Risk Management: Contingency Planning - The Art of Developing Plan B

Risk Management

by Ed Schirick

Tom Peters, the author and business management guru, suggested several years ago we should thrive on chaos, but most people and businesses don't. Most of us would like to have events take place routinely without too many changes, variations, or problems. This is natural. Unfortunately, the experience we gain from living our lives and running our businesses is proof that events don't always go routinely, as planned. This is because of risk.

Risk, simply put, is the possibility of loss - injury to people and damage to or destruction of real, personal, and intangible property - that develops from the variation of outcomes from a certain set of circumstances. Change the circumstances, and we may experience a different outcome. It is the possibility of different outcomes from our various activities that creates uncertainty. I suspect this is why we humans don't like change very much.

In his book Thriving on Chaos, Tom Peters was telling us to learn to embrace change, because it is the only certainty in our lives and in business. Well, change is also at the core of the risk management concept. Risk management is dynamic - because of change.

Risk management provides a context within which to reduce uncertainty. Its goals, simply stated, are to preserve assets and identify risk, so your organization can fulfill its mission. The risk management process provides a format for you to develop plans, systems, and procedures to anticipate the various outcomes from your activities. Once you have identified the risks, the steps in this process become the tools you need to react to the risks (variations of outcome). Ultimately, risk management's design is to provide managers with the tools to control, prevent, reduce, eliminate, or transfer risk and manage change.

Two critical words in the lexicon of risk management are "what if." These two words capture the essence of the practice of risk management, because inherent in developing Plan A, so to speak, is the uncertainty about what happens if Plan A doesn't work as planned. Contingency planning has thus always been a part of the risk management process.

If risk management practice is the art of creating Plan A, then contingency planning is the art of developing Plan B. As risk managers became more sophisticated, contingency plans became more specialized. Over time, risk managers and business managers realized different situations required a different level of response. As a result, we now have emergency plans, crisis management plans, and disaster plans. This is quite appropriate from my perspective. It is important for camp directors and staff to realize the different nature and uses of these plans. Sometimes we have a tendency to use the terms crisis, emergency, and disaster interchangeably. The terms are definitely not interchangeable from my point of view. Let's look at each term briefly.

Emergency Plans

It seems to me that not all emergencies become crises. Webster's Collegiate Dictionary defines an emergency as "an unforeseen combination of circumstances, or the resulting state that calls for immediate action." Emergency, therefore, has an unexpected, unplanned nature to it, which requires some type of immediate response. An example of an emergency at camp is when a smoke detector goes off in your dining hall creating the immediate need to evacuate the building to avoid the danger of a potential fire and possible injury to campers or staff. The emergency created by this combination of circumstances is not a crisis unless there is a fire and the dining hall is destroyed or badly damaged.

Another example of an emergency is a fast moving lightning storm, which may catch you and your staff outdoors - maybe even off guard momentarily, without proper shelter. Your immediate response is to activate your emergency plan for lightning storms and to find appropriate shelter. This emergency may become a crisis if someone is struck by lightning and is severely injured or killed. If no one is injured and nothing is damaged, the emergency is over.

Emergency plans deal with contingencies, which may occur, but may not. Risk managers develop policies and procedures to reduce, prevent, and control risk as part of the creation of Plan A. Emergency plans (Plan B) are developed to respond to situations, when Plan A doesn't go as planned. Emergency plans respond to the threat of injury or loss. They are designed to help reduce the loss, damage, or injury potential within the situation or circumstance. I often think of them as an extension of Plan A, literally risk management as the incident or event unfolds. They are often but not always the last clear opportunity for you and your staff to do something before someone is injured, or something is damaged or destroyed.

Crisis Management Plans

While it is possible to experience an emergency without a crisis, it is difficult to think of a crisis situation, which is not preceded by some type of emergency. A crisis is what occurs when the danger or threat is not eliminated or mitigated by the emergency plan and some impact occurs. Our lightning storm example seems apropos. Instead of no damage, the lightning strikes the dining hall, and the ensuing fire destroys the building and everything in it. This is certainly a crisis.

Crisis management, while still part of the risk management process, has a different focus. Once again, in the Collegiate Edition of Webster, crisis is defined as "an unstable, or critical time, or state of affairs in which a decisive change is impending, especially one with the distinct possibility of a highly undesirable outcome." Just to keep things in perspective, while risk management and contingency plans are involved with trying to control and manage risk pre-loss, crisis management is engaged in controlling and managing risks post-loss, after something highly undesirable has happened, as in our example above. What do you do now? Your crisis management plan will help you answer this question.

Disaster Plans

The word disaster alone conjures up images of broad, widespread impact. Webster defines disaster as "a sudden, calamitous event bringing great damage, loss, or destruction." I think all would agree a disaster includes all of the elements of an emergency and a crisis.

The forest fires, which affected some camps last summer, would be an example of a disaster. The emergency would come as the fire began to threaten the camp property.The crisis begins as you suffer the financial loss associated with the evacuation, loss of use of your property, loss of income - ultimately followed by the potentially devastating loss of the camp facilities. The disaster becomes self-evident as hundreds of homes, cabins, and businesses and thousands of acres of land are damaged or destroyed by the inferno. How would you manage under these circumstances?

As you can see from this discussion the nature of each circumstance is quite different. In fact, there is almost a sequential connection between the situations as illustrated below:

It is easy to overlook the dynamics of change. When things change, so do the risk factors threatening your camp business. When was the last time you took a look at your emergency, crisis management, and disaster plans with a critical eye toward improvement? Are the plans still relevant and responsive to the contemporary risks facing your business? If you haven't reviewed your emergency, crisis management, and disaster plans within the past year, you still have time to do so before next summer.
