The contingency planning is a regular part of risk management for exceptional risk though unlikely, may have disastrous consequences when an unexpected event or situation occurs. In the other words, contingency planning is a process that includes risk assessment and a mitigation strategy for those risks. It generally refers to a negative situation like direct or indirect loss resulting from breakdowns in internal procedures, people, system and external events like frauds, system failure, error in financial transactions, failure to discharge demand of contractual obligations due to insufficient funds, data breach, major network failure etc. that may affect the financial health or reputation of an organization or organization’s ability to stay in business.
A contingency planning is the process of building a plan devised for a significant outcome in future that may or may not happen. The exact type of contingency plan depends on the type of business and the location. In the financial world, contingency planning is the process of identification, analysis and acceptance or mitigation of uncertainty in investment. Development of a contingency plan includes making decisions in advance about the management of human and financial resources, coordination and communications procedures, and being aware of a range of technical and logistical responses. The contingency planning process can basically be broken down into following questions:
- What is going to happen?
- What are we going to do about it?
- What can we do ahead of time to get prepared?
Many large businesses and government organizations create multiple sets of contingency plans so that a variety of potential threats are well-researched and their appropriate responses are fully practiced before a crisis hits.
