Aclan, Bea Marie A.

BPA-3102
Strategic Management
Part 8.4

Contingency Planning in Strategy Evaluation

Objectives:

What is Contingency Planning?

To define contingency planning, first consider a very common, very simple occurrence, such as
unexpected internet network failure. A contingency plan for such an event may outline the
potential risks of facility downtime, identify the need for a backup power system, and establish a
course of action in this case switching to the backup power.

This is the meaning of contingency planning: predicting the effects of possible emergent events,
and building strategies for preparation and remediation. In other words, a contingency plan
establishes a reliable course of action a business can fall back on to respond to events that
present risks to operations.

In the dynamic business environment, strategies are often crafted based on assumptions and
predictions. However, unexpected events such as economic downturns, technological
disruptions, natural disasters, or changes in regulatory frameworks can disrupt the best-laid
plans. This is where contingency planning comes into play. It involves the creation of alternative
courses of action that can be swiftly implemented if the original strategy becomes unfeasible or
ineffective.

The components of effective contingency planning encompass risk assessment, scenario analysis,
and response strategies. Risk assessment involves identifying potential risks and uncertainties
that could impact the strategy's execution. This step helps organizations understand the
likelihood and potential impact of various risks. Scenario analysis involves creating different
hypothetical scenarios based on these risks, allowing organizations to anticipate how their
strategy might perform under different circumstances. Finally, response strategies involve
devising actionable plans to address each scenario, ensuring that the organization is prepared to
adapt and pivot as needed.

Contingency planning and risk management are essential components of any business strategy. A
small business owner working on limited funds must pay careful attention to contingency
planning and risk management when evaluating the strengths and weaknesses of a proposed
business strategy. Smart planning can provide the edge the small business owner needs to
establish a niche in the market and sustain growth.

What Are the Benefits of Contingency Planning?

A contingency plan is to an organization as a safety net is to a trapeze artist-a failsafe to help
minimize negative impact in the event that something goes wrong. For the acrobat that slips from
their rung, the net may save their life. To a company that has to find a way to remain operational
during a natural disaster or other emergencies, contingency planning may save the entire
business.

Contingency planning makes this possible by providing several important benefits:

Reducing Operational Loss

Disruptions have a way of stopping business operations in their tracks, and that leads to reduced
productivity and lost revenue. A key advantage of effective contingency planning is that it
provides working solutions to ensure that the business remains in operation during and after the
event, reducing or even eliminating the loss of revenue that comes with operational disruption.

Improving Assessment and Self-Awareness

Preparing for unexpected events means taking accurate inventory of an organization’s strengths,
weaknesses, resources, needs, and opportunities. This not only helps to develop a more detailed,
systemic contingency plan; it can also provide valuable insight into other areas of business.

Minimizing Panic
When emergencies occur and people don’t have a clear set of instructions on how to proceed,
they naturally fall into a panic. But panicking individuals often make a bad situation much
worse. Contingency planning gives employees and stakeholders clear directions to follow,
allowing everyone involved to move together towards the right solution.

Preventing Reputational Damage

When disruptions occur, organizations face the possibility of reputational damage that comes
from being unable to meet expectations. Customers aren’t always privy to all of the facts of a
situation, and competitors are often more than happy to take advantage of operational loss to set
themselves up as a superior alternative. With an effective contingency plan in place,
organizations may be able to endure otherwise debilitating events, without customers or
competitors ever taking notice.

Increasing Credit and Insurance Availability

Credit providers and insurance carriers both want to know that an organization is low-risk before
they invest. Having clear, documented contingency plans in place demonstrate a business’
preparedness, and show creditors and insurers that the organization is a ‘safe bet.’ This may
mean easier access to credit and lower insurance rates.

How to Develop a Contingency Plan

Contingency planning depends heavily on the unique needs of the business in question; there is
no single, standardized process for developing a contingency plan. However, there are certain
steps most organizations take when creating contingency strategies. Here, we outline seven
important stages in contingency planning.

Assemble a Contingency-Planning Team

Recruit reliable members from across different departments to lead your contingency planning
initiatives. Plans for specific events need to include management personnel and team members
with specific responsibilities or expertise.
Identify and List Key Risks
Work together to take an honest assessment of the business, possibly also bringing in outside
consultation to identify major risks. Categorize and visually map out these risks and their
associated dangers.

Prioritize Risks
There are two factors to consider when prioritizing potential threats: the likelihood of occurring,
and impact on business. A risk with a high probability but extremely low impact may not be as
high a priority as one with a moderate probability and high impact. Determine which risks
represent the greatest threats overall.

Create Contingency Plans

Prioritizing the biggest threats and then moving down the list, create contingency plans for each
event. Outline actions needed to reduce negative impact and facilitate fast recovery to normal
operations.

Share the Plans

Contingency plans aren’t effective if they aren’t easily available. Share your plans with all
relevant personnel and stakeholders, and make sure that they know how to access and execute
these plans during an emergency situation.

Test and Exercise the Plans

An actual emergency shouldn’t be the first time an organization tests out its contingency plans.
Regular training, exercising, and testing of plans will help ensure that everyone involved knows
what they should be doing when disaster strikes.

Maintain and Improve the Plans

Businesses grow and change over time, and so do the threats that they face. Periodically review
contingency plans to ensure ongoing relevance, and make changes where necessary.

Objective Examples for Contingency Planning in Strategy Evaluation

Contingency planning involves preparing for unexpected events that could impact your strategy.
Here are some objective examples for contingency planning in strategy evaluation:

Market Fluctuations: Develop a plan to adjust pricing and marketing strategies in response to
sudden shifts in market demand or economic downturns.

Supply Chain Disruptions: Create a backup supplier network and establish protocols to
mitigate the impact of disruptions in the supply chain.

Technological Failures: Outline procedures to swiftly address technical failures that could
disrupt operations, ensuring minimal downtime.
Regulatory Changes: Develop strategies to adapt to changes in regulations that could affect
your industry, including compliance and operational adjustments.

Competitor Actions: Plan for various scenarios involving aggressive competitor actions, and
consider how to defend your market position.

Natural Disasters: Establish protocols for disaster response and recovery to ensure business
continuity in the event of natural disasters.

8.5

Strategy Monitoring and Review Process

Strategic Monitoring refers to the process that allows the Global Fund to provide regular
oversight of its investments and activities, changing direction when needed. Through routine data
collection, portfolio wide aggregation, and analysis for reporting against Key Performance
Indicators (KPIs), the Global Fund can provide assurance to the Board that the partnership is
performing according to the objectives laid out in the Strategy.

In recent years there’s been significant effort toward creating a “balanced scorecard” of metrics
to serve as a guide to performance improvement with real value creation versus improvements
via tradeoffs. Moreover, efforts to include non-financial and leading indicator metrics to help
redirect worker behavior are being used to balance purely financial goals with strategic
imperatives. Yes, in the end we want an upward trend in financial indicators, but if this is all
we’re managing, the strategy will be short term and reactive.

Below are principles that we’ve discovered in setting up an effective value-adding strategy
monitoring and control process.

 The starting point is strategic goals, and then the initiatives to achieve them (see
“Accepting the Fundamental Challenge of Strategy Implementation”). The selection of
metrics then follows from the questions: How will we know if this is working? What
leading and lagging indicators will guide us?

 But what does one do with these measures? The most beautiful and balanced scorecard in
the world won’t compensate one iota for a poor review process — namely, an executive
who reviews the metrics and uses them to drive behavior change. The change occurs less
because the metric is being reported and more because that’s what management is paying
attention to. Yes, what gets measured gets managed … if that’s what the boss is
watching.

 The actual review process can be informal or a rigid periodic review. It is the style and
openness of the review that makes all the difference in whether the organization will
quickly seek effective course adjustments, seek excuses or praise with little real direction
change, or ignore much of the scorecard because in the end, the old lagging metrics are
still implicitly the most important thing. When a review meeting is well run it is much
more than a control tool. It is a problem-solving session where the business examines
 what it has learned since the last review, with data (the metrics), that serves as a basis for
ongoing adjustments for even better performance. These adjustments are in the form of
how resources should be reallocated, especially the most important and scarcest resource
of all: how people in the organization will use their precious time.

 The good thing about lagging metrics is they are usually objective and available via the
company’s systems. Leading measures often are not easily available and have only an
assumed correlation with performance. These are limitations, and the organization must
determine that the value they’ll receive from these metrics far exceeds the cost and time
of assembling them. In our extensive strategic planning experience, after the most
important goals have been defined, and the balanced slate of metrics has been whittled
down to the essential ones, invariably, within the next six months, we will need to cut
back the number further and find easier-to-assemble surrogates because of this point. The
easiest way around the leading indicator challenge is through the use of milestones. To be
actionable, a strategy needs to be stated as a set of programs and initiatives. Once that’s
done, one of the most important leading indicators is achievement of critical milestones
for each initiative. The planning process needs to outline these milestones, which is
where the rubber meets the road regarding linking how people spend their time with the
strategy. In our experience, milestones should be the top leading indicator. Milestones
should be substantial achievements that are assignable and are needed within the next six
months.

 After the metrics are set, including a healthy set of milestones as leading indicators,
targets must be set. People respond well and are often motivated when there’s something
to aim for. A key choice is whether to set incremental steps or stretch goals. The latter is
often useful when it’s critically important that the organization break out of old habits if
they are to achieve a strategic goal.

 Finally, senior management needs to be committed to both the strategic planning process
that will generate the goals and the control/review process that follows, or all of this will
have been a waste of time. In our experience, after the plans are done and the ideal
metrics defined, it takes a full year for the organization to assemble, routinely report on
and begin adjusting course based on the metrics. That’s if management diligently follows
through with “inspection.” If they don’t — if they continue to follow their old guides,
which are usually the monthly accounting figures — forget value creation through
measuring the right things.

 In summary, strategy monitoring and control is a lot more than reporting metrics. The
starting point for developing your approach is the question “What metrics, targets, review
process and review style will most change behaviors toward the work that will create the
most value?” The emphasis must be on the review process, with the goal being course
adjustments, not measurements. But with this philosophy, there is greater likelihood that
the right metrics will be chosen and their use will indeed be value creating.

What is the importance of strategy monitoring in strategic management?

Reaching a desired business outcome requires turning strategic plans into action via
implementation. Strategy implementation involves performing a series of activities over time.
While performing these activities, managers need “monitoring” to determine whether their
overall strategy is unfolding as planned.

Strategy Review
A strategy review is the process in which organizations discuss the progress of their goals and
objectives and make the necessary adjustments for the upcoming year
What is a strategy review?
A strategy review is a structured process to identify new value creating opportunities within a
business. This could be about improving the performance of an existing division, or taking
advantage of a new market adjacency opportunity. Many companies undertake strategy reviews
on an annual basis as part of their strategy planning process. Other businesses will undertake
them on a more ad hoc basis when presented with a specific opportunity or problem within the
business. A change of ownership or appointment of a new CEO can often trigger the need for a
strategy review of the business as a way to clarify the key areas of opportunity and challenges
within the existing portfolio.

Whatever its origins, a strategy review should be a clear fact-based analysis of the business
opportunity or issue. It provides an opportunity to step back from day-to-day operations to assess
the strategy foundations on which a business is built. The outcome of a strategy review should be
a clear set of strategy recommendations and a future roadmap for the business that charts its
course and enables increased and sustained performance now and for the future.

The benefits of a strategy review

When conducted well, a strategy review can deliver significant benefits to a business. In addition
to the direct financial benefits of improving performance and targeting new growth
opportunities, the process itself can improve alignment between employees, senior management
teams and other key stakeholders, helping to drive a high performance culture and clarity on the
future direction of the business.
Strategy
 Clarity over the key drivers of strategic advantage
 Consensus at senior levels in the organization
 Enables a sustainable position of competitive differentiation

Financial
 Improved financial outcomes
 Improved capital allocation and return on capital

Operational
 Organization structure aligned with the strategy
 Core processes that reinforce key sources of competitive advantage
Employees
 Understanding of the overall strategy and of the role that each individual can play in
supporting the strategy
 Improved staff engagement and alignment with the business objectives

Stakeholders
 Effective oversight of management recommendations
 Improved alignment with the management team

REFERENCE

Contingency plan https://g.co/kgs/jyRK7v

https://www.ascopower.com/us/en/resources/articles/the-importance-of-contingency-
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%20operational%20disruption.

https://www.ncontracts.com/nsight-blog/contingency-planning-definition#:~:text=Contingency
%20planning%20is%20defined%20as,don’t%20go%20as%20planned.

https://smallbusiness.chron.com/importance-contingency-planning-strategy-evaluation-results-
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https://www.fortierassociates.com/strategy-monitoring-and-review-process/
https://study.com/learn/lesson/strategic-management-process-overview-steps-
examples.html#:~:text=What%20is%20strategic%20management%20process%20with
%20example%3F,factors%20the%20company%20should%20anticipate.

https://www.theglobalfund.org/en/monitoring-evaluation/strategic-monitoring/#:~:text=Strategic
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https://www.kippy.cloud › post › m…
Monitoring & Control of Corporate Strategy (Importance …
https://ecragroup.com/wp-content/uploads/dlm_uploads/2017/06/Strategic-Monitoring-White-
Paper-5.25.pdf