A basic premise of good strategic management is that firms try to plan ways to deal with unfavourable and favourable events before they occur. Too many organisations prepare contingency plans just for unfavourable events; this is a mistake, because both minimising threats and capitalising on opportunities can improve a firm’s competitive position.
Regardless of how carefully strategies are formulated, implemented, and evaluated, unforeseen events can make a strategy obsolete. To minimise the impact of potential threats, organisations should develop contingency plans as part of the strategy-evaluation process.
Contingency plans can be defined as alternative plans that can be put into effect if certain key events do not occur as expected.
Contingency planning involves the following:
Identify both beneficial and unfavourable events that could possibly derail the strategy or strategies.
Specify trigger points. Calculate about when contingent events are likely to occur. Determine early warning signals for key contingent events. Monitor the early warning signals.
Assess the impact of each contingent event. Estimate the potential benefit or harm of each contingent event.
Ensure that contingency plans are compatible with current strategy and are economically feasible.
Have an end game plan – and if necessary an exit strategy
Assess the counter impact of each contingency plan. That is, estimate how much each contingency plan will capitalise on or cancel out its associated contingent event.
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