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What Is Contingency Planning? Creating a Contingency Plan

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What is contingency planning, what is a contingency plan, contingency plan example, how to create a contingency plan, business contingency plans, project contingency plans.

Contingency plans are used by smart managers who are aware that there are always risks that can sideline any project or business. Without having a contingency plan in place, your organization won’t be well prepared for risk management .

The term contingency planning refers to the process of preparing a plan to respond to any risks or unexpected events that might affect an organization. Contingency planning starts with a thorough risk assessment to identify any risks and then develop a contingency plan to resolve them or at least mitigate their negative impact.

Contingency planning takes many shapes as it’s used for helping businesses and projects across industries. Even governments use contingency plans to prepare for disaster recovery or economic disruption, such as those caused by natural disasters.

A contingency plan is an action plan that’s meant to help organizations mitigate the negative effects of risks. In simple terms, a contingency plan is an action plan that organizations should execute when things don’t go as expected.

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Now that we’ve briefly defined what contingency planning is, let’s take a look at a contingency plan example involving a manufacturing project.

Let’s imagine a business that’s planning to manufacture a batch of products for an important client. Both parties have signed a contract that requires the manufacturer to deliver the products at a certain date or there may be negative consequences as stated on the purchase agreement. To avoid this, the business leaders of this manufacturing company start building a contingency plan.

To keep this project contingency plan example simple, let’s focus on three key risks this company should prepare for.

• Supply chain shortages: The supply chain is one of the most important business processes for this manufacturing company. Therefore, one of the most impactful risks is a raw material shortage which may occur if their main supplier is unable to deliver the materials they need on time. To prepare a contingency action for this risk, the business owners decide to reach out to other suppliers and place standing purchase orders which give them the opportunity to ask for a certain quantity of materials at some point in the future. If the risk of a supply chain shortage occurs, they’ll have multiple sources of raw materials available in case their main supplier can’t keep up with their demand levels.
• Machinery breakdown: Another risk that might halt production is the malfunction of machinery. To prepare for this, business leaders hire extra maintenance personnel and order spare parts for their production line machinery as part of their contingency plan. If the risk of machinery breakdown becomes a reality, the organization will have the labor and resources that are needed to mitigate it.
• The team is not meeting the schedule: If the manufacturing team members are failing to meet their goals on time for whatever reason, the manufacturing business will need to allocate more resources such as extra labor and equipment to complete the work faster. However, this contingency action will generate additional costs and reduce the profitability of the project.

ProjectManager has everything you need to build contingency plans to ensure your organization can respond effectively to risks. Use multiple planning tools such as Gantt charts, kanban boards and project calendars to assign work to your team and collaborate in real time. Plus, dashboards and reports let you track progress, costs and timelines. Get started today for free.

Like a project plan , a contingency plan requires a great deal of research and brainstorming. And like any good plan, there are steps to take to make sure you’re doing it right.

1. Identify Key Business Processes and Resources

To create an effective contingency plan you should first identify what are the key processes and resources that allow your organization to reach its business goals. This will help you understand what risks could be the most impactful to your organization. Research your company and list its crucial processes such as supply chain management or production planning as well as key resources, such as teams, tools, facilities, etc., then prioritize that list from most important to least important.

2. Identify the Risks

Now, identify all the risks that might affect your organization based on the processes and resources you’ve previously identified. Figure out where you’re vulnerable by brainstorming with employees, executives and stakeholders to get a full picture of what events could compromise your key business processes and resources; hire an outside consultant, if necessary. Once you’ve identified all the risks, you should use a risk log to track them later.

3. Analyze Risks Using a Risk Matrix

Once you’ve identified all the risks that might affect your processes and resources, you’ll need to establish the likelihood and level of impact for each of those risks by using a risk assessment matrix . This allows you to determine which risks should be prioritized.

4. Think About Risk Mitigation Strategies

Now, write a risk mitigation strategy for each risk that you identified in the above steps. Start with the risks that have a higher probability and higher impact, as those are the most critical to your business. As time permits you can create a plan for everything on your list.

5. Draft a Contingency Plan

Contingency plans should be simple and easy to understand for the different members of your audience, such as employees, executives and any other internal stakeholder. The main goal of a contingency plan is to ensure your team members know how to proceed if project risks occur so they can resume normal business operations.

6. Share the Plan

When you’ve written the contingency plan and it’s been approved, the next step is to ensure everyone in the organization has a copy. A contingency plan, no matter how thorough, isn’t effective if it hasn’t been properly communicated .

7. Revisit the Plan

A contingency plan isn’t chiseled in stone. It must be revisited, revised and maintained to reflect changes to the organization. As new employees, technologies and resources enter the picture, the contingency plan must be updated to handle them.

Contingency Plan Template

We’ve created an action plan template for Excel to help you as you go through the contingency planning process. With this template, you can list down tasks, resources, costs, due dates among other important details of your contingency plan.

A business contingency plan is an action plan that is used to respond to future events that might or might not affect a company in the future. In most cases, a contingency plan is devised to respond to a negative event that can tarnish a company’s reputation or even its business continuity. However, there are positive contingency plans, such as what to do if the organization receives an unexpected sum of money or other project resources .

The contingency plan is a proactive strategy, different from a risk response plan , which is more of a reaction to a risk event. A business contingency plan is set up to account for those disruptive events, so you’re prepared if and when they arrive.

While any organization is going to plan for its product or service to work successfully in the marketplace, that marketplace is anything but stable. That’s why every company needs a business contingency plan to be ready for both positive and negative risk management.

In project management, contingency planning is often part of risk management. Any project manager knows that a project plan is only an outline. Sometimes, unexpected changes and risks cause projects to extend beyond those lines. The more a manager can prepare for those risks, the more effective his project will be.

But risk management isn’t the same as contingency planning. Risk management is a project management knowledge area that consists of a set of tools and techniques that are used by project managers to create a risk management plan.

A risk management plan is a comprehensive document that covers everything about identifying, assessing, avoiding and mitigating risks.

On the other hand, a contingency plan is about developing risk management strategies to take when an actual issue occurs, similar to a risk response plan. Creating a contingency plan in project management can be as simple as asking, “What if…?” and then outlining the steps to your plan as you answer that question.

Using ProjectManager to Create a Contingency Plan

ProjectManager has the project planning and risk management tools you need to make a reliable contingency plan that can quickly be executed in a dire situation.

Use Task Lists to Outline the Elements

Use our task list feature to outline all the elements of a contingency plan. Since a contingency plan likely wouldn’t have any hard deadlines at first, this is a good way to list all the necessary tasks and resources. You can add comments and files to each task, so everyone will know what to do when the time comes.

Reference Dashboards to Monitor the Contingency Plan

Our dashboard gives you a bird’s eye view of all of the critical project metrics. It displays live data so you’re getting a real-time look at how your project is progressing. This live information can help you spot issues and resolve them to make sure that your contingency plan is a success. Which, given that it’s your plan B, is tantamount.

If you’re planning a project, include a contingency plan, and if you’re working on a contingency plan then have the right tools to get it done right. ProjectManager is online project management software that helps you create a shareable contingency plan, and then, if you need to, execute it, track its progress and make certain to resolve whatever problems it’s addressing. You can do this all in real time! What are you waiting for? Check out ProjectManager with this free 30-day trial today!

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The Essentials of Contingency Planning and Estimating Contingency for Any Project

By Kate Eby | April 3, 2023

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Contingency planning helps your project team deal with project risks if they happen. We’ve gathered expert tips on creating effective contingency plans and the best tools to help determine the appropriate amount of contingency for any project. 

Included on this page, you’ll find step-by-step guidance to prepare a contingency plan , the top challenges in preparing and using contingency plans , and information on how to determine the right amount of contingency for a project . In addition, you can find a downloadable project contingency plan template to help get you started.

What Is Contingency Planning in Project Management?

Contingency planning is what your project team does to prepare for specific risks that might happen during a project. A contingency plan might include extra funds, extra staff, or steps to take if a particular issue arises. 

Contingency planning is “surviving disruptions,” says Erika Andresen, a business continuity and resilience expert, author, and Founder of EaaS Consulting . “It’s determining the priorities and making strategic decisions about how and when and where you're going to spend money and time in order to prepare for those things.”

“I consider it to be the ‘what if?’” says Melody Smith, a human resources and information systems consultant and CEO and Principal Consultant with New Jersey-based CAM Consulting Solutions . “I am the ‘what if?’ person. It drives people crazy. What if this happens? It may not; let's hope it doesn't. But it is being prepared to know that something is always going to happen, and because something is going to happen, you want to be able to have a plan of attack on how to address it, as far as making sure you have enough resources.”

What Is Project Contingency?

Project experts usually refer to project contingency as the resources set aside as part of contingency planning. These are extra financial or staff resources or extra project time that your team might need to use if a risk happens.

One form of project contingency is cost contingency . These are extra funds allotted to the project for the team to spend if certain risks happen. Another more common form of project contingency is contingency time . This is extra time built into a project schedule to account for project risks.

Experts say that project contingency, both contingency time and cost contingency, is needed in all but the smallest projects.

What Is Contingency Time in Project Management?

Contingency time is extra time that project leaders build into the overall schedule of a project. The project team can use this extra time to deal with the impacts of certain risks and avoid missed deadlines or contract penalties.

Experts sometimes use other terms that mean the same thing as contingency tim e, such as schedule contingency, time contingency, schedule buffer, schedule margin, and schedule float .

“Very rarely do most projects deliver on time,” says Diane Davidson, Owner of Clever Fox Advisory , a strategic planning consultancy focused on improving finance operations. “Now, I'm not talking years late, but there’s typically at least a week or two-week delay. Something always comes up. Somebody who's very important goes on vacation.”

Davidson says she builds in contingency time on almost all projects. “If we finish early, before using all contingency time, great! We save money on the project,” she says. “But if we don't finish early, then you don't have to worry about me coming back to you to say, ‘Hey, I need more money to finish this project.’ The project will still finish on budget.”

Dos and Don’ts for Establishing Contingency Time in a Project Schedule

Experts recommend a number of best practices for establishing contingency time in a project schedule. Many of these practices focus on ensuring that contingency time is visible in the project schedule. This helps the team use contingency time appropriately.

Here is the correct way to establish contingency time:

• Conduct Risk Analysis: Your team should establish contingency time based on a detailed and formal analysis of risks and how they might impact the schedule.
• Make Contingency Time Visible in the Project Schedule: Contingency time must be visible in the project schedule. You can add it to specific project phases or to the overall project. Either way, set aside a specific amount of time, usually in days or weeks, and label it as contingency time .

Experts also warn of common pitfalls with contingency time. Here are some practices to avoid when adding contingency time to your project schedule:

• Hiding Contingency Time: Team members should always clearly label contingency time in the project schedule. Never lengthen certain phases of a project — or an entire project schedule — without identifying what parts of that schedule the team considers to be contingency time. In other words, contingency time should not be hidden.
• Confusing Contingency Time with Management Reserve: Contingency time is not the same as management reserve . Some organizations use the term management reserve to define extra time and resources that management might decide that a project or an organization needs in general. Company leaders hold these resources in reserve to account for risks that are difficult to quantify or that relate to other larger organizational issues. This is different from contingency time within a project.

How Much Contingency Should a Project Have?

Experts sometimes recommend adding a rough estimate of contingency to projects. Most often this is contingency time. When estimating the amount in this way, experts most often recommend adding 20 percent of extra time to a project for contingency. 

For example, if a project is expected to take 200 hours, the team would add an additional 40 hours for contingency time. 

Davidson says project leaders must be careful not to add too little contingency time — or contingency costs — to a project.

“I've seen where people have a 12-month project, and they’ll say: ‘We’ll build in an extra week,’” says Davidson. “Well, that’s not even a day per month. Or ‘This is a $6 million project — let's put in another $20,000. That’s two days of work for the number of people.

“Twenty percent [of added contingency] is what I've typically found,” she says.

Precise Ways to Figure Out Appropriate Contingency for a Project

For many projects, experts do not recommend using a broad contingency estimate. Instead, project leaders should estimate contingency with more precise tools. Some options include team estimates, Monte Carlo simulations, and phase contingency estimates.

Here are some more precise ways to estimate contingency time:

• Team Estimates: Project leaders can ask the project team to provide three estimates of the time they think they will need to finish a project or each stage of a project. The three estimates include the time needed if everything goes perfectly, the time needed if there are several problems and issues, and the most likely time. The project leaders can then establish a good estimate of contingency needed based on all of those estimates.
• Monte Carlo Simulations: Monte Carlo simulations are complex models that predict the probability of different outcomes based on a large number of variables. Project managers use these simulations to determine the most likely length and cost of a project. Monte Carlo simulations are highly complex, which is why they are often performed with software. Financial experts also use Monte Carlo simulations to determine the most likely possibility of how an investment might perform over time. 
• Phase Contingency Estimates: Many experts recommend that project teams make detailed estimates of contingency amounts for each major phase of a project. These estimates are based on the risks that could happen during each specific phase. The team might also establish contingency for each subphase of a project. For instance, it might establish a contingency amount for the time it will take to get permits for a construction project. “I think the most important elements of a contingency plan are to determine the project phases and pad the hours during the more complex stages of the program,” Davidson says. For a software development project, she continues, “This is typical during the development and testing phases. The planning and closing phases usually do not involve as much overhead and can be shortened as needed.” Expert Tip: Always remember to label contingency amounts as contingency time within each phase, experts say. The phase shouldn’t just be lengthened from 10 weeks to 12 weeks without indicating where contingency time has been added.

When to Use a Project Management Contingency Plan

Experts recommend creating a contingency plan for any risk that could have a significant impact on a project or organization. After your team identifies project risks and conducts a thorough risk analysis, it should begin creating a contingency plan.

It’s important to understand that contingency plans can be created only for risks that your team identifies. A contingency plan cannot be created for risks that your team has not identified or would have no ability to identify or foresee.

Contingency Plan vs. Risk Management

Project risk management is the practice of identifying, managing, and mitigating risks in projects. A contingency plan is one part of project risk management. Other parts of project risk management include creating a risk log and assigning owners to risks. 

To learn more about project risk management, see this comprehensive guide on risk management planning .

Contingency Plan vs. Mitigation Plan

Mitigation plans and contingency plans are similar but not identical. A mitigation plan helps you reduce the likelihood or impact of a risk, while a contingency plan helps you map the response to a risk once it occurs. 

In general, a contingency plan focuses on quickly and appropriately dealing with a risk after it happens, while a mitigation plan focuses on preventative measures that make a risk less impactful or less likely to occur.

Elements of a Project Management Contingency Plan

A contingency plan should have several basic elements to help your team respond to risks when they happen. Those elements include a risk probability assessment, details on triggers for an event, and an overall response strategy.

Other important elements include a timeline for the contingency plan and a plan for communicating with important organizational leaders and project team members about the specific risk and contingency plan.

Learn more about the important elements of a contingency plan in this helpful guide to contingency planning.

How to Prepare a Project Management Contingency Plan, Step by Step 

Experts recommend that your project team follow a number of basic steps to create a good contingency plan. First, identify and prioritize risks. Next, create and share your contingency plan. Finally, continually monitor and review your plan. 

Here are the main steps of preparing a project management contingency plan:

• Identify the Risks: Your team will need to identify all risks that might impact your project. 
• Prioritize Risks: Your team will assess all the risks that it has identified. Determine which risks are most likely to happen or could have the largest impact on the project, and use these findings to organize risks from highest to lowest priority. .
• Create a Plan: Your team will create a detailed contingency plan to deal with any risks that your team identifies as important. The plan should include how your team will address the risk when it happens. It will also assign responsibilities for tasks as part of the plan. 
• Share the Plan: Once a tentative plan has been created, your team will share it with external stakeholders and team members. Review their input or suggestions as you improve the plan.
• Continually Monitor and Review the Plan: Though your plan might be finalized and approved at the beginning of the project, it could still change. As a project progresses, new risks will arise, and risk priorities will shift. Your team should continually review the contingency plan and make changes where needed.

Project Management Contingency Plan Template Example

Download a Blank Project Management Contingency Plan Template for Excel | Google Sheets

Download a Project Management Contingency Plan Example for Excel | Google Sheets

Download this completed example project management contingency plan to help you understand contingency plans. You can use this example plan template — with sections on contingency assessment, contingency analysis and evaluation, and mitigation measures — to write a contingency plan for risks in your own project.

Why Are Contingency Plans Important in Project Management?

Contingency plans are vital for managing any project that involves risk. When project managers create contingency plans, they prevent negative risks from derailing or significantly hampering the progress of a project. 

Here are a few of the basic reasons contingency plans are an important part of project management:  

• They Show Your Team’s Complete Preparation: Contingency plans show stakeholders and project team members that your team is fully prepared to deal with important risks. “I think there’s no project, no activity, nothing that goes as we plan,” Davidson says. “I think we have to understand that it's very nearsighted to take a project, no matter what the duration is, and say, ‘Oh, everything is going to be a sunny day scenario.’ It’s not showing that I'm a really good project manager. A great project manager knows things are going to go off the rails. With people, maybe there’s a learning curve. Maybe people aren't picking things up as quickly — which is fine — so I build time in to assist with that. That's just showing that I understand how to run a project.”
• They Lower the Risk of a Project Derailing: When risks occur, they can endanger the progress or success of a project. Contingency plans help your team ensure that won’t happen to your project, even when risks occur. “If you have this contingency plan and are able to start to see that things are maybe starting to unravel a bit, the Debbie Downer comes out and you're able to say, ‘We may want to have someone available over the holiday because something may not work,’” says Smith. “You're more forward-thinking. You're saving time, you're saving money, and you're saving resources.”

Challenges of Contingency Planning in Project Management

Although contingency planning has many benefits, some project teams will face challenges when creating and using contingency plans. Challenges include getting buy-in from organizational leaders, being overconfident in an initial plan, and following through on contingency plans.

Here are some common challenges project managers might face during contingency planning:

• Teams View Contingency Planning as Low Priority: Some people in organizations view contingency planning as a low priority in comparison with other project management work. Project leaders often need to convince them of the importance of contingency planning. “The line I like to use — that I took from somebody else — is, ‘Planning is hard. Explaining why you didn’t is even harder,’” says Andresen. “Because, yes, it's a pain in the butt to do the plan.” But worse, she says, is when a risk becomes a real issue and an important stakeholder asks: “You didn’t even think about this? You kind of knew this was going to happen, or that this was even potentially going to happen, and you decided not to do anything about it?”
• Organizational Leaders Don’t Prioritize Contingency Planning: Even organizational leaders sometimes don’t understand the importance of contingency planning. Project leaders must work to get buy-in from company leaders and sometimes convince them of the need for contingency budgets. “That's always been my challenge,” Smith says. “How do you influence somebody — the people who have the money, the CEOs, or even the head of departments — that we need this? All they're telling you is, ‘You have to make it work.’ I think that's the piece that's always driven me crazy.”
• The Team Is Overconfident in Plan A: When your project team is very confident in your overall project plan, they may believe that there’s no need to prepare for certain risks. That can make it difficult for them to work on and support good contingency planning.
• The Team Spends Too Little Time Identifying Important Risks: Contingency planning doesn’t work when your team doesn’t identify real risks to worry about, of course. Your team must fully examine all possible risks, decide which are most important, and make plans to deal with them.
• The Team Is Uncertain About What Resources Are Available: Teams might have challenges in understanding how to plan for potential risks and issues if they don’t understand the resources available to help deal with those issues. In those cases, the team might not “really know what to put into a contingency plan,” says Smith, “because you don't know what will be available, You can think of any piece of a project that can possibly go wrong, but if you don't know what other resources you're going to have available, it's a little difficult to be able to put that together.”
• The Team Has a Plan but Doesn’t Follow It: Some organizations create a contingency plan, and when a risk becomes a reality, they frantically react and ignore the plan. It happens more often than people might think, Andresen says: “If you have a plan, follow it. Don't make the decision not to follow the plan.”

How to Manage a Contingency Budget in Project Management

It’s important to manage a contingency budget well in project management to ensure the project team has all resources it needs to complete a project successfully. Managing a contingency budget means understanding contingency reserves, contingency costs, and contingency funds. 

For more resources and information, see this guide to managing a contingency budget.

Contingency Reserve in Project Management

A contingency reserve is the amount of resources that an organization sets aside to deal with project risks. Most often, project managers allocate funds in a contingency reserve, but some managers may also include staff time.

Organizations will often use estimates and detailed calculations to determine the amount of contingency reserve they need for a project, either in costs, time, or both. 

A common method for determining the amount of contingency reserve is to calculate expected monetary value (EMV) with a quantitative risk matrix . This calculation takes the probability of a risk happening and multiplies that by the estimated financial cost of the risk happening. The calculations for each risk are added together for the total contingency reserve that would be required.

EMV = Probability x Impact 

Tip: Despite the name, expected monetary value can estimate contingency time as well as contingency cost.

The below graphic shows how a team might track its contingency reserve for a project, month by month. It would track the contingency reserve in concert with the project’s total budget and the running costs for the project.

Contingency Cost in Project Management

Contingency cost in project management is a part of the project budget  that is allocated to risk events that are not in the original cost estimate for the project. This money can help reduce the impact of known risks and compensate for unknown risks.

A Contingency Fund in Project Management

In project management, a contingency fund is the amount reserved to cover contingency costs. Also called the contingency reserve , this fund addresses contingency costs, rather than contingency time.

Building Contingency Planning into Project Teams

Project leaders should keep in mind the importance of good contingency planning as they build their project teams. For example, having a team with diverse skill sets and a mix of experience levels will help create a balanced response to risk events.

Here are a few things project managers should keep in mind when building contingency planning into project teams:

• Create a Team with Diverse Skill Sets: Project managers should consider all skills they will need for a project, including special skills that might factor into various contingency plans for the project. They’ll want to make sure they have the range of skills required for their contingency plans.
• Assemble a Team with a Mix of Experience Levels: Project managers should consider gathering both junior and senior team members for their projects. This will give them the breadth they need to deal with various risks and issues.
• Consider Team Skill Sets: Project managers will want to understand and track the exact skills of each of their team members. This will allow them to incorporate those skills into contingency plans. It will also allow them to call on the right person immediately when a risk occurs.

The Importance of Scheduling in Project Contingency Planning

Good contingency planning can happen only when project leaders are transparent and clear about project scheduling. This means clarity on time goals for various phases of the project and what contingency time might be available.

Project managers should also continually monitor the schedule, make changes when necessary, and be transparent with the entire team about those changes.

It’s especially important for project leaders to be transparent about schedule issues and changes with organizational leaders and other important stakeholders.

As a consultant in project management, Davidson says it’s important to have conversations with clients early and often about project scope, budget, and deadlines. “It's better also to prepare because the worst thing you can do is get to the fifth month and say, ‘We're not going to deliver on time,’” she says. “I see more people get in trouble because they don't have the upfront honest conversations in the beginning. They overpromise and underdeliver.”

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How To Create A Smart Contingency Plan For High-Risk Projects

Contingency plans ensure projects go as smoothly as possible and maximize the chances of project success. Learn how to build one for your next project.

Sam Barnes,   Digital Delivery and Leadership Expert

• project planning

Every seasoned project manager knows from experience that projects rarely go exactly to plan. I learned the need for a solid contingency plan the hard way. 

Early in my career, I would plan out a project on paper and would be convinced that I had all bases covered. But sometimes, the first unexpected challenge would rear its head from the starting gates—my perfect plan was ruined already. Then I would scramble around with the project team to deal with the fire as best we could.

This type of work invariably takes the focus off of the work that should be happening on a project, and risks you losing the trust of clients and stakeholders early on.

Enter contingency plans.

What is a contingency plan?

Contingency plans spell out actions that should be taken if an identified risk becomes reality.

Contingency plans are typically created at the start of a project —but not necessarily. A project manager will work with the team to develop step-by-step action plans for the most impactful risks identified and then do the same if new risks are identified as the project progresses.

Contingency plans also come in less formal guises. For example, when releasing a new big feature on a software platform, it’s wise to have developed a rollback plan. This means that if any problems arise from the release deemed too impactful to stay in place for any time, the team can quickly revert the platform to its pre-release state. In this case, the rollback plan is a type of contingency plan item.

Contingency plan vs. mitigation plan

As we mentioned, contingency plans are reactive—they’re meant to lay a plan for responding to an anticipated issue. 

On the other hand, a mitigation plan is proactive and more about minimizing the chances of risks becoming issues in the first place.

However, the two are closely linked, and contingency plans in larger project management environments are directly related to risk plans.

Why do you need contingency planning in project management?

Put simply, you need contingency planning in project management to ensure projects go as smoothly as possible and to maximize the chances of project success. 

Without a contingency, when things go wrong (which they almost certainly will), time, money, quality, morale, and trust are lost in the process of fixing things.

Contingency plans are most needed on high-risk, larger projects. Larger projects have more moving parts and are, by definition, more complex. Thus, there is a high chance of something happening that would have a high negative impact. Having a clear plan of action for big risks that turn into issues can be the difference between project failure and success.

Conversely, if you’re working on a very small project that you have done many times before with a client and technology you know well, you probably don’t need to develop a contingency plan. In this case, risk is low, and spending time on a contingency plan would probably be wasted time and money.

Plan and estimate projects in Float

Whether big or small, you can plan project work in Float. Monitor your team's schedule, set budgets with five different models, and compare estimates vs. actuals all in one place.

5 steps to create and manage an effective contingency plan

1. assess the identified risks for high impact.

Review the risk register you have created, and select the risks that need to be included in a contingency plan. You can do this by assessing risks based on likelihood, impact, and severity. 

While you ideally want to include all risks, start with the most impactful ones and work down the priority order. This is because often contingency planning can take a back seat in the haze of a busy project, so it’s wise to focus on the most important risks first.

2. Create the contingency steps

Work with your team and stakeholders to play a series of ‘what if’ scenario games for each risk register item selected. This is best completed as part of a focused workshop, so you can have everyone’s full attention. It’s important to get people in the zone of contingency thinking.

Here are some actions to take in this workshop:

• Create a row on a whiteboard or virtual whiteboard that starts with a risk
• Ask the team to imagine that the risk has become a reality. 
• Note down the triggers that would invoke a contingency plan needing to go into action, in a separate column.
• Discuss with the group how they would react and what steps must be taken to resolve the issue. 
• Note the key steps, sequence, and owners in a separate column next to each risk.
• Play back the contingency steps and confirm with the group that there are no steps missing, then move on to the next risk.

It’s important to involve a wide array of stakeholders, as each will know how particular issues should be resolved. Never underestimate who you need to develop contingency plans with.

3. Get approval from senior stakeholders and clients

Once a contingency plan is complete and you have team consensus, the next step is to seek approval from the senior stakeholders and clients. These are the folks who ultimately are the arbiters of risk tolerance for any project.

Set up a dedicated session to take them through the plan. This is important because when contingency plan overviews are tacked onto the end of another meeting, they can be skimmed over too quickly due to lack of time or, quite frankly, interest. 

Make sure to communicate the importance of running through the plan for approval and make the session happen.

4. Circulate and socialize the contingency plans 

Once approved, make sure to circulate the contingency plans to everyone involved in the project. Do your best to ensure that everyone is acutely aware of this plan, knows where to find it and what each of their responsibilities are for any given issue. 

A slightly annoying but effective way to check that you’ve socialized the plan enough is to gamify spot checks so that people know the risks and plans. For example, create a project game with a leaderboard where you randomly ask a project team member to name the top three risks on the risk register and what the contingency plan is. You can award points to those who answer best and keep score, awarding a small fun prize to the most accurate people. 

It sounds corny, but a common issue with contingency plans is that they are forgotten once created, approved and circulated. A good project manager will ensure they’re not.

5. Treat contingency plans as living documents

Contingency plans are mostly created at the start of projects, but it’s a mistake to consider them complete once the first version is created. As with risk registers, contingency plans should be classed as living documents that are constantly reviewed and updated as projects progress.

For longer projects, it’s wise to set up monthly risks and contingency plan review sessions with the project team. You will run through the current risks and contingency plans and determine if the assessment and details are still accurate or if anything needs tweaking, adding, or even removing.

When any changes are made, re-approval should be sought from senior stakeholders and clients, documented in writing.

Contingency plans are critical

Contingency plans are a critical element for large high-risk projects. They allow project teams to think about worst-case scenarios for identified risks and develop a plan that will enable them to resolve any issues as effectively and efficiently as possible.

Make contingency plans a staple for your high-risk projects. Even if you don’t need to deploy them, you can sleep soundly at night knowing that a plan is in place. 

If you do end up deploying a contingency plan, you will be sure that you’re resolving issues in the most timely and comprehensive manner, in a way that your stakeholders and clients approve of and maximizing the chance of keeping your project on time and on budget.

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What is a Contingency Plan in Project Management? (With Templates)

Home Blog Project Management What is a Contingency Plan in Project Management? (With Templates)

To be successful, a project requires organization, careful planning, and foresight to ensure that all goals are met with on-time delivery and cost-efficiency. One key aspect of successful project management is having an effective contingency plan should anything go wrong during its execution. A contingency plan serves as an “insurance policy” by offering alternative solutions for unexpected events or risk factors that could disrupt progress toward completing the task. 

While some might not think of this strategy as being necessary, establishing a comprehensive backup plan can actually be one of the most important components in keeping a project from failing unexpectedly due to unforeseen obstacles coming up along the way. This blog post mentions what exactly a contingency plan is and how it works within Project Management.

What is a Contingency Plan in Business?  

In the ever-changing business landscape, uncertainties and unexpected events are bound to occur. That's where a contingency plan takes center stage. A contingency plan is your proactive strategy, carefully crafted in advance, to tackle unforeseen events and maintain business continuity. It acts as a safety net, guiding you through disruptions and minimizing their impact. 

A contingency plan is a preplanned response to unforeseen events, enabling businesses to mitigate disruptions and maintain operations. It identifies risks, develops strategies, and allocates resources for effective crisis management. This proactive roadmap helps anticipate risks, explore alternatives, and make informed decisions in times of crisis. While it cannot eliminate all risks, a contingency plan empowers businesses to be prepared and proactive rather than reactive.

A contingency plan in business is your proactive approach to managing unforeseen events. It provides a structured framework to navigate disruptions, maintain operations, and safeguard your business's stability in the face of uncertainty. Hence, it would help if you put in your valuable time and effort to create a contingency plan. The best online Project Management courses will also help you to learn further about clearly defined tasks and how to handle deadlines and milestones. 

Why a Contingency Plan is Important?  

Expert project managers have emphasized the importance of contingency plans now and then. A contingency plan is essential for your business because it prepares you for the unexpected. In addition, it helps you respond effectively to unforeseen events and mitigate their impact. 

A contingency plan minimizes downtime. With predefined steps and strategies, you can quickly mobilize resources and take immediate action when disruptions occur. This ensures your business can continue operations with minimal interruptions, reducing financial losses and maintaining productivity. 

A contingency plan reduces risks, protects your reputation, and enhances decision-making during crises. It identifies potential risks, prevents/mitigates them, safeguards your brand image, and instills confidence in stakeholders. The plan guides actions, ensures consistency, and helps make informed choices, reducing hasty decisions under pressure.

A contingency plan serves as a protective shield for your business, providing the assurance that you can effectively handle unexpected situations. By dedicating resources to create such a plan, you take proactive measures to secure the ongoing success and sustainability of your business.

Types of Project Contingency Plans  

In project management, different contingency plans address specific areas of concern. Each contingency plan is designed in such a way that they address unique risks and challenges of the project. Further, they lay out measures to handle unexpected circumstances effectively. 

The three common types are:

Owner Contingency

Owner contingency plans address risks associated with the project owner's requirements and responsibilities. This contingency plan ensures that the owner has allocated additional funds, time, or resources to accommodate changes in scope, unforeseen challenges, or modifications in project objectives. Owner contingencies provide flexibility and allow the owner to adapt to evolving needs during the project lifecycle. 

Design Contingency

Design contingency plans aim to mitigate risks related to the project's design phase. Design contingencies anticipate challenges such as design errors, omissions, or modifications that may arise during the planning and design process. By allocating a specific portion of the budget or timeline for design contingencies, project teams can account for potential design-related issues and respond promptly.

Construction Contingency

Construction contingency plans focus on managing risks and uncertainties during the construction phase of a project. This type of contingency plan accounts for unforeseen events, such as weather delays, labor shortages, or material price fluctuations. Construction contingencies provide a buffer in the project budget and schedule to address unexpected issues that may arise during the construction contingency planning process.

The types of contingency plans mentioned are the most common ones. However, you don't need to go with these three types only. Instead, you can keep your options open and choose the plan that fits the nature and complexity of the project. You can go for PMP certification training course to ace your project management exam in the very first go.

When to Use Contingency Plan in Project Management?  

As a project manager, you can bargain and use a contingency plan here and there. Of course, where you should be using one depends on your project. However, this article has spread out specific situations where using a project contingency plan can determine your project's success. 

The situation includes: 

• Risk Events : When identified risks materialize, or trigger events occur, it's time to implement the contingency plan. This includes events such as natural disasters, supplier failures, technology malfunctions, or unexpected regulatory changes. 
• Scope Changes : If there are significant changes to the project scope, objectives, or requirements, it may be necessary to invoke the contingency plan. These changes could result from new stakeholder demands, revised business priorities, or external factors impacting project deliverables. 
• Resource Shortages : When there are unexpected shortages or limitations in critical resources, such as skilled labor, equipment, or funding, activating the contingency plan can help address these gaps and ensure project continuity. 
• Schedule Delays : In cases where unforeseen delays occur, jeopardizing the project's timeline and milestones, the contingency plan can provide alternative strategies and measures to mitigate the impact and get the project back on track. 
• Budget Constraints : When there are unexpected cost overruns, budget limitations, or financial challenges, the contingency plan can help manage these constraints and allocate resources effectively to maintain project progress. 
• Stakeholder Disruptions : If key stakeholders face disruptions or become unavailable, impacting their ability to contribute to the project, the contingency plan can outline alternative communication channels, decision-making processes, or resource reallocation to ensure stakeholder engagement and project success. 
• Quality or Performance Issues : In situations with significant quality or performance concerns that pose a risk to project outcomes, the contingency plan can outline corrective actions, quality assurance processes, or alternative solutions to address these issues. 

It is important to note that creating a contingency plan should be done based on a predefined trigger or assessment of the situation. Regular monitoring, risk assessments, and communication with project stakeholders are critical to identifying when to implement the contingency plan. In addition, being proactive and responsive to unexpected events will help mitigate their impact and ensure project success. 

Elements of a Contingency Plan 

A well-structured contingency plan comprises several key elements. Let's explore each element in detail: 

• Risk Assessment:  This involves identifying potential risks and evaluating their likelihood and impact on the project. A thorough risk assessment helps prioritize risks and determine appropriate response strategies. 
• Response Strategies: For each identified risk, response strategies outline the specific actions to be taken. These strategies can include mitigation, avoidance, transfer, or acceptance approaches, depending on the nature of the risk. 
• Communication Protocols: Clearly defined communication protocols ensure effective and timely dissemination of information among project stakeholders. This includes channels, frequency, and responsibilities for communicating risk-related updates. 
• Resource Allocation: This element allocates necessary resources to implement response strategies. It involves determining the required personnel, budget, equipment, and materials to address identified risks. 
• Recovery Procedures:  Recovery procedures outline the steps to restore normal operations after a disruption occurs. This includes measures to recover data, restore systems, resume production, and re-establish customer service. 
• Triggers and Escalation:  Triggers are predefined events or indicators that activate the contingency plan. They serve as a signal to implement specific response strategies. Escalation procedures define when and how to escalate risks to higher levels of management or authorities. 
• Documentation:  Proper documentation is essential to capture all aspects of the contingency plan. This includes risk registers, response plans, communication records, resource allocation logs, and recovery procedures. Comprehensive documentation ensures clarity and accountability. 
• Testing and Training: Regular testing and training activities verify the effectiveness of the contingency plan. Simulating potential risk scenarios and conducting drills help identify gaps, refine response strategies, and familiarize stakeholders with their roles and responsibilities. 
• Plan Review and Updates: Contingency plans should be regularly reviewed and updated to reflect changes in project dynamics, risk landscape, or stakeholder requirements. This ensures that the plan remains relevant and aligned with evolving circumstances. 
• Governance and Leadership: The contingency plan should have a clear governance structure and leadership accountability. This includes identifying key decision-makers, establishing roles and responsibilities, and ensuring effective oversight and management of the plan. 

Each of these elements plays a vital role in a comprehensive contingency plan. By addressing these components, project teams can better anticipate, manage, and respond to unexpected events, minimizing their impact and maintaining project success.

How to Write a Contingency Plan in Project Management?  

Writing a contingency plan in project management involves several steps. Each step needs to be carefully executed. Often managers get juggled up in the process. To prevent such deviations, go through the step-by-step process right away! 

• Identify potential risks : List all possible risks impacting your project's success.
• Assess risk impact: Evaluate the severity and likelihood of each risk to prioritize them.
• Develop response strategies: Determine appropriate actions for each identified risk.
• Define trigger points: Set specific indicators that will prompt the implementation of the contingency plan
• Assign responsibilities: Allocate roles and responsibilities to team members for executing the plan.
• Establish communication protocols: Define how and when team members should communicate during the plan's execution.
• Prepare a budget: Allocate funds to address potential risks and their associated response strategies.
• Document the plan: Write a detailed document outlining the contingency plan, including all necessary information.
• Test the plan: Conduct simulations or tabletop exercises to ensure the plan's effectiveness.
• Review and update: Regularly review and update the plan as the project progresses and new risks emerge. 

As per research, PRINCE2 methodology is the most used project management methodology. Go for PRINCE2 Foundation and Practitioner certificate  course and gain industry-agnostic PMP skills. 

Contingency Plan Templates  

Here is a suggested structure for a contingency plan template: 

• Introduction: Provide an overview of the contingency plan and its purpose.
• Risk Assessment: Identify and assess potential risks that may affect the project.
• Risk Response Strategies: Define specific actions to mitigate or address each identified risk.
• Trigger Points: Establish indicators that will signal when to activate the contingency plan.
• Communication Plan: Outline how information will be shared among team members and stakeholders.
• Resource Allocation: Find the required resources and sort them in priority order.
• Responsibilities: Assign roles and responsibilities to team members for executing the contingency plan.
• Contingency Actions: Describe step-by-step procedures for implementing each response strategy.
• Escalation Process: Define the process for escalating issues and seeking higher-level approvals if needed.
• Testing and Evaluation: Detail methods for testing the effectiveness of the contingency plan and making improvements.
• Plan Maintenance: Specify how the plan will be reviewed, updated, and kept relevant throughout the project.
• Appendices: Include any supporting documentation, templates, or relevant information for reference. 

Below is the Contingency Project Plan Template   alongside the contingency plan project management example in the tabular form: 

Conclusion  

A contingency plan in project management is like having a backup plan for unexpected situations. It helps project managers prepare for the unknown and minimize project disruptions. By creating a contingency plan, you can identify potential risks, develop strategies to mitigate them and have a roadmap ready to navigate any unforeseen obstacles. 

Remember, it is always better to be prepared than caught off guard in project management. KnowledgeHut top Project Management certification programs will support you in delivering productivity and profitability as a successful project manager.

Kevin D.Davis

Kevin D. Davis is a seasoned and results-driven Program/Project Management Professional with a Master's Certificate in Advanced Project Management. With expertise in leading multi-million dollar projects, strategic planning, and sales operations, Kevin excels in maximizing solutions and building business cases. He possesses a deep understanding of methodologies such as PMBOK, Lean Six Sigma, and TQM to achieve business/technology alignment. With over 100 instructional training sessions and extensive experience as a PMP Exam Prep Instructor at KnowledgeHut, Kevin has a proven track record in project management training and consulting. His expertise has helped in driving successful project outcomes and fostering organizational growth.

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A practical guide to creating a contingency plan

The vast majority of failed projects and bankrupt companies had a plan and followed it. So why do these projects and companies end up failing?

Unexpected things happen that companies don’t plan for, and many fail to adapt in time.

The key: having a sound contingency plan. A contingency plan is all about expecting the unexpected and preparing to deal with worst-case scenarios ahead of time. This article will cover why you need a contingency plan, and walk you through step-by-step instructions for creating one. We’ll also provide a contingency planning template you can implement and use on monday.com immediately.

What is a contingency plan?

A contingency plan is a predefined set of actions that you will implement in response to specific future events that put your project or business at risk.

A simple example of a contingency plan is to back up all your website data. That way, if your website gets hacked, it will be easy to restore the data after regaining access and changing passwords.

Without that backup, the team might have to recreate the entire website from memory or build a website from scratch . That’s a significant expense and can mean several extra days (or weeks!) of downtime.

A contingency plan is about managing and lowering risk and setting yourself up for speedy disaster recovery.

What are the two types of contingencies in project management?

There are two types of contingencies that you should plan for: budget contingency & schedule contingency.

• Budget contingency is an additional amount of money that you allocate to your budget, so you can cover extra costs that might come up as the project progresses. If you don’t have a contingency budget, you might run into an unexpected cost that could send you over budget and risk the profit margin of your project.
• Schedule contingency is an additional amount of time that you bake into your project schedule, to allow for any unexpected delays or hiccups in your project progress. Without schedule contingency, you risk running over your project deadlines and disappointing stakeholders.

Contingency plan examples

Here are a few examples of how contingency planning could help save the day, no matter what happens:

Project contingency plan

Imagine that a key team member unexpectedly leaves the project. If you were contingency planning for this scenario, you might outline the following steps you could follow if you lost a key project team member:

• Identify who will take over the tasks of the departing team member, and what tasks still need doing
• Assess if any additional resources will be needed (such as an additional part-time project member from another team)
• Provide training sessions for other team members to ensure they can step in effectively
• Notify any stakeholders about the change and how it will be managed to minimize disruption and offer reassurance.

Business continuity plan

How about if a natural disaster disrupted operations at your primary office location? Could your business cope? With a continuity plan in place, you’ll turn things around quickly:

• Make sure all your employees have access to the necessary tools and systems so that they can work remotely if necessary
• Regularly back up all essential data to the cloud, and have a data recovery plan in place, in the event of loss of the hardware in your primary office
• Identify backup office space or plan for remote work options if the primary location becomes inaccessible
• Define communication channels that you’ll use in the event of a major disruption so that you can reach your employees to provide updates and instructions on how to proceed

Supply chain contingency plan

Do all your logistics depend on a few key suppliers? Then you should have a supply chain contingency plan in place, in case of unexpected production or shipping delays.

• Have more than one supplier for critical components, so this becomes less of a business risk.
• Maintain a buffer stock of your essential components, so that production won’t be held up by supplier delays
• Find a shipping company that offers expedited shipping options in case you have an urgent need
• Update your supplier contract to include penalties for delays and a procedure for resolving any disputes

Why contingency planning is important

Murphy’s Law specifies that anything that can go wrong will go wrong. And any experienced project planner knows how true that is! Contingency planning can make or break your business:

It helps mitigate risk.

Contingency planning helps to identify potential risks and get ahead of them with a proactive plan. That way, even when things go wrong, you can minimize the disruption to operations and reduce your financial losses.

It makes your business more resilient.

Having a contingency plan in place enables you to respond to the unforeseen more effectively, adapt to changing conditions, and recover from setbacks more efficiently.

It keeps you compliant.

In many industries, contingency planning is mandated by regulatory requirements, so you’ll need these plans in place to avoid penalties and maintain good legal standing.

It increases customer trust.

Customers trust businesses that handle disruptions effectively. The ability to respond quickly and effectively when things go wrong will help build your reputation for great customer service.

Looking for a tool to make contingency planning easier? With monday.com, you can store all your contingency plans in a central location, communicate changes with stakeholders, and create automated workflows in response to unexpected events.

What are the characteristics of a good contingency plan?

Your contingency plan should include the following components:

List of risks

Begin by making a thorough identification of potential risks that could realistically occur. Depending on what kind of contingency plan you’re putting together, these could be all the risks that could impact your business, or the risks that could delay or disrupt a specific project or product.

For example, in terms of business-level contingency planning, you could list out:

• Natural disasters
• Technological failures
• Economic downturns
• Supply chain disruptions
• Sudden market changes

Response options

Your plan should then outline various responses that you could choose between, for each risk you’ve identified. These might be:

• Actions to mitigate the risk
• Ways to transfer the risk to another party (e.g. by buying insurance)
• Ways to accept and manage the risk

Plan of action

For each risk and response option, you should then add in a plan of action, including:

• Steps to take
• Who is responsible for each step
• Any resources you’ll need
• Any need to coordinate with other stakeholders or third parties

Communication management protocols

You’ll also want to make sure that you have a plan in place to communicate effectively with all stakeholders, including:

• Who needs to be notified
• The channels you’ll use for communication
• How often you’ll send out updates
• Any useful templates to use for messages

Trigger points

Decide in advance when you’ll activate a specific contingency response. For instance, you might have a particular threshold beyond which you’ll move to a contingency plan — such as the severity level of a natural disaster. You should also define who has the authority to make these decisions, and how the decision will be made (by committee or by chain of command, for instance.)

Testing and review

To keep your plan up to date, you should schedule regular tests and reviews. For instance, for a natural disaster contingency plan, you might want to run a drill once a year, to practice your response procedures and make sure that everything works as it should.

How to create a contingency plan

Let’s cover the basic contingency planning process and detail how to get yours up and running.

1. Map out essential processes.

What processes are essential to your business and safely delivering your product or service to customers?

If you’re a manufacturing company that ships directly to consumers, a simplified process list might look something like this:

• Getting raw materials from suppliers
• Manufacturing process
• Freight and shipping
• Packaging and warehousing
• Last-mile delivery

Looking at this list, you can see how vulnerable it is to natural disasters or even minor human errors.

Create an overview of every crucial process in your organization.

2. Create a list of risks for each process.

Once the process list is created, consider what might disrupt business continuity.

What can go wrong with each of these critical processes?

Let’s look at an example of what could go wrong with “last-mile delivery” …

• The driver can deliver single or multiple packages to the wrong address.
• The package can be damaged during delivery.
• The package could get lost at a distribution center.
• A truck full of packages could be involved in an accident.
• A flood could cripple the road system in a specific area.
• The driver could get delayed because a moose wants to lick salt splatter off the car (seriously, it’s a thing ).

And that’s only a preliminary list. Once you start thinking about it, you’ll realize how many things you rely on to avoid going wrong, even for fundamental processes.

Every business process is vulnerable to some sort of emergency or human error and requires a solid risk management process .

3. Evaluate the potential impact and likelihood of each risk.

Once the risks are identified, it’s essential to determine how they could impact your business.

Are they likely to happen? How large will the impact on your business if they do occur?

Most companies use “qualitative risk assessment” to do this.

PMI uses the following risk exposure assessment table — also called the probability impact matrix — to evaluate … the probability and impact of potential risks.

( Image Source )

First, rate the severity of the impact on a scale from 1–100. Then, multiply with a percentage based on how likely it is to occur.

4. Calculate costs and contingency reserves, and identify issues to mitigate.

The quantitative risk assessment approach is less common — but more practical — to assess the potential cost of each risk.

How much would each risk potentially cost your business? To get a better overview, add these 4 columns to the risk register template :

• Full potential loss from the event
• Expected loss from the event
• Cost of response (post-event)
• Cost of mitigation (pre-event)

This means you can make an educated decision when budgeting contingency reserves into project plans and yearly budgets.

During the risk analysis , estimate the potential costs of the adverse event.

EXAMPLE: if your online store goes down, multiply the average online sales revenue per hour with expected downtime. Make one pessimistic and one realistic estimate.

Your hosting service may also have a flat fee for restoring sites, which would be your response cost. If these costs are unreasonably high and the event is likely, estimate the costs of a mitigation effort. In this case, it could be a firewall and extra procedures, like 2-factor authentication, an important security system , for all employees.

Budget in those costs. An accurate budget is the first part of emergency response and prevention. Without enough cash, your team won’t be able to put any response plans into action.

5. Create a response plan for prioritized events.

Create a response plan for events by exploring the following questions:

• What can be done ahead of time to minimize any adverse effects on the event? For example, backing up data, carrying extra stock, or having more employees on call.
• What can be done immediately after the event to minimize the impact? For example, ordering more from a secondary supplier, rerouting another vehicle, or bringing in on-call staff.

The specifics depend on your company’s unique processes and situation.

6. Share the contingency plan.

A contingency plan only works if it’s used when things go wrong—and that means that everyone in your organization knows to reach for the plan in times of trouble. To make sure that happens:

• Identify who needs to be aware of and involved in contingency planning.
• Choose appropriate communication methods for each stakeholder group. For instance, department heads may need specific meetings to focus on their section of the plan. Key employees might need a training session.
• Create the plan in an accessible, centralized location, such as a monday.com board. That way, everyone involved can access the plan, and you can keep it updated at all times.
• Encourage feedback on the plan, such as running an employee survey to check understanding and seek ideas for changes and improvements.
• Post reminders and updates on your shared internal communication channels.

7. Monitor and review the contingency plan.

If you want your contingency plans to protect your business, you have to keep them up to date. That means you’ll need to schedule regular reviews of the plan to check that it’s still relevant and aligned with your changing business.

Remember to communicate updates or revisions to all relevant stakeholders, and provide opportunities for additional training if needed.

Manage your contingency planning process with monday.com

Having your business contingency plan on paper is an excellent place to start. But it won’t translate to how your entire company will tackle a crisis.

That’s where monday.com comes in. Our flexible digital workspace gives you everything necessary to ensure everyone follows the contingency plan when they need to.

Use our pre-built contingency plan template to get you started 

Make sure that no employee is left clueless during a crisis. Our contingency plan template has everything you need to start the planning process.

With our pre-built template, you can feel confident you’re following best practice contingency planning, so your business will run smoothly even in the case of unexpected events.

Use integrations to notify someone of an event automatically 

With monday.com’s powerful integrations and automations, you can respond to unfavorable events more quickly.

For example, you can immediately create and assign a work item whenever a customer submits a bug report.

This approach helps avoid another potential problem: customer service failing to report bug reports to your development team.

Monitor project status at all times in dashboards to avoid bottlenecks and domino effects.

The best time to start acting is before a catastrophic event that puts your entire project or business at risk.

To do that, your management team needs a clear understanding of the project’s status at all times.

Use the 30,000-foot view every manager needs to avoid predictable project delays and failures and check that project controls are working properly.

Contingency plans are a must-have.

When starting a project or business, most people plan according to the status quo. Unfortunately, that’s a best-case scenario and not helpful in the real world.

A contingency plan helps you prepare for worst-case scenarios and keep your project afloat, should anything go wrong.

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Businesses need a plan to get back on track when a disaster interrupts daily operations. Contingency plans, also known as “business continuity plans,” “emergency response plans” and “disaster recovery plans” help organizations recover after a disruption.  

Whether they’re preparing for a global outbreak of a deadly virus, crisis management around a data breach or the loss of an important client, contingency plans help organizations bounce back after a negative event.

Companies create many kinds of recovery strategies for everything, from the merger of key competitors to the insolvency of the bank that processes its employee payroll. In India, the government was busy designing a contingency plan as a drier-than-expected monsoon season approached.¹ Meanwhile, in Hong Kong, a large bank was preparing a plan b in case a host of new sanctions were levied as the result of a recent geopolitical development.²

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Here are five steps companies use to create effective business contingency plans.

The contingency planning process begins with a risk assessment to gauge the potential impact of each risk. Typically, business leaders and employees conduct risk analysis.

Team members begin with a brainstorming session where they discuss potential risks, courses of action and the company’s overall preparedness. During this stage, it’s important to be clear about the scope of the project and invite all relevant stakeholders to give input. Companies don’t need to create a risk management plan for every threat they face, just the ones deemed highly likely and with the potential to interrupt business operations.

Effective business impact analysis (BIA) is critical to understanding different business functions and how they will react to unexpected events. For example, while a shortage in micro-processors might be devastating to a part of a business that deals with the manufacture of gaming consoles, it likely has little to no impact on the same company’s HR department.

To assess the urgency of creating an action plan for this specific threat, the company would need to know how much of its revenue was being generated from the part of the business threatened by the microprocessor shortage. If gaming consoles are a high percentage of their revenue, they will put a strong plan in place soon.

A well-developed BIA helps stakeholders assess risk and better understand which parts of their business are most critical to daily operations.

After identifying the risks their company faces, determining the likelihood and severity of each risk and conducting a BIA, business leaders can follow a simple, three-step process to build their backup plan.

Identify the triggers that set their plan into action: For example, if a hurricane is approaching, at what point does the approaching storm trigger the contingency plan? When it’s 50 miles away or a 100? They must make clear decisions so the teams they put in charge of execution know when to start their work.

Design an appropriate response: The threat the business prepared for arrives. Teams must know exactly what’s expected of them so the company can recover quickly. Compile clear, accessible instructions, protocols that are easy to follow and a way for everyone to communicate with each other.

Delegate responsibility clearly and fairly: Like any other initiative, contingency planning requires effective project management to succeed. In the case of an existential threat such as a natural disaster, everyone involved in helping the company recover must know their role and be properly trained to perform it.

For example, in the case of a fire, it wouldn’t be fair to expect employees untrained in firefighting to pick up a hose. However, with the right training, they might conduct headcounts or go floor-to-floor to ensure that other employees have evacuated.

One way to improve workflow among teams when designing a plan is to create a RACI chart . RACI stands for responsible, accountable, consulted and informed and is a widely used process to help teams and individuals delegate responsibility and react to crises in real time.

While it can be hard to justify the importance of putting financial resources into something that might never happen, these past few years have taught us the value of good contingency planning. Think of all the supply chain problems, critical shortages of personal protective equipment and financial havoc wreaked by the pandemic. What would have been different if organizations had had effective contingency plans in place?

Cost and uncertainty are significant barriers when convincing business leaders of the importance of making an investment in contingency planning. Since all costs for contingency plans are estimated—there’s no way of knowing precisely how events will disrupt a business—decision-makers are understandably hesitant.

Different industries have different ways of approaching this problem. In the construction industry, it’s common to set aside 10% of the overall budget of a project for contingencies. Other industries use different methods.

One popular method estimates risks according to a percentage of how likely they are to occur. By this method, if there’s a 25% risk of an event occurring that will result in USD 200,000 in recovery costs, the company must set aside 25%—or USD 50,000—to be in compliance with their contingency plan.

Markets and industries are constantly shifting, so the reality that a contingency plan faces when it is triggered might be different than the one it was created for. For example, after the 9/11 terror attacks, many of the contingency plans that the US government had in place were suddenly irrelevant because they had been prepared decades before.

To avoid a similar disconnect between plans and threats, businesses need to constantly test and reassess the plans they’ve made. For example, IBM’s guidelines mandate that plans should be tested at least once annually and improved upon as necessary.³ If new risks are discovered and their severity and likelihood is deemed high enough, the old plans might be scrapped altogether.

When businesses are hit with an unexpected disruption, a strong contingency plan gives much-needed structure to the recovery process. Disruptive events cause chaos and decision-makers and employees are often left scrambling to understand what is happening and how best to respond to it. Having a strong plan to turn to can help restore confidence and show the way forward.

Here are a few benefits business leaders who create strong contingency plans can expect:

Businesses that create strong plans recover faster from a disruptive event than businesses that don’t. When a negative event occurs, the faster the business recovers and gets back to business-as-usual, the lower the risk to the company, its customers and its employees.

A good contingency plan minimizes the damage to a company—both reputational and financial. For example, while a data breach will undoubtedly damage a bank’s reputation, as well as its bottom line, how the bank responds will play a critical role in whether its customers decide to continue doing business with it.

Many organizations use a strong contingency plan to show employees and customers that they take preparation seriously. By planning for a wide range of potentially damaging events, business leaders can show investors, customers and workers that they’ve taken the necessary steps to minimize risk.

Many plans focus on natural disasters such as floods, earthquakes or fires. Others deal with data breaches, unexpected network downtime or the loss of a key employee such as a CEO or founder. Here are a few examples of contingency plan templates that deal with broadly different scenarios across a range of industries.

Severity and likelihood of risk: The manufacturers have been following the news in a region where they source specific airplane parts and have deemed the likelihood of disruption there “high.” They initially conduct a search for another supplier but quickly learn that it takes months—even years—to find one. Since the part is necessary for the construction of all their airplanes, they label the severity of this disruption “high” as well.

Trigger: Suppliers make the manufacturer aware that they will soon run out of the needed part due to a disruptive geo-political event in its country of origin.

Response: The manufacturer begins the search for a new supplier of the much-needed part in a more stable country.

Severity and likelihood of risk: The managers of a bank know of a vulnerability in their app that they are working to fix. If the app is hacked and their information systems are compromised, they are likely to lose vital customer data. They rate the likelihood of this event as “high” since, as a financial institution, they are a desirable target.

They also know from watching their competitors face similar situations that the potential for disruption to their business in an event like this is great. They rate the severity of this risk as “high” as well.

Trigger: IT makes the bank’s managers aware that the bank’s app has been hacked and their customers’ data is no longer secure.

Response: The app is immediately shut down and customers are notified that their data has been compromised. They are made aware of the steps that the bank is taking to ensure that they have access to their money and that their personal information is not available to anyone on the dark web. An on-call team of specially trained security experts come in to restore the bank's systems and secure customer information.

Severity and likelihood of risk: The plant’s managers know that severe flooding might spread un-treated water into the city’s streets and public waterways. Both the severity of this risk and its likelihood given the impending storm are deemed “high. ”

Trigger: The hurricane’s path turns toward the city and approaches to less than 100 miles away with wind speeds higher than the threshold rated “safe.” The plant’s contingency plan is put into action.

Response: All necessary workers are recalled to the plant 24/7 and measures are taken to treat as much of the water as possible before the hurricane arrives. According to their plan, whatever is left over will be pumped into holding tanks that are designed to withstand a hurricane. When windspeeds rise to a certain velocity, the plant itself is shut down and all workers evacuated.

Help your business respond quickly to changing conditions with IBM Maximo, an integrated cloud-based solution that harnesses the power of artificial intelligence (AI), Internet of Things (IoT) and advanced analytics to maximize performance and minimize costs and downtime.

Learn more about the process of disaster recovery planning and Disaster-Recovery-as-a-Service.

Discover how global supply chains responded to the COVID-19 pandemic and are developing better ways to balance efficiency and resilience.

See how businesses are leveraging AI and other emerging technologies to maintain business continuity amid disruption and uncertainty.

Explore the business continuity measures IBM takes to help prevent or reduce the impact of potential threats.

Unlock the full potential of your enterprise assets with IBM Maximo Application Suite by unifying maintenance, inspection and reliability systems into one platform. It’s an integrated cloud-based solution that harnesses the power of AI, IoT and advanced analytics to maximize asset performance, extend asset lifecycles, minimize operational costs and reduce downtime.

1  “ El Nino contingency plan being readied for farmers and output ” (link resides outside ibm.com), Elara Securities Pvt Ltd., 27 April 2023.

2  “ HKMA has prepared contingency plans in case of severe sanctions ” (link resides outside ibm.com), UBS Global Research and Evidence Lab, 5 May 2022.

3  “ IBM business continuity management position paper ”, IBM Global Technology Services thought leadership white paper, September 2019.

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What is a contingency plan? A guide to contingency planning

A business contingency plan is a backup strategy for your team or organization. It lays out how you’ll respond if unforeseen events knock your plans off track—like how you’ll pivot if you lose a key client, or what you’ll do if your software service goes down for more than three hours. Get step-by-step instructions to create an effective contingency plan, so if the unexpected happens, your team can spring into action and get things back on track.

No one wants Plan A to fail—but having a strong plan B in place is the best way to be prepared for any situation. With a solid backup plan, you can effectively respond to unforeseen events effectively and get back on track as quickly as possible. 

A contingency plan is a proactive strategy to help you address negative developments and ensure business continuity. In this article, learn how to create a contingency plan for unexpected events and build recovery strategies to ensure your business remains healthy.

What is contingency planning?

What is a contingency plan .

A contingency plan is a strategy for how your organization will respond to important or business-critical events that knock your original plans off track. Executed correctly, a business contingency plan can mitigate risk and help you get back to business as usual—as quickly as possible. 

You might be familiar with contingency plans to respond to natural disasters—businesses and governments typically create contingency plans for disaster recovery after floods, earthquakes, or tornadoes. 

But contingency plans are just as important for business risks. For example, you might create a contingency plan outlining what you will do if your primary competitors merge or how you’ll pivot if you lose a key client. You could even create a contingency plan for smaller occurrences that would have a big impact—like your software service going down for more than three hours.

Contingency planning vs risk management

Project risk management is the process of identifying, monitoring, and addressing project-level risks. Apply project risk management at the beginning of the project planning process to prepare for any risks that might come up. To do so, create a risk register to identify and monitor potential project risks. If a risk does happen, you can use your risk register to proactively target that risk and resolve it as quickly as possible. 

A contingency plan is similar to a project risk management plan or a crisis management plan because it also helps you identify and resolve risks. However, a business contingency plan should cover risks that span multiple projects or even risks that could affect multiple departments. To create a contingency plan, identify and prepare for large, business-level risks.

Contingency planning vs crisis management

Contingency planning is a proactive approach that prepares organizations for potential emergencies by implementing pre-planned risk mitigation strategies. It involves identifying threats and crafting strategies in advance. 

Crisis management , on the other hand, is reactive, focusing on immediate response and damage control when a crisis occurs. While contingency planning sets the stage for effective handling of emergencies, crisis management involves real-time decision-making and project management during an actual crisis. Both are important for organizations and businesses to maintain their stability and resilience.

Contingency plan examples

There are a variety of reasons you’d want to set up a contingency plan. Rather than building one contingency plan, you should build one plan for each type of large-scale risk or disaster that might strike. 

Business contingency plan

A business contingency plan is a specialized strategy that organizations develop to respond to particular, unforeseen events that threaten to disrupt regular operations. It's kind of like a business continuity plan, but there's one key difference. 

While business continuity plans aim to ensure the uninterrupted operation of the entire business during a crisis, a business contingency plan zeroes in on procedures and solutions for specific critical incidents, such as data breaches, supply chain interruptions, or key staff unavailability. 

A business contingency plan could include:

Strategies to ensure minimal operational disruption during crises, such as unexpected market shifts, regulatory compliance changes, or severe staff shortages.

Partnerships with external agencies that can provide support in scenarios like environmental hazards or public health emergencies.

A comprehensive communication strategy with internal and external stakeholders to provide clear, timely information flow during crises like brand reputation threats or legal challenges.

Environmental contingency plan

While severe earthquakes aren’t particularly common, being unprepared when “the big one” strikes could prove to be catastrophic. This is why governments and businesses in regions prone to earthquakes create preparedness initiatives and contingency plans.

A government contingency plan for an earthquake could include things like: 

The names and information of the people designated to handle certain tasks in advance to ensure the emergency response is quick and concise

Ways to educate the public on how to respond when an earthquake hits

A timeline for emergency responders.

Technology contingency plan

If your business is particularly data-heavy, for example, ensuring the safety and cybersecurity of your information systems is critical. Whether a power surge damages your servers or a hacker attempts to infiltrate your network, you’ll want to have an emergency response in place.

A business’s contingency plan for a data breach could involve: 

Steps to take and key team members to notify in order to get data adequately secured once more

The names and information of stakeholders to contact to discuss the impact of the data breach and the plan to protect their investment

A timeline to document what is being done to address the breach and what will need to be done to prevent data breaches in the future

Supply chain contingency plan

Businesses that are integral parts of the supply chain, such as manufacturing entities, retail companies, and logistics providers, need an effective supply chain contingency plan to continue functioning smoothly under unforeseen circumstances.

These plans hedge against supply chain disruptions caused by events like natural disasters or technological outages and help organizations reduce downtime and ensure real-time operational capabilities. 

A supply chain contingency plan could include:

Secure critical data and systems while promptly notifying key team members, such as IT staff and management, for immediate action.

A predetermined list of essential stakeholders, including suppliers, customers, investors, and authorities, should be contacted to inform them about the disruption and steps being taken.

A detailed timeline is essential for documenting the immediate response and outlining long-term strategies to prevent future disruptions in the supply chain.

Pandemic contingency plan

In the face of a global health crisis, a pandemic contingency plan is vital for organizations in healthcare, retail, and manufacturing. This plan focuses on mitigation strategies to minimize operational disruptions and ensure the safety of employees while maintaining business continuity. 

A pandemic response plan could include:

A comprehensive health and safety protocol for employees, which integrates regular health screenings, detailed risk analysis, and emergency medical support as key components.

Flexible work arrangements and protocols for remote operations and digital communication.

A list of key personnel and communication channels for immediate response and coordination.

Regularly reviewing and adapting the pandemic contingency plan as part of an ongoing disaster recovery plan to address evolving challenges and lessons learned.

How to create a contingency plan

You can create a contingency plan at various levels of your organization. For example, if you're a team lead, you could create a contingency plan for your team or department. Alternatively, company executives should create business contingency plans for situations that could impact the entire organization. 

As you create your contingency plan, make sure you evaluate the likelihood and severity of each risk. Then, once you’ve created your plan—or plans—get it approved by your manager or department head. That way, if a negative event does occur, your team can leap to action and quickly resolve the risk without having to wait for approvals.

1. Make a list of risks

Before you can resolve risks, you first need to identify them. Start by making a list of any and all risks that might impact your company. Remember: there are different levels of contingency planning—you could be planning at the business, department, or program level. Make sure your contingency plans are aligned with the scope and magnitude of the risks you’re responsible for addressing. 

A contingency plan is a large-scale effort, so hold a brainstorming session with relevant stakeholders to identify and discuss potential risks. If you aren’t sure who should be included in your brainstorming session, create a stakeholder analysis map to identify who should be involved.

2. Weigh risks based on severity and likelihood

You don’t need to create a contingency plan for every risk you lay out. Once you outline risks and potential threats, work with your stakeholders to identify the potential impact of each risk. 

Evaluate each risk based on two metrics: the severity of the impact if the risk were to happen and the likelihood of the risk occurring. During the risk assessment phase, assign each risk a severity and likelihood—we recommend using high, medium, and low. 

3. Identify important risks

Once you’ve assigned severity and likelihood to each risk, it’s up to you and your stakeholders to decide which risks are most important to address. For example, you should definitely create a contingency plan for a risk that’s high likelihood and high severity, whereas you probably don’t need to create a contingency plan for a risk that’s low likelihood and low severity. 

You and your stakeholders should decide where to draw the line.

4. Conduct a business impact analysis

A business impact analysis (BIA) is a deep dive into your operations to identify exactly which systems keep your operations ticking. A BIA will help you predict what impact a specific risk could have on your business and, in turn, the response you and your team should take if that risk were to occur. 

Understanding the severity and likelihood of each risk will help you determine exactly how you will need to proceed to minimize the impact of the threat to your business. 

For example, what are you going to do about risks that have low severity but high likelihood? What about risks that are high in severity, but relatively low in likelihood? 

Determining exactly what makes your business tick will help you create a contingency plan for every risk, no matter the likelihood or severity.  

5. Create contingency plans for the biggest risks

Create a contingency plan for each risk you’ve identified as important. As part of that contingency plan, describe the risk and brainstorm what your team will do if the risk comes to pass. Each plan should include all of the steps you need to take to return to business as usual.

Your contingency plan should include information about:

The triggers that will set this plan into motion

The immediate response

Who should be involved and informed?

Key responsibilities, including a RACI chart if necessary

The timeline of your response (i.e. immediate things to do vs. longer-term things to do)

For example, let’s say you’ve identified a potential staff shortage as a likely and severe risk. This would significantly impact normal operations, so you want to create a contingency plan to prepare for it. Each person on your team has a very particular skill set, and it would be difficult to manage team responsibilities if more than one person left at the same time. Your contingency plan might include who can cover certain projects or processes while you hire a backfill, or how to improve team documentation to prevent siloed skillsets. 

6. Get approval for contingency plans

Make sure relevant company leaders know about the plan and agree with your course of action. This is especially relevant if you’re creating team- or department-level plans. By creating a contingency plan, you’re empowering your team to respond quickly to a risk, but you want to make sure that course of action is the right one. Plus, pre-approval will allow you to set the plan in motion with confidence—knowing you’re on the right track—and without having to ask for approvals beforehand.

7. Share your contingency plans

Once you’ve created your contingency plans, share them with the right people. Make sure everyone knows what you’ll do, so if and when the time comes, you can act as quickly and seamlessly as possible. Keep your contingency plans in a central source of truth so everyone can easily access them if necessary.

Creating a project in a work management platform is a great way of distributing the plan and ensuring everyone has a step-by-step guide for how to enact it.

8. Monitor contingency plans

Review your contingency plan frequently to make sure it’s still accurate. Take into account new risks or new opportunities, like new hires or a changing business landscape. If a new executive leader joins the team, make sure to surface the contingency plan for their review as well. 

9. Create new contingency plans (if necessary)

It’s great if you’ve created contingency plans for all the risks you found, but make sure you’re constantly monitoring for new risks. If you discover a new risk, and it has a high enough severity or likelihood, create a new contingency plan for that risk. Likewise, you may look back on your plans and realize that some of the scenarios you once worried about aren’t likely to happen or, if they do, they won’t impact your team as much.

Common contingency planning pitfalls—and how to avoid them

A contingency plan is a powerful tool to help you get back to normal business functions quickly. To ensure your contingency planning process is as smooth as possible, watch out for common pitfalls, like: 

Lack of buy-in

It takes a lot of work to create a contingency plan, so before you get started, ensure you have support from executive stakeholders. As you create your plan, continuously check in with your sponsors to ensure you’ve addressed key risks and that your action plan is solid. By doing so, you can ensure your stakeholders see your contingency plan as something they can get behind.

Bias against “Plan B” thinking

Some company cultures don’t like to think of Plan B—they like to throw everything they have at Plan A and hope it works. But thinking this way can actually expose your team to more risks than if you proactively create a Plan B.

Think of it like checking the weather before going sailing so you don’t accidentally get caught in a storm. Nine times out of ten, a clear sunny day won’t suddenly turn stormy, but it’s always better to be prepared. Creating a contingency plan can help you ensure that, if a negative event does occur, your company will be ready to face it and bounce back as quickly as possible. 

One-and-done contingency plans

It takes a lot of work to put a contingency plan together. Sometimes when you’ve finished, it can be tempting to consider it a job well done and forget about it. But make sure you schedule regular reminders (maybe once or twice a year) to review and update your contingency plan if necessary. If new risks pop up, or if your business operations change, updating your contingency plan can ensure you have the best response to negative events.  

You’ve created a contingency plan—now what?

A contingency plan can be a lot of work to create, but if you ever need to use it, you’ll be glad you made one. In addition to creating a strong contingency plan, make sure you keep your plan up-to-date.

Being proactive can help you mitigate risks before they happen—so make sure to communicate your contingency plan to the team members who will be responsible for carrying them out if a risk does happen. Don’t leave your contingency plan in a document to collect dust—after creating it, you should use it if need be!

Once you’ve created the plan, make sure you store it in a central location that everyone can access, like a work management platform . If it does come time to use one of your contingency plans, storing them in a centrally accessible location can help your team quickly turn plans into action.

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Project Contingency: The Ultimate Guide

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Your new project was approved for funding. That in itself is a huge step. You wouldn’t believe the number of project managers I speak to on mentoring calls who struggle to get their budget approved.

You can’t do much on a project without some funding behind you.

However, before you start the celebration too soon, there are always details to check first.

What exactly got approved? How much do you have and what boundaries and constraints come with it? You will likely have lots of questions. Not least: is it enough? Does the funding include contingency? (Because you put some in the request, right?)

If you’re wondering what budget contingency is, then you have come to the right place. This article will explain project contingency, how to calculate contingency and how to manage it within the scope of your projects.

What is project contingency?

Project contingency is the additional resources put aside to address potential risk and uncertainty in a project.

There are two types of contingency typically used on projects:

• Budget contingency: Additional funding to deal with problems, realized risks relating to a specific event
• Schedule contingency: A buffer of extra time in case of schedule delays (not that you would ever pad your estimates?)

The amount of each of these will be documented in a project contingency plan. In practice, that could mean a paragraph or two in your project plan or risk management plan. The detailed figures will go into the budget or the schedule management plan.

Why is contingency important?

Only 62% of projects complete within their original budget, according to PMI’s 2021 figures. No organization wants a cost overrun to scupper their budget. However hard you try, you simply can’t predict the future and anticipate every problem.

Contingency allows us to present final budget estimates as a range, as you can see in the figure below.

Take the cost baseline, add in the mitigation costs for dealing with ‘general’ risks and residual risks, and that will give you the final cost of the project – the IPA Guidance is specifically for construction budgets but the general premise is useful as best practice for all kinds of projects.

So risk is critical to understanding contingency: that’s the first step.

Read next: 14 Common Project Risks – perhaps some of these will contribute to your contingency position?

Why risk matters

It is not practical to document the infinite number of things that could go ‘wrong’ on a project. As a project manager, our reality is that we expect the unexpected to happen.

From your previous experience, you may have a general idea of what is most likely to happen. Even if you do, you still need a plan and potential options to address things when they do happen.

That’s where project contingency comes in. Think of it as the promise of additional resources (typically time and/or money) allocated in a project to address possible risks and uncertainty. The reason we do this is to help increase the likelihood that the project will be completed at or below the approved amount for funding.

Schedule contingency might take the form of additional time or a buffer in a project schedule . For example, on a project, we might factor in an additional several days or even weeks to accommodate unforeseen delays.

Project scope and complexity can also be a factor. For example, a high complexity project using a new technology may require additional time to complete and funding to address any unexpected challenges.

How to calculate contingency

The basic process for calculating project contingency is:

• Determine the level of risk/uncertainty in the work (at work package level if you are using work packages).
• Work out how much money to put aside within the overall project costs, based on the risk.
• Ringfence that amount until it is needed.
• Contingency reserves are available at Work Package and Activity levels (see image below).

While understanding the risk profile of your project is important, there are always new risks and unknown risks that you will face. Think of contingency as a buffer to offset unexpected events or unforeseen costs.

4 Common methods for calculating contingency

The UK Government’s Infrastructure and Projects Authority launched Cost Estimating Guidance for infrastructure (construction) projects in 2021 which covers the whole process for creating a budget from estimates, of which contingency calculations are a part.

The guidance says:

“Projects should reserve funding to address the impact of risks materializing. This funding should be proportional to the impact of the risk and adjusted to the probability of the risk materializing. The project contingency is therefore cost estimated at a probability value. The project team must evaluate an optimistic, median and pessimistic spend to face risks.”

Let’s look at 4 common methods for calculating those costs for your contingency plan – don’t worry, there are some easy wins here as well as more complicated calculations.

1. Easy method: Use established contingency levels

Some businesses have established contingency levels that are acceptable for projects. For example, some might simply add 5% to 10% to the base cost of a project. For a $1 million project, this would be an additional $50,000 to $100,000.

This is what I use. If in doubt, stick 10% on your budget. Make sure it is called out transparently in a line on its own so it is clear that it is contingency funding.

In my project budgets, we call this ‘additions’. It’s an amount of money that acts as a construction contingency because on build projects there is nearly always something that we uncover, like the need for a new network point, or air conditioning pipes. Stuff you can’t see until you pull down the existing walls — that kind of thing.

Advantages: Quick! You end up with some contingency funds instead of none.

Disadvantages: Barely any probability-related thought has gone into this at all. It’s just guessing.

2. Robust method: Risk analysis

Use the risk management process to carry out a risk assessment. Then work out the risk budget required to adequately address each risk.

Tip: Use subject matter experts at this point to establish what cost contingencies might be needed to deal with the risk. They can give you an estimated amount for key items on the risk register. They can also give you an indication of the degree of uncertainty associated with their estimate. Previous projects are a good source of information.

Project managers create and maintain a risk register throughout a project’s lifecycle. The risk register is a summary of all potential risks that might occur during a project’s lifecycle, and that could have undesirable consequences on a project’s cost, schedule, etc.

In this model for contingency planning, the total value of those identified risks match the total contingency allocated to the project. This helps provides justification for keeping those contingency funds in reserve. An example is shown in the table below.

Here’s how to assess the potential cost impact of a risk:

• Work out the full potential cost you would incur if the risk happened.
• Calculate the expected cost or expected value based on how likely it is to happen (value = probability x loss). This is your risk exposure.
• Calculate the cost of management actions required if the risk occurred.
• Add the figures together for all risks to create your contingency budget.

In other words, this way of calculating contingency uses the risk exposure as a way of working out the additional costs that may be required to meet the project objectives if the worst happens.

Advantages: Logical. Easy to explain to the project sponsor and team members.

Disadvantages: Time-consuming to do that level of analysis on every risk.

Tip: If your project doesn’t warrant doing that level of analysis on every risk (because over here in real life, we have barely any time to dedicate to full risk management while trying to juggle multiple projects and not burnout), then do it for the major risks and use the % of project base estimate for everything else.

3. Advanced method A: Monte Carlo analysis

An advanced method for calculating project contingency is to quantify risk using a method like Monte Carlo simulations. To use this method, you need to understand and estimate the best, worst, and most likely effort needed to complete each task in a project.

Monte Carlo-based software randomly combines those different estimates to determine the overall probability that the entire project will be completed within a specific budget.

Advantages: You can select the desired probability or confidence in the final budget that is consistent with your desired risk tolerance. Your contingency is likely to be accurate for your needs.

Disadvantages: Creating those estimates and running the Monte Carlo simulation takes time and vetting the estimates is also critical. This option needs a lot of thought, time investment, and someone skilled at using the software. It’s overkill for small, low-risk projects.

4. Advanced method B: Class of estimate

Another advanced method for working out your contingency reserve amount is to define the class of estimate for your project budget (the level of certainty).

This is typically based on guidelines for different classes of cost estimates, as explained by the Association for the Advancement of Cost Engineering (AACE) and their classification of estimates.

The classifications are based on specific criteria for the level of project information available (data used as the basis of the estimate). More detail means a tighter tolerance or increased likelihood that the project cost will fall without the desired range.

This method can be used with factored estimates that combine high-level or rough estimates, vendor quotes, and even previous costs from similar projects.

Advantages: You can perform the minimum level of work, engineering, or effort needed to meet the desired estimate range. For example, a Class 3 estimate might have a cost estimate range of -10%/+30%, while a Class 5 estimate has a range of -3%/+15% but Class 5 does require additional work and time to better define the project and achieve the tighter estimate tolerance.

Disadvantages: If you had to read that section twice, you are not alone! This is a specific and complex way of working that will suit certain projects but if you don’t already know your project falls into that category then skip this method.

Note: A management reserve is different from the amount of contingency you have. Management reserves have a different call-off process and might be used for unforeseen changes.

How to manage contingency funds

Ongoing review and validation of project risks and associated contingency should occur throughout a project.

In the example in the table above, the 3 main risks listed have a total impact of $65,000. If one of the risks no longer applies, let’s say resources do not need training, then the contingency can either be reassigned or released from the project.

If released, the contingency would become $65,000 – $5,000 (less the proposed training budget) = $60,000.

Experience shows that it is easier to release contingency than to add it back, so be sure to keep that in mind. Don’t hand back funding unless you are sure you won’t need it later!

Considerations for managing contingency

In addition to cost and schedule impact, the timing of potential risks should also be considered. You might assume that as a project nears completion that all contingency could be released.

The IPA Cost Estimating Guidance says that as a project:

“becomes more defined and scope and risks are further identified, the size and allocation of contingency must be revised.”

However, pay close attention as some projects have risk that is heavily weighted towards the end of the project. For example, if there are deliverables to review and acceptance does not occur until the end, there is a chance that some updates or rework may occur towards the end of a project.

Be sure to understand the timing of risk on a project and communicate that so that everyone is aligned on expectations.

How to access contingency funds

On one project early in my career, I wanted to use some contingency funding. I had a specific reason, and I knew the money was there. At least, I’d been told that it was.

But I couldn’t get it.

It seemed like no one knew the process for accessing the funding. Where were my contingency funds?

I learned to check the process for accessing the contingency budget (and ideally, to be in charge of it).

Your organization might have or require separate documentation for contingency release. There may be a formal process for requesting and allocating contingency funds if you do not manage them. This may be noted in the project risk register, or via a separate document or process.

Regardless of the process, you want to provide traceability that explains how and why the contingency funds were spent. That traceability is important to ensure transparency, in the event of a project audit, for potential stakeholder questions, etc.

What is a contingency plan?

What happens when a risk does occur? Technically, at this point, it becomes an issue. Before that ever happens, a good project manager, along with the support of their team, will have developed what is called contingency plans.

A contingency plan is the specific action (or actions) one takes if an identified risk occurs. It’s your Plan B. At least one or more contingency plans should be identified for each known risk.

For example, in the table above, resources lacking adequate training were identified as a risk. The impact of that risk could be that people will spend additional time due to inefficiency or perhaps they will need to do some rework.

The contingency plan for that is to provide training (at a cost of $5,000) to ensure technical alignment and higher efficiency. If the team does need training, the risk becomes an issue, and the contingency plan swings into action to provide that training at a cost of $5,000.

Project schedules can also make use of contingency plans. This is typically in the form of additional days incorporated in scheduled activities.

For example, for a project phase that takes 12 weeks, we might add roughly 10% (let’s say 5-7 additional working days) of contingency in the schedule. This is time to cover unknown technical issues that need to be addressed and might otherwise cause some delays. By building that time into the schedule , we can reduce potential schedule exposure.

Quick questions

What contingency should a project have.

There is no single answer to how much contingency a project should have. The level of contingency funding or schedule contingency is determined by how risky the project is.

How is project contingency calculated?

There are a few ways to calculate project contingency. A common and reliable method is to assess the mitigation costs for all known risks and use that as the basis for putting a value on risk exposure. That then becomes your contingency allowance figure.

What is an example of contingency?

Here’s an example of contingency: If there is a risk that the cost of a component part will increase, we could use past increases to forecast potential cost increases and include that in the contingency budget.

Your next steps

We have defined contingency, reviewed ways to calculate it, explained where to document it, and how to provide a contingency plan for when things do occur. Now it’s time to put that into action.

Your next steps are:

• Review the specific nuances of your project that are dependent on the project scope so you understand where the risk is.
• Make sure you have an existing cost estimate .
• Review your company’s financial guidelines for contingency (be sure to ask your financial contact)
• Start preparing with the Project Workbook and Budget Tracker .

However, this should give you enough information to get started and give you a better idea of what to expect through project completion. Now you can go out and celebrate securing your funding!

Read Next: 4 Categories of Project Management Methods

Project manager, author, mentor

Elizabeth Harrin is a Fellow of the Association for Project Management in the UK. She holds degrees from the University of York and Roehampton University, and several project management certifications including APM PMQ. She first took her PRINCE2 Practitioner exam in 2004 and has worked extensively in project delivery for over 20 years. Elizabeth is also the founder of the Project Management Rebels community, a mentoring group for professionals. She's written several books for project managers including Managing Multiple Projects .

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Contingency planning: 4 steps to prepare for the unexpected

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What is contingency planning?

Why is contingency planning important, 4 steps to develop a contingency plan.

Most days at work are business as usual — you hope. Unfortunately, there are also days where nothing seems to go right. Sometimes, these hiccups are just part of running an organization. And some days, they can be a major disruption in your work.

Because your clients and customers are relying on you to deliver as promised, it’s critical that you have a backup plan in place. There’s no way to prevent all mishaps from occurring, but you can minimize their impact with a little strategic planning .

Rather than waiting for the worst-case scenario to play out, companies — and individuals — can put together a contingency plan. This helps to ensure that normal business operations continue as smoothly as possible.

Learn what a business contingency plan is, why you should have one, and how to start planning in this article.

Contingency planning is a part of a business’ risk management strategy. It’s how companies foresee potential disruptions to the business. 

Contingency planning is an action plan put in place to help individuals, teams, and organizations minimize disruption. In common terms, we think of this as “plan B.” Contingency plans are less about how to mitigate negative events and more about proactively developing problem-solving skills.

While traditionally, contingency planning have been an area of focus for managers and organizations, there are many benefits for individuals as well.

To understand contingency planning, it’s best to take a broad view. Sure, when companies have a crisis management plan in place, everyone sleeps a little better at night. It’s nice to know that you’ll know what to do if something happens.

But in life — as well as in business — the only real constant is change. As Tina Gupta, VP of Talent and Employee Experience at WarnerMedia puts it , “Change is not something to solve for.” Fear of change and uncertainty leads people to hide from it, interpreting every bit of rough air as a sign of an impending crash.

When you embrace a future-minded perspective , you no longer have to be afraid of uncertainty. Contingency planning becomes a strategy to be proactive instead of reactive . It’s an exercise in looking for ways to thrive instead of survive. 

BetterUp calls this type of person a future-minded leader . Rather than running from potential threats or pretending everything is fine, they cultivate an agile mindset . These people combine optimism, pragmatism, and the ability to envision the future (or, what positive psychologists call prospection ).

Contingency planning example:

Let’s look at how WarnerMedia has been able to embrace contingency planning as a tool to build a psychologically safe environment.

Conducting a risk assessment

Before you can create a contingency plan, you need to identify the risks that may impact your business. The best way to do this is with the support of your team. Hold a brainstorming session where you can talk through recent experiences, upcoming initiatives, and common pitfalls.

This type of risk assessment can't protect you from being surprised. Tomorrow will hold unexpected events, many of which never happened before in your organization (months-long pandemic shutdowns anyone?) Instead think of this assessment as surfacing the things you can prepare for and opening up everyone's imagination to the range of possible obstacles and outcomes. This will prime the pump for awareness, a flexible mindset, and solution-seeking orientation.

Don’t make the mistake of limiting the meeting to just managers. Your entry-level employees and individual contributors will have a lot of insight as to what could happen — and how to handle it.

Companies often make strategic planning an annual event, but you should review your contingency plan more frequently. Risk assessment should ideally be a natural part of planning for every new initiative.

Here are 4 steps to develop a contingency plan for your team:

1. Identify the triggers

What are the risks? The first step in contingency planning is knowing which scenarios you’re preparing for. It’s impossible to predict everything, but chances are you can think of one (or ten) worst-case scenarios that would throw operations off.

Put these scenarios in order of likelihood. The most probable and important ones will form the backbone of your contingency plan.

2. Examine the situation

In your hypothetical scenario, what would be the most likely course of action? Write that down, but be sure to ask: is it the best course of action? If your new plan is significantly different from what you’ve done before, you’ll want to talk it over with your leaders.

Get your team involved in this stage of the process. One of the benefits of planning in advance is that you have time to brainstorm responses. If the disruption has happened before, ask them what they did to resolve it and what they wish they had done differently.

3. Determine who needs to know

Once you’ve created a viable plan, determine who the stakeholders are. Identify who needs to know as soon as plans change and who will be responsible for kicking plan B into gear. If anyone needs to authorize purchases, provide access to resources, or otherwise support the plan, make sure that they know as well. 

4. Practice

If you can, do a practice run of your disaster recovery plan. The specifics will vary depending on the “disaster,” but running through the plan is a useful exercise. It will help you spot areas that you might not be able to predict in advance.

For example, when the coronavirus pandemic sent millions of workers into lockdown, companies that already had remote work policies in place were in the ideal position for the change. Companies that relied on brick-and-mortar workplaces had to quickly develop strategies to ensure remote team members had the technology and support they needed to work from home for an extended period of time. 

How to maintain a contingency plan

In general, it’s a good idea to review your contingency plan on (at minimum) an annual basis. However, there may be other events that might trigger a review of your recovery strategies.

There are three main parts to your plan: the trigger (or unexpected event), the planned course of action, and the people involved. If any of these change, you’ll want to update your plan. 

For example, moving to a new system, platform, or workflow would cause a change in both your Plan As and Plan Bs. If you hire for a new role that sits between functions, that may change the people involved.

Final thoughts

Your business continuity plan isn’t just an exercise in preparedness. It’s an opportunity to help your teams learn how to become more agile and creative problem solvers.

Everyone, from a project management team developing a contingency plan for rolling out a new sales incentive, an IT team planning for a new system to go live, or a manager coaching an employee through creating a contingency plan for meeting work deadlines, needs to develop this skill. In a time of uncertainty and constant change, thinking through possible problems and alternatives in advance is part of life. 

Gupta of WarnerMedia says that empowering her team through coaching has helped them "move from overwhelm to thriving through change." When they trust themselves, the company, and the plan, employees become more confident. They’re more willing to take risks and trust each other.

When things go awry, your plan won’t just minimize the potential impact. It will empower your team to thrive in uncertainty as they respond to whatever gets thrown their way.

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Allaya Cooks-Campbell

With over 15 years of content experience, Allaya Cooks Campbell has written for outlets such as ScaryMommy, HRzone, and HuffPost. She holds a B.A. in Psychology and is a certified yoga instructor as well as a certified Integrative Wellness & Life Coach. Allaya is passionate about whole-person wellness, yoga, and mental health.

It depends. Understanding the contingency theory of leadership

Contingent workforce management: what employers need to know, leaders are prioritizing well-being over leadership skills in the post-covid workplace, the secret to developing managers that help your business thrive, when the new normal is a no-show: why future-mindedness is the mindset organizations need now, meet the future-minded leader: your organization’s answer to uncertainty, how to build a high performance team, according to patty mccord, leading people as people, a conversation with cynt marshall, ceo of the dallas mavericks, building the human transformation company: the principles that shape our future, similar articles, struggling with control issues coaching can help, how to excel at life planning (a life planning template), 10 characteristics for becoming a successful entrepreneur, do more than survive — thrive in turbulent seasons, strategic planning: read this before it's that time again, how to use strategic foresight to stay ahead of the curve, 4 reasons why you can't afford to skip out on succession planning, stay connected with betterup, get our newsletter, event invites, plus product insights and research..

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The Importance of a Contingency Plan in Project Management

Your project will inevitably encounter bumps in the road. But if you know how to properly respond to them, you can prevent them from completely derailing your project . This is why it’s crucial to have a contingency plan in place to keep your workflows operating seamlessly. 

In this blog, we’ll dive into what’s a contingency plan in project management , how it differs from a risk management plan, steps to create a contingency plan, as well as several tips. Let’s get started.

What is a contingency plan in project management? 

In project management, you can think of your contingency plan as your plan B for a project. Contingency plans allow you to achieve business continuity when unexpected events occur, outlining the actions you'll take in the event of a worst-case scenario. 

Ideally, contingency plans allow you to react faster during times of uncertainty, which helps mitigate potential damage and keeps your project on track as much as possible. Risks requiring contingency planning can range from what you’ll do if a supplier shipment is delayed to how you’ll react if a team member has to suddenly leave the project team.

Contingency plans should take both internal and external risks into account. Internal risks include the ones that can be controlled or influenced by the project team, whereas external risks are those beyond the team’s control. 

Contingency planning is a subset of risk management, although your contingency plan will only go into effect once the risk has already materialized. This makes a contingency plan different from a risk mitigation or risk management plan, which we’ll discuss later on. 

When to use a contingency plan and why 

Risk management is typically a key consideration during the project planning process already, although many project managers focus solely on the identification of project risks rather than outlining what they’ll do should the risk occur. 

But once the project has kicked off and a worst-case scenario occurs, you’ll wish you had taken the time to create a contingency plan earlier on. This is why it’s essential to do so early on in the project lifecycle — ideally during the project planning phase.

You might be wondering whether it’s worth it to create a contingency plan if the likelihood of your risks is small. In reality, the amount of time you invest into creating a contingency plan is substantially less than the time you’d spend rearranging your project if something goes wrong. 

Plus, this way, your team will have confidence in their ability to complete the project regardless of the circumstances they may be faced with. 

Contingency plan vs. risk management plan

Contingency plans and risk management plans — also known as risk mitigation plans — focus on different parts of project risk. A risk mitigation plan revolves around risk prevention, whereas a contingency plan is all about your response after the risk has happened. 

The goal of a risk management plan is to prevent your project from encountering any risks at all. A lot of risk management is comprised of the identification and avoidance of risk to limit the probability that a risk occurs. 

However, contingency plans only go into effect after a risk has occurred. Think of them as a safeguard in the event that your risk mitigation fails. If you’re successful in reducing your risk probability to zero, then your contingency plan will never go into effect. 

Another difference between these two types of risk planning is that risk mitigation is often more costly because it requires continued attention and awareness of threats to the project, whereas a contingency plan is only costly if it has to go into effect. If a project is going smoothly, this won’t have to happen. 

For example, let’s say an event organizer is concerned about attendee safety. To mitigate the risk of crime, the organizers plan to hire additional security guards to patrol the venue, thus reducing the risk of a crime occurring. But should a crime still be committed, the security guards must know how to appropriately respond — in other words — they should be familiar with the event’s contingency plan. 

Preparing a contingency plan in 5 steps 

Now that we’ve shared the importance of having a contingency plan at the ready, you’re probably wondering how you can go about creating one of your own. Below, we’ve outlined 5 steps to get you started in the right direction. 

1. Break your project into phases 

Contingency planning for an entire project can feel overwhelming. You might want to start by separating your project into a series of phases, which will allow you to examine the risks inherent in each phase. 

Rodeo Drive takes a phased approach to projects to make this process easier

2. Compile a list of risks inherent in each phase 

Once you’ve identified the most important processes in every phase — whether that’s the delivery of certain project materials or receiving client approval on a tight deadline -– you’ll be able to gauge the potential risks you might encounter. 

Good risk management goes hand in hand with contingency planning, as anticipating how your most important project events might go awry leaves you in a stronger position to determine how you’ll respond if the unexpected occurs. 

3. Assess the severity and likelihood of each risk 

Not all risks are created equal, which is why risk mitigation plans typically assess the severity and likelihood of each project risk in great detail. 

That said, there’s an advantage to including this step in your contingency planning process as well, as prioritization helps you better allocate your planning time so that the risks that would create the most damage and are the most likely to occur are the ones that receive the most attention beforehand. 

Risk registers are another tool you can use to log the status, severity, and likelihood of all of your project risks. Using a risk register template can help speed up this assessment process. 

You can also evaluate your risks using a risk assessment matrix, as seen in the graphic below. This involves assigning a numerical value to the scale of the risk's impact and its likelihood of occurring. You'll know how seriously you should take the risk depending on where it falls on the matrix, which can be helpful for those who need a visual representation. 

4. Create a response plan for high-priority risks 

This is one of the most important parts of contingency planning. For each risk you’re preparing for, you should ask yourself what should immediately be done if the worst-case scenario occurs. 

For example, if shipping delays are a main source of risk for your project, you should have a backup supplier lined up that you can order the necessary materials from. Or, if your team suddenly needs an additional team member, you should have an idea of the top three or so alternative people you’d ideally bring on so you’re not left scrambling. 

5. Ensure the team understands their role in the contingency plan 

While it’s certainly useful to have a point person in charge of overseeing the contingency plan, it’s also critical that your team has been briefed on their role in the contingency response plan before the project kicks off. This will also help to improve team accountability . 

Failure to keep everyone up to speed on their responsibilities can cause things to slip through the cracks when your team is already dealing with an unexpected crisis. Remember, communication is key. 

What to consider when building a project contingency plan 

The above steps will certainly help you through the process of building a contingency plan, but if you’ve never built one before, there are a few additional items you’ll want to consider. 

Here are a few questions you should ask yourself while you’re in the planning process: 

#1 What will trigger the implementation of your contingency plan? 

Having a plan is great — but how will you know when it’s time to act on it? This is why it’s important to outline what event must occur for the plan to go into effect. Your team should have a clear understanding of when the situation switches from mitigation to damage control. 

You should also consider who will be the point person for communication related to the implementation of your contingency plan. While this will probably be the project manager, a larger team might have an individual completely dedicated to risk management. If not, creating a communication plan might be a good idea. 

#2 Do you have a contingency budget in place? 

Projects that don’t go according to plan can be costly . And without the right amount of funds, it can be difficult to course correct, which is why you should allocate resources toward a contingency budget well before you actually need to use it. 

You might find yourself needing to use this budget for things like extra labor, additional materials, and equipment repairs. For example, if some of your materials won’t be delivered in time due to a shipping delay, you want to make sure you have the money to purchase a second set of materials that can be delivered when you need them.

Related: How to Create an Effective Project Budget

#3 How regularly will you update your plan? 

Projects are vulnerable to changes , and factors like scope creep or scope changes might require you to make some major updates to your contingency plan. You should have a regular schedule for updating your plan as necessary — perhaps at the conclusion of every quarter or project phase based on your progress reports . It’ll likely be easiest to assign responsibility for updating the plan to one team member. 

Also read: How to Visualize Project Progress

How to use Rodeo Drive for your contingency planning 

Contingency planning is just one part of managing a project. As such, the best way to save money and keep your workflows streamlined is by using a single project management tool that has contingency planning features. 

Rodeo Drive is an all-in-one project management software solution that eliminates the need for integrations, serving as a single source of truth for your projects. 

Here’s a look at the contingency planning features that Rodeo Drive has to offer: 

Build phased budgets with ease 

Not only will building a phase-based budget help you better visualize your potential project risks, but using project management software with built-in budgeting features is also helpful for building a contingency budget. 

All projects begin with a budget in Rodeo Drive, which ensures that your projects remain financially healthy every step of the way. Plus, Rodeo Drive budgets update in real-time as you track your expenses and hours worked, meaning it’s easy to prevent overspending. 

Quickly modify and rearrange planned activities

Should your contingency plan need to go into effect, you’ll need to act fast -– and you’ll want to have a task management system in place to help your team work as efficiently as possible. 

With Rodeo Drive's planner, you can assign project activities to your team quickly and efficiently, along with the expected duration of the activity and a brief description. 

And if you suddenly need to reschedule a task due to a contingency plan taking effect, don't worry. Simply drag and drop your tasks within Rodeo Drive's planner to reschedule them. You can also shorten or expand the duration of each task in just one click. 

Access reports on your team’s current project performance 

Having access to real-time project reports is huge for contingency planning and risk management. For example, by seeing how your predicted budget numbers square up against your actual costs, you’re able to revise your contingency plans as the project progresses so that your plans are accurate and likely to succeed. 

Rodeo Drive’s reporting feature  offers a set of three different automatically generated reports based on your team's usage of the platform. This includes Time, Productivity, and Projects, the latter of which provides a complete overview of the financial health of your projects.

Not to mention, you can export your Rodeo Drive data as an Excel or CSV file and create your own custom reports outside of the platform. We know that data is key in detecting risks as soon as they materialize and enacting contingency plans quickly and efficiently. 

Interested in trying Rodeo Drive for yourself? 

Start Rodeo Drive for free

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