Business Strategy: Contingency Planning

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hi everyone in this business topic video

I just want to take a look at a topic

called contingency planning which is an

important part of business strategy and

features in the edible business

specifications but isn't always covered

in detail by the text books something

you need to be aware of and have an

understanding of without needing to know

lots of details so let's see whether we

can cover this in the next 10 minutes or

so at the reason why contingency

planning is important in terms of

business strategies because of this

concept called risk and uncertainty and

in in business as in life the key is to

remember to expect the unexpected

nothing ever happens quite how you

expect it to happen and contingency

planning is therefore part of a broader

series of processes that businesses

usually undertake which are basically

around managing the risk in the business

identifying and dealing with the risks

that potentially threaten a business

planning for them and if things really

do go wrong trying to manage the

business out of a crisis what do we mean

by risk well it can be a bunch of

different things it could be the

possibility that a business could lose

money or incur significant additional

costs perhaps it could be reputational

damage that the damage to a business's

brand customer relationships goodwill it

all could also be the risk that things

happen that threaten the achievement of

key business objectives and of course

the other side of risk is that it's just

the flipside of not being as successful

as you want to be a hopeful outcome for

example a new product launch just

doesn't happen in the way that you hoped

it would that's what we mean by risk and

of course businesses deal with risk in

in a variety of ways one of one of one

way of course is simply to ignore it and

to wait and see what actually happens

there are other things you can do

however rather than

ignoring risk you can try and minimize

the impact of risk so for example taking

out insurance is a classic example of

risk management and contingency plans

are part of those processes of risk

management another way of dealing with

risk is to embrace it and say well bring

it on let's see whether we can handle

threats and risks in our sector in our

industry better than competitors you

don't have to look far in business to

see examples particularly within the

functional areas of how businesses

handle risks on a day to day basis for

example let's pick a couple out here

spare capacity you may have covered that

sure you have covered it in capacity

management so one reason why you would

not operate at a hundred percent

capacity utilization is that you want to

have some spare capacity to handle maybe

an increase in demand that's a good

example of risk management similarly

when you're looking at investment

appraisal the process of evaluating and

analyzing the likely returns of some

possible investment projects perhaps

using payback or a net present value

that's good example of the ways in which

finance can help manage and assess risk

and let's take one more marketing so

before you launch a new product on the

wider market you might test market it in

a certain location or area to see what

the customer response is perhaps

supported by additional market research

so everyday businesses are managing

their risks with continuously planning

however it tends to be about the bigger

risks where things go wrong that it the

impact is potentially significant to the

business and therefore if those risks

are significant it's important to

identify them to have a plan for how

you'll deal with them if they happen

so therefore contingency planning is

about preparation it's about identifying

the likely quantifiable ideally problems

that may

is that potentially significant but

unexpected and certainly unwelcome

events that you need to plan for and the

aim of contingency planning is to focus

on the big risks and to plan for how the

business will respond perhaps it may be

responding to a crisis or responding to

a change in the external environment

such that the business isn't

significantly damaged by those risks

there we go we've we've outlined what

contingency planning is let's just give

you a few examples to hopefully put that

into context lots of examples out there

of where businesses perhaps fell short

with their contingency planning and

perhaps also their crisis management two

great examples from the from the

automotive industry Toyota have had a

significant history of major product

recalls and one problem in particular

that related to the accelerator pedals

on cars sold in the US has led to very

substantial costs and fines and damages

not just financial but also reputational

damage for Toyota in the US similarly

Volkswagen of course I'm sure you recall

the issue that arose in 2015 with the

apparently deliberate manipulation of

software that enabled VW engines to pass

emissions tests when in fact they were

they were not emitting or they were

emitting gases that that would simply

not have passed those tests under any

normal circumstance and one of course

very close to home that happened a few

years ago was the famous horse meat

scandal when we discovered that a large

proportion of of processed meat products

sold by UK supermarkets contained some

and so in some cases a lot of horse meat

which came as a bit of a shock to those

of us who are big fans of those types of

products another example of an industry

where contingency planning is absolutely

vital is the traveling

three so we know that the external

environment therefore travel industrial

operators in particular tour operators

is is is always a source of risk in

particular now of course with the

geopolitical implications of the

increasing incidence of terror so

businesses like Thompson and Thomas Cook

have to have very strong contingency

planning in place to deal with the

crises that emerge when terrorist

incidents impact on the holidaymakers

and of course Thomas Cook has spinning a

news and loss over the last few years in

particular in response to its it's

failed response to the to the death of

two young children one it's one of its

resorts in Corfu a great example of

really poor crisis management by that

business a couple more you'd have to

think about I think perhaps the best

example currently about the need for

contingency planning is the whole issue

about whether the UK should or is about

to leave the European Union the

so-called brexit debate and of course

we've got a referendum in the UK in June

on that some recent survey suggested

that very few large businesses have

actively completed their contingency

plans for what may happen to them in the

event of brexit and of course the whole

issue around data security and the

impact of increasingly significant

breaches of personal data where the way

we entrust businesses to look after our

data for us the example on the screen

there being the recent cyber attack on

the talk talk database so continuity

planning therefore is an important part

of how businesses manage risk I guess a

couple of points to to reflect on if

you're answering a question in relation

to contingency planning the first is to

make the point that businesses can't

handle and plan for every eventuality so

it's important to identify the risks

that are likely to be significant to the

business and try to thus try to assess

the probability and the likely impact

for example the likely damage or cost

on the flipside businesses simply cannot

ignore major risks and as they become

more significant in particular to larger

businesses the importance of contingency

planning for the Board of Directors I

think is is rising there we go that's an

introduction hopefully useful to you on

what's meant by contingency planning

with a few examples to help put it into