Business Financial Contingency Plan: What It Is And How To Make One
In crises, such as the one recently experienced with the COVID-19 pandemic, it becomes clear that organizations need to understand what a corporate financial contingency plan is and how to prepare it.
This is because no company in the world is immune to crises. The corporate world is always subject to risks that can be foreseen and avoided, but unexpected situations also happen and quick action is necessary to minimize the negative consequences.
That’s why a contingency plan exists. With it, it is possible to make safer and more efficient decisions to prevent and deal with unexpected crises. Does your company already have this strategy ready? If you are still in doubt, continue reading and learn more about the subject!
What is a financial contingency plan?
The financial contingency plan is used to identify the worst-case scenarios that a company may face . This can help mitigate negative impacts and make the response to crisis control faster and more efficient.
To develop a contingency plan, a consultancy firm can be hired for this specific purpose. However, it is more common for the company itself to collect and analyze the data, delivering it to managers and executives who discuss strategies.
Typically, an organization develops financial contingency plans for each risk identified and selected as probable . This way, when a crisis occurs, it is used as a manual.
How important is a contingency plan?
This document is designed to assess, standardize, guide and train actions to control and combat adverse situations that may occur in the company. The financial contingency plan also works to maintain normality and prevent the effects of the crisis from becoming even more serious.
One of the greatest benefits of a contingency plan is that it helps maintain financial stability and business operations even in critical situations . Other advantages include emotional control, as advance planning reduces stress when faced with a real problem.
How to prepare a business financial contingency plan?
Each plan is unique and specific to the company’s reality, but there are some basic steps that should be followed by any business to develop a good contingency plan. See below!
1. Organize a crisis management committee
The first step in starting a contingency plan is to form a crisis management committee , made up of professionals trained to develop and apply problem-solving methods. If possible, include employees in the process. They can bring real-world experience to the table.
2. Be aware of the risks
After assembling the team, the committee needs to prepare a risk analysis that will include the impact on the company’s activities in the face of crises , such as natural disasters and technical and human errors.
But it doesn’t stop there: it is also necessary to constantly observe the operational actions of all sectors of the company and obtain the respective performance indicators, which will show which improvements need to be developed in each area.
For each process identified, it is necessary to assess the impact that a failure in that sector represents for the company, including considering the processes derived from that sector. In this way, priorities are determined.
3. Determine recovery strategies
With the performance indicators, it is then necessary to develop efficient strategies to solve the problems identified . It is important to think of plans that are easy to put into practice, so that the crisis can be controlled as quickly as possible.
4. Register the contingency plan guide
Now, gather everything that has been done so far into one document . Prepare indexes for the main points and detail the location of the problem definition, immediate solutions and what can be done to prevent it from happening again.
5. Do tests and reviews
A big mistake is to leave the company’s financial contingency plan on hold and only remember it in times of crisis. It is essential that all strategies developed are tested and updated according to the company’s needs.
