Business entities will inevitably face problems at some point during their operations. The way the entities deal with their issues largely determines whether they would eventually be successful or not. Businesses that have a contingency plan in place are prepared to face problems as and when they emerge. Similarly, crisis management ensures that businesses are prepared to deal with any kind of emergency after it occurs. Contingency planning and crisis management together form critical elements of a business continuity strategy which ensures that the business is able to recover from any crisis or disaster it may face without major setbacks.
In article “contingency planning vs crisis management“, we will discuss these two concepts in more detail and their significance in responding to any crisis or emergency.
Definitions and meanings
Contingency planning
Contingency planning is a process in which organizations identify possible risks and situations that they may come across in the future and then develop appropriate plans and strategies to respond to those threats or adverse events. Their objective is to bring the company out of this situation and restore normal operations as soon as possible and with minimal losses.
Organizations create contingency plans so that they can implement them as soon as any disaster or change in business situation occurs. These plans ensure that businesses continue to operate despite the challenges they come across. Such plans enable companies to face various emergencies, such as natural calamities, economic downturns, untimely demise of the CEO or a board member, epidemics and pandemics, fires, power outages, and so on. It is a proactive strategy that stresses on preparation more than response.
The first step of contingency planning is to recognize and prioritize the resources that are essential for continued business operations. Once these resources and their significance have been identified, the risks faced by each of them should be determined. Each risk should be ranked in terms of its probability of occurrence and the extent of damage it could cause to the organization’s operation and serving. An action plan is then developed accordingly, which lays down the responsibilities assigned to each employee in the event of the situation occurring. It also includes the plan of action for different stages, i.e. immediately after a serious event occurs, the way business will continue its operations in the aftermath of the event and how it will resume operations in full capacity.
Crisis management
Crisis management refers to the way companies deal with an emergency or disaster after it has occurred. It is the process carried out by companies after the crisis has occurred, and so, it is a reactive strategy that stresses on response to the event instead of preparation for it.
Companies come into the crisis management mode following the occurrence of an unexpected issue. It is not possible for them to anticipate all disasters that they may be inflicted with. Sometimes, despite contingency planning, some events do not occur the way they had been predicted. Similarly, it is not possible to foresee certain situations. Hence, the contingency plans would not be effective and may have to be modified to deal with the existing situation. In such circumstances, companies need to analyze the situation and respond in a swift way so as to minimize the damage caused. They need to establish a team that is responsible for evaluating the impact of the disaster or crisis on the business and developing a plan for dealing with the problem and recovering from it. The team should communicate the plan of action with the employees and update all the stakeholders regarding their response and recovery procedure.
Companies need to show a timely response every time they face a crisis because the quick and efficient reaction is the key to crisis management. However, a haphazard or inadequately organized response is often found to be ineffective. The entities should thoroughly analyze the situation and then prepare themselves for a proper response to the issue.
Difference between contingency planning and crisis management
The differences between contingency planning and crisis management are explained below:
1. Meaning
Contingency planning is used by organizations to identify potential sources of risk and develop plans to deal with those threats before they occur. On the other hand, crisis management is the process followed by companies to deal with an unfavorable situation after it has occurred.
2. Type/nature of process
Contingency planning is a proactive approach whereas crisis management is a reactive approach in nature.
3. Emphasizes
Contingency planning stresses on preparation more than response, while crisis management focuses more on the response instead of preparedness.
4. Objective
The objective of contingency planning is to develop a back-up plan that can be executed right after the business comes across an unfavorable situation. Crisis management focuses on analyzing any unforeseen situation that the business experiences and developing plans to respond to the event in a decisive manner so as to minimize the losses and restore the operations to normal.
Contingency planning vs crisis management – tabular comparison
A tabular comparison of contingency planning and crisis management is presented below:
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| Meaning | ||||
| The process of identifying possible risks and developing action plans to respond to them | The process of analyzing and responding to unexpected situations | |||
| Type of process | ||||
| Proactive | Reactive | |||
| Emphasizes | ||||
| Preparedness | Response | |||
| Objective | ||||
| Creating back-up plans that can be implemented immediately after the occurrence of a disaster | Analyzing and showing rapid response to any disaster that the organization had not predicted or forecasted earlier | |||
Conclusion – contingency planning vs crisis management
Contingency planning and crisis management should be integrated to make sure that the company is able to respond to all kinds of situations. Through contingency planning, companies can determine the different emergencies and disasters that they may experience during their operations. They can develop various back-up plans that can be implemented right after the situation occurs. However, not all situations occur as expected or planned. In the same way, some events cannot be foreseen. In such situations, rapid decisions need to be made to restrict its impact and restore normal operations as soon as possible.
Timing is of utmost significance in these scenarios because timely responses ensure that minimum losses are experienced. When companies suspend their operations for long, there can be a detrimental impact on its reputation. They lose customers’ trust and loyalty when they show delays in order fulfillment or rendering services. Hence, to ensure the continuity of their businesses, companies must be able to respond any adverse or unwanted situation quickly and proficiently.
