Lots of business decisions are risky. Your products might become outdated, or your customers might reject a new product line. Both risk reduction and contingency planning aid in preparing for difficulty. While risk mitigation strategies should be implemented immediately, a risk contingency plan only becomes effective in the event of a catastrophe.
Once youve identified potential risks, you can assess them. Ideally, you can estimate their likelihood and the severity of their effects. Then, you can create plans for the risks that are most likely to occur and that would cause the most harm in order to increase the likelihood of success or lessen the impact if it does.
The actions your company will take if X occurs are known as risk contingency measures. For instance, a risk mitigation strategy might seek to lessen the possibility of price increases from your vendors. A risk contingency plan outlines what to do if prices increase regardless. Contingency plans can be created for risks such as supply chain issues, fire, flood, data breaches, and significant network failure.
You list the likelihood that a contingency will occur on one axis. The risk of a price increase this year is zero if, for example, your raw material prices are fixed by contract for the following three years. You list the damage factor on the opposite axis as minor, moderate, major, or critical.
Although it doesn’t have to be detailed, the initial plan for a given contingency should clearly state what you’ll do. One of your risk mitigation strategies for a government shutdown may be to maintain full-time employment for your key personnel. Before identifying the staff, wait until you notice that the contingency is moving into the “going to happen soon” category.
Pull out the plan and go over it any time a significant change occurs at your business. Some of your contingencies may change or become void if you move to a new building, switch suppliers, or replace key personnel. Regular review will keep the strategy up to date with the potential outcomes of your current circumstance.
Fraser Sherman has written about all facets of business, including how to launch one, how to maintain one, the ideal corporate structure, and the specifics of financial statements. Additionally, he has operated a few small businesses on his own. He resides in Durham, North Carolina, with his wonderful wife and two adorable dogs. His website is frasersherman. com.
PMBOK® Guide: Difference Between Mitigation Plan And Contingency Plan
What is a risk contingency plan?
A risk contingency plan offers instructions on what an organization should do in the event that a potential risk materializes. They aim to reduce the damage that an unfavorable series of events could cause to an organization and its assets. When operations become complex and quick action is required, risk contingency plans provide a sense of order. They address both internal and external risks.
Plans for mitigating risk take into account the fact that the majority of problematic scenarios develop gradually. Airlines, for instance, have risk contingency plans for handling storms. Risk contingency plans advise delaying departure if a storm is expected before takeoff. The risk contingency plan may require the plane to change its course if the storm hits while it is in the air. The same issue is covered by both instructions, but in different risk contexts.
What is a risk mitigation plan?
A set of rules used by an organization to safeguard its interests when carrying out operations or activities is known as a risk mitigation plan. To protect their financial health, project outcomes, physical and digital assets, employee health, and legal standing, organizations minimize risk. Plans for risk mitigation identify internal risks (those under their control) and external risks (those beyond their control) and devise mitigation strategies. Companies also assess various risks to see if they can be minimized or can only be tolerated to a certain degree.
Plans for risk mitigation deal with the circumstances before an event or activity. They take action now to ensure a more prosperous future. For instance, airlines develop risk reduction strategies to run flights that are successful and secure for all parties. To reduce internal risks, they train pilots, examine systems, and develop policies that outline proper flying conditions.
Risk mitigation plans vs. risk contingency plans
The key comparisons that can help you understand how risk mitigation plans and risk contingency plans differ are as follows:
Timing of implementation
Businesses implement risk mitigation plans before operations or projects. They frequently involve actions that demand planning, organizing, and execution time. However, there are times when companies don’t identify a source of risk until after a problem arises. Planning for risk mitigation is a continuous process that is initiated whenever an organization discovers a new difficulty.
Companies prepare their risk contingency plans in advance but only carry them out when specific cues are present. Ideally, risky conditions can be recognized early enough to avoid becoming serious issues. For instance, a corporate accountant may spot a worrying discrepancy in a business’ financial records. A successful risk contingency plan would ensure that the business swiftly looks into the problem and fixes it to avoid any further harm to the business.
Conditions for activation
Risk mitigation plans are not typically conditions-based. A company benefits from taking as many protective measures as possible for each operational activity, especially since many risk mitigation measures are legally required. For instance, restaurants must demonstrate to the local government that they have developed sanitation procedures in order to reduce the risk of food contamination. The daily application of these procedures serves as the foundation for its operations.
Risk contingency plans are, by definition, conditions-based. A company and its employees only take emergency measures when certain conditions arise. However, it’s crucial that a company train its staff on risk mitigation strategies before they are required. Employees must practice their contingency plan duties in order to be ready to carry them out in an actual emergency.
Relationship to risk
Risk mitigation has a direct relationship with risk probability. Plans for risk mitigation, when properly implemented, lessen the likelihood of many risks materializing, particularly internal ones. Preventive actions taken by an organization can also reduce the likelihood of significant losses when unfavorable events occur. For instance, a store may put up signs warning customers that there are security cameras watching them. This is a risk mitigation strategy, but if someone steals something anyway, the camera footage increases the chance that law enforcement will find the offender and get the item back.
Risk mitigation strategies have no impact on the likelihood that a risk materializes into a problem. However, the likelihood of an organization suffering severe damage decreases if a risk contingency plan outlines actions to take when warning signs surface. For instance, properly training a sports team’s medical staff doesn’t prevent an athlete from getting hurt, but it does enable them to treat an injury more effectively and lessen its effects.
Typical costs
Both risk mitigation plans and risk contingency plans involve costs. However, risk mitigation plans typically represent more frequent and significant ones. In order to maintain an adequate level of risk awareness, it may be necessary to pay specialized employees, hire services, purchase materials, and devote time to risk assessment.
Risk contingency plans rarely cost an organization a lot of money unless a situation arises that necessitates the use of supplemental resources. For instance, until a circumstance forces a shipping company to divert from its regular routes, the cost of using longer backup routes is not felt.
Examples of a risk mitigation plan and a risk contingency plan
Here are examples of risk mitigation and contingency plans as they would be used by an entertainment company hosting an outdoor concert.
Risk mitigation plan example
The risk mitigation plan for the entertainment company may include the following goals and deliverables:
Risk contingency plan example
The risk contingency plan for the entertainment company may include the following instructions:
FAQ
What is the difference between risk and contingency?
A contingency plan is executed when the risk presents itself. The plan’s goal is to lessen the risk’s potential damage when it materializes. Without a plan, the full impact of the risk could have a significant impact on the project. The last line of defense against the risk is the contingency plan.
What are some examples of mitigation?
A contingency plan addresses a “what-if” scenario that might jeopardize a project or a company. Backing up all website data in the event that your website is hacked is a straightforward example of a contingency plan. In this case, after regaining access and updating passwords, you can restore the data.
Is mitigation the same as planning?
- Hazard mapping.
- Adoption and enforcement of land use and zoning practices.
- Implementing and enforcing building codes.
- Flood plain mapping.
- Reinforced tornado safe rooms.
- Burying of electrical cables to prevent ice build-up.
- Raising of homes in flood-prone areas.
