What Is Contingency Planning and Why Is It Important?

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Contingency planning prepares an organization, government or business to respond in the best possible manner to an unexpected crisis or emergency.. It is based on management decisions, made in advance, that will determine how resources, communications and logistics will be handled when such circumstances might arise. Contingency planning is often a vital part of an organization’s risk management policy, especially when exceptional circumstances, even if unlikely, could bring about catastrophic results.

Effective contingency planning can make a significant difference in the outcome of unexpected situations that could cause either financial loss or loss of life and limb. Many organizations have mandatory policies in place that require departments or divisions to maintain a documented and regularly updated contingency plan. Such documentation not only describes the procedures to be followed, but the specific emergency-related responsibilities of key personnel within the organization.

In the United States, the EPA has developed specific formats for both national and local contingency plans. On the worldwide level, the International Federation of Red Cross and Crescent Societies breaks down its contingency planning process into three basic components: determining what could happen, deciding in advance what can be done about it and determining what can be done ahead of time to be prepared. As an example of effective contingency planning in the business sector, the financial services company Cantor Fitzgerald lost 658 of its 690 New York City employees and a significant portion of its trading facilities in the September 11 attacks, but despite the loss was able to resume its business operations within one week.