organizations get into trouble because they don’t have a proper planning structure. Even companies with a planning rhythm often only plan for what they expect to happen and the business they expect to deliver. In our experience, life (and business) is “like a box of chocolates”, you really can’t be sure what you’re going to get next!

So, how do you prepare for the unexpected? What’s your backup plan?

In business, you need to prepare for surprises in the marketplace by having a robust, proactive and continuous contingency planning process. By business contingency planning, we mean a proactive process of planning for both the short-term and long-term security of your company. Our definition of contingency is a product or service that has already been researched, developed, and cost-justified, and can be activated on very short notice. It’s a key part of your sales planning process.

Keep in mind, contingency planning is not limited to designing new products and services. It may be that some level of growth can be achieved through suitable acquisitions. We generally recommend that product and service innovation contingencies are greater than or equal to 15% of your overall sales plan.  

In a perfect world, your sales or revenue line wouldn’t fluctuate; it would grow consistently and evenly according to plan. But we’ve rarely found that to be the reality in most of the organizations we’ve worked with. Most sales or revenue lines resemble roller coaster rides, caused by unexpected canceled orders, customers going out of business, new competitors starting up, difficulties in meeting orders etc. In order to manage your business successfully, you need to have as much control over your sales line as possible.

Benefits of Controlling Sales with Contingency Planning:

  1. It makes planning easier.
  2. You have better control over your profits.
  3. It enables you to plan your materials and purchases more accurately.
  4. Clearer indication as to how many people you need to employ.

Bonus! If you appear to have control of your business, it gives comfort to your employees, your board, your shareholders, and the financial and stock market institutions.

So, what would you do if 10% to 20% of your revenue suddenly disappeared at this moment? What’s your plan to get the business back? Do you have a contingency plan? Do you aware of the types of contingency plans in business?

Well, you should have one and be able to activate your contingency plan quickly!

Items to Cover Before Activating Your Contingency Plan:

  1. The market research should be complete.
  2. You should already know what the customer would buy.
  3. Processes should already be designed and tested, software written, and materials sourced and priced.
  4. How you plan to go to market and through what distribution channels should already have been decided.
  5. Pilot runs initiated, costs understood, and pricing agreed. Initial marketing materials should have been discussed so they can be designed and executed quickly.

When Do You Activate Contingencies?

Contingencies are activated when you realize that your revenue is likely to drop because of unexpected events in the marketplace. They are also activated when they become part of the next year’s sales growth plan. They might also provide you with a way to respond to sudden increases in customer demand or market opportunities. If the growth targets can be achieved by expanding current lines of simply selling more, you may not need to activate a contingency the entire year.

When one or more of the contingencies are activated, another one needs to take its place on the list. In fact, the Contingency Plan is a “living document” that is revised and updated on at least a quarterly basis and consists of a list of fully developed projects, projects in development, and a list of ideas for consideration. These ideas show the Board of Directors that people are thinking beyond just the next 12-month period.

Now's the time to make contingencies part of your standard operating procedure.  If you don’t have a well-developed program of contingencies in place you will almost certainly pay the price for being unprepared!

 


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Topics: Contingency Planning

Rich Armstrong
Written by Rich Armstrong

Rich Armstrong is the President of The Great Game of Business, Inc. and a 25 year veteran of SRC Holdings Corporation. He co-authored the update to The Great Game of Business 20th Anniversary Edition: ‘Get in the Game – The Interactive Guide’ with GGOB Vice President, Steve Baker, and is currently working on a new book, It's Money. It's People. It's Both, due out in 2019.

 

About The Great Game of Business

Our approach to running a company was developed to help close one of the biggest gaps in business: the gap between managers and employees. We call our open-book approach The Great Game of Business. What lies at the heart of The Game is a very simple proposition: The best, most efficient, most profitable way to operate a business is to give everybody in the company a voice in saying how the company is run and a stake in the outcome. Let us teach you how to develop a culture of ownership, where employees think, act and feel like owners.