The Case for Contingencies

Two essential elements of a sound plan are assumptions (predictions about issues that are likely to impact our business) and contingencies (what we plan to do if unforeseen disruptions require a change of direction).

The benefit of creating and documenting planning assumptions is illustrated in a recent Wall Street Journal article by Jennifer Williams ("'Act of God' Expectations Helped United Hit Targets”). While the government shutdown last year caused other businesses, including major airlines, to recast their financial forecasts, United managed to come in on target, thanks to well documented planning assumptions and contingency planning.

According to United CFO Mike Leskinen, the possibility of external factors disrupting their plans is considered and baked into their planning and budgeting. Weather, changes in fuel prices, or other “macro events” can seriously derail even the most meticulously prepared plans. Consideration of these in advance, as part of a rigorous, thorough planning process results in better preparedness and creates a considerable competitive advantage.

Planning assumptions may be organized around three key areas: market considerations (customers and competitors, etc.), operational considerations (internal efficiencies, costs, time to market, etc.) and financial considerations (cost of capital, interest rates, supplier relationships, etc.).

While planning assumptions can and should include upside potential for the business, anticipating events that may negatively impact the plan creates raw material for development of contingency action items which may be activated quickly and efficiently as needed. Organizational leaders are less likely to be caught flat-footed should a “macro event” (or for that matter a “micro event”) occur.

Contingency planning based on assumptions is a key and essential element of a comprehensive planning process. For more information, download your free copy of my planning primer/workbook, “Understanding and Implementing Strategy & Planning” at ajstrategy.com/snp, or email me at joe@ajstrategy.com.

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