- Email: [email protected]
Contingency planning
Contingency Michael Distington,
J. Clay* Cumberland
The author makes a case for the preparation of contingency plans to anticipate the occurrence of sudden situations which represent a threat or an opportunity for a company, such contingencies would include : currency d&valuation, a take over bid, nationalisation, shortaae of raw materials, actions by a cornpet: itor, e.g. a new product or a price war, and legislation by governments, referring to conditions of work, products and packages, terms of trade, etc.
M
ANY
OF
THE
BEST
FEATURES
OF
industrial systems, plans and policies can be traced back to an origin in a closely related system, plan or policy of the armed services, of the United Kingdom before or after the industrial revolution and of other military bodies stretching back to classical times. This is only to be expected since when industry began to develop beyond the stage of cottage-based craft industries the armed services were the only model available. Furthermore the model had been tested over several thousand years and had to work effectively in far more demanding circumstances than industry had to face: such aspects as the sudden death of commanders, the annihilation of entire units and even the dramatic effect of new weapons were commonplace. In view of this it is surprising that one of the best features of the military system, and one which is eminently suitable for use in industry and commerce has been almost completely ignored. This is the use of contingency planning which enables a war department to react defensively t: sudden, undesirable situations created or threats, or offensively to suddenly desirable situations or opportunities. Industrial and *Michael J. Clay is Management Services Manager of a large British chemical company. He is author of over a hundred articles, and co-author of the text book Performance and Profitability, Longman 1965.
70
Planning
commercial organisations do not usually do this. For many years those which did any planning produced a single budget of expected sales and costs. The best practice at the time was to compare draft budgets with desired levels and break even charts, and make alterations as necessary to achieve in the final budget as close a result as possible to the desired result. In the last few years an extension of this basic idea of budgeting has been developed. In the technique of profit planning companies consider alternative objectives, alterative strategies and alternative policies for several years ahead. After much preplanning the company settles for a single plan which is revised annually. From this point the procedure is almost identical to the older budgetary control. In the budgetary control technique plans or budgets are prepared for all items of expense (materials, labour, direct expenses, cash, overheads, profit and loss, stocks, etc.) and are developed from a single sales budget. In production planning, plans are prepared for production units and perhaps also for related stockholding, purchasing and distribution activities based on received or expected customer orders or the need to replenish stocks. Three new terms are in use for new activities but the terms are often not used precisely and the activities covered apparently overlap. It is suggested that corporate planning is the preparation and execution of comprehensive plans related to total company activities (e.g. including management development, new product dedevelopment. company growth and computer applications). Long range planning or long term planning relates to activities more than 5 years ahead (some authorities say 2 years ahead). A strategy is a plan covering the major features of the method to be used in the future to attain an objective and strategic planning is the process of creating sound strategies. Corporate planning is thus a special type of strategic planning. But after some preliminary discussion of alternatives, both techniques become exclusively con-
cerned with a single course of action . . . the expected course of action and the expecred set of events. No prior attention is paid to unexpected events, whether favourable or unfavourable to the company’s interests. Certainly attention may be paid to variances in a company’s standard cost accounts, and the management by exception technique similarly highlights discrepancies from planned achievements, but both of these techniques are operating historically, on past events. It is the post mortem to establish the cause of death rather than the restorative to cure the ailment or the prophylactive to prevent its occurrence. If an unexpected situation occurs it is assumed that a ‘professional’ manager will instantly adapt himself to the changed position. It is a requirement of every manager that he should be flexible and capable of changing course from time to time. This argument contains truth but is not the whole truth. In the first place we have to draw a distinction between two situations. Firstly there are unexpected events which it is reasonable to expect a capable manager to respond sufficiently quickly so as to maximise benefit to the company without killing himself and his staff in the process. Secondly there are situations in which the response required is so quick, the issues are so complex, or mistakes so likely that a manager who is unprepared cannot be expected to make the right response. In addition to all this we also must draw a distinction between threats and opportunities which may affect the company as a whole, as against those which are purely the internal affair of one or more departments. To make the whole thing more concrete, it is reasonable to expect the company to make an unprepared and instantaneous response to a ‘flu epidemic which removes 20 per cent of the staff; it may or may not be reasonable to expect an instantaneous and unprepared response to a currency devaluation: it is certainly unreasonable to expect a company to be able to mount an immediate and unprepared defence to a sudden take-over bid from a competitor.
LONG
RANGE
PLANNING
The type of preliminary effort and organisation that is required to enable bodies to respond instantaneously, effectively and safely to suddenly presented opportunities and imposed threats is closely similar to the contingency planning carried out in the plans departments of the armed services and in some government departments. The planning departments of the services exist in order to prevent their being caught napping either by an unexpected enemy move, or by an unexpected demand by the field commanders, war cabinet, chiefs of staff, etc. An extraordinary range of projects is tackled. In a situation in which A, B, C and D countries are at war with us, (E) the cabinet may wish to know the likely effect if a fifth country, F, declared war upon us. How would F’s resources, physical location and other aspects affect the war? Would it make the outcome definite, or make little difference? This is a variation on the basic offensive and defensive strategic planning tasks undertaken. Again, a commander may conceive the idea of capturing a radar installation by a sudden raid and bringing selected components home. How many men, what ships, what timing and state of weather and tide would be needed ? A plan may be called for on action in the event of an invasion. The planners would probably require more information before starting work, e.g. invasion by air or by sea, by how many troops, in what area and so on? No doubt many of the actions proposed by the planners would be set in train as a precautionary measure before an invasion materialised, e.g. bridge demolition contingency instructions to the territorial army or home guard. Another type of plan would be designed to answer a question on timing . . . How long could the nation hold out in the event of a complete stoppage of oil imports? The translation of the latter into industrial terms (how long can we carry on if the supply of a major raw material is interrupted?) is striking and immediate. There is considerable experience in industry and other large organisations of a special case of contingency planning; this is the type of planning which is done as a threat gradually intensifies. Typical examples are the plans drawn up by industry in 1970 as the threat of a national dock strike emerged and intensified, and preparations made by motor manufacturers to counter probable strikes at component suppliers’ factories. Also oil companies built up strategic stocks of oil before the closure of Suez and this helped the British economy to continue functioning normally despite the i rnmediate shortage of oil from the Middle
APRIL,
1971
East, which followed the Six Day War. But in the more general form of the technique the preparatory work is done before an unplanned threat or opportunity emerges and here business organizations have apparently little or no experience. But before we can recommend universal adoption of contingency planning by industry, we must be a little more certain about the nature of the costs and benefits of this type of planning, as applied to industry and of the problems ,entailed. SUITABLE SUBJECTS FOR CONTINGENCY PLANNING
As a preliminary we can dismiss from the field an entire range of contingencies which is outside the scope of the present study. The technique of disaster control has been devised to handle all those emergency conditions which can threaten the safety of human and other resources. In this technique contingency planning is applied to unlikely eventualities such as fire, flood, hurricane, subsidence, landslip, bursting of tanks, dropping of aerial objects, lunatic action, sabotage, riot and many other possible disturbances. The technique is applied by the safety officer. The industrial analogue of military battles and campaigns is the performance battle (economics, productivity, profitability, etc.); our field of study, therefore, mainly relates to economic and commercial contingencies. However, it is not exclusively economic as in the case of anti-burglary action, before or after the event. Planning activities can be considered under two headings. Defensive Contingency
Planning
Several examples are given below of suitable subjects for contingency planning in many companies. Of course the list is not exhaustive. One may readily think of others, both threats which are standard throughout industry and those which are specific to one company. (a) Possiblelitigation on publicliability: patents contracts pollution, etc. (b) Possible legislation on pollution: safety standards conditions of employment product specifications terms of trade. Some of the plans will require that specified actions are taken in the event of the materialisation of the threat. But there are many plans from which immediate actions flow, e.g. one has to establish a strategic stock for certain imported raw materials before the supply is interrupted. Similarly one takes out an insurance policy before trouble starts.
A price war, started by a competitor. Sudden obsolescence of a principal product resulting from a new improved competitive product. A take over bid or merger proposal. An accident which incapacitates all the Board at once. The need to withdraw suddenly a product that is being nationally marketed. 6) The need to modify all models of product X currently on the market. (9 The need to change an advertising campaign in the middle, owing to an unexpected unfavourable effect. C_i)Desire to prevent or minimise bad publicity for a sudden unfavourable event. (k) An epidemic disease in the factory or offices. 0) A strike of clerical and junior management grades. (m) Destruction or loss of vital company records. (n) Discovery of major fraud in proof senior gress, or corruption management. (0) A strike by engineers or operatives. The second type of contingency plans can be called o&tsive plans; these are designed to improve the company’s situation by taking advantage of opportunities, perhaps sudden short term, transitory or uncertain. Many of them have equivalents in the first category, for example: (4 Litigation started by the company on others’ liabilities: patents contracts pollution, e.g. of the company’s fresh water intake from a river. (b) A price war started by us, (cl Sudden obsolescence of all products which compete with product Y resulting from own successful development work. (4 A take-over bid or merger proposed. (4 The need to mount an advertising or publicity campaign as an immediate reaction to some favourable news, e.g. if cigarette smoking is proved not to be harmful to health. The need to obtain fX permanent short term capital for expansion, take over, etc., under favourable market conditions. The desire to send a team of experts overseas for 3-6 months to help an associate or customer in an emergency. ORGANIZATION CONTINGENCY
OF PLANNING
At this stage in the argument it does appear that there is extremely wide scope
71
and many possible applications for a contingency planning fuction in a business. Given the need, the next question relates to the organization of the function. Who will run this function ? Will it be part time or full time? To whom should the planner report? Who is empowered to demand that plans be prepared and who is allowed to study the highly confidential results ? Clearly, the staffing of this function, as of any other, depends on the workload imposed; a larger staff will be needed for a multi-divisional international corporation than for a small jobbing joinery business. It is usually a safe policy to start a new function on a small scale, prove its value, then expand until the required standards of performance are In most firms contingency achieved. planning could be started as a part time job for a single middle manager. Ideally he would be a manager whose present job has a planning .bias. The allied functions of profit planning, corporate planning and long term planning, all of which are recent innovations, are usually tied to an annual planning cycle and consequently are likely to have peak and trough workloads. A happy solution could be to enlarge the scope of the underloaded profit planners to include contingency planning responsibilities. An additional advantage of this arrangement is that the personnel are already concerned with planning on a company wide scale and are acquainted with most of the expected problems. The only essential difference between this activity and contingency planning is that the latter deals with activities and events which are less likely to materialise. Other planners such as production planners and project planners tend from the nature of their jobs to have a narrower outlook. To whom should the planner report? It is not necessary for the function to report to the Chief Executive although the latter will have a great influence on the type of work done. Contingency planning should report at a sufficiently high level so that all the confidential problems of the company can be freely discussed between the planner and his manager and so that the function remains a tool of the Board. All this suggests that the function should report to an official such as: l The Company Secretary. l The Administration Director. l The Planning Director. l The Head of Administrative Services. There can be no single correct answer to the question of who may call for a contingency plan to be prepared. Perhaps there should be no restriction on who could or should suggest the need for a plan (e.g. the insurance clerk in the
Accounts Department may first realize the company’s vulnerability in certain specialized areas such as public liability). Authorisation should, however. be restricted to the top manager to whom the contingency planning function reports. Once the plans are prepared the most severe restrictions must be placed on access to them. Each contingency plan must have a restricted circulation individually authorised to the top manager noted above. These will all include all Board members but beyond this the ‘need to know’ principle must be used, i.e. details are not disclosed to individuals unless they need to know. Such secrecy is essential since the plans concern the company’s innermost thoughts, plans and policies on competition, and defending its position in the world. FILING AND
INDEXING
Safeguarding and referencing the planner’s data efficiently is of the utmost importance owing to the importance and the secret nature of the information contained. It is suggested that each plan should be prominently numbered and only two copies made. One would be fled and locked away in the archives, a second tied and locked away in the manager’s ofice. The top sheet of each plan should list the approved circulation and this should be signed by the manager. One suitable way of classifying plans is to place each in a folder, number both plan and folder serially and prepare a separate index, with cross references, of the material filed. Anyone on the approved circulation could borrow the file copy on signature; in the event of the contingency arising it may then be necessary to issue a photocopy of the relevant plan to each executive concerned. However, the preparations for any contingency could be carried out without each manager having a complete copy of the plan; a summary of the necessary actions would be enough. All plans eventually become outdated. It will be necessary to include a system for keeping them permanently up to date. The front sheet of each plan should contain, in addition to the approved circu‘lation, a control date at which time a revision would be necessary. Each plan would be reviewed annually. As a necessary compensation for the secrecy of the results it is advisable to be as open as possible about the need for and the existence of contingency plans. All managers should be encouraged to report on possible threats and opportunities which could perhaps be the subject of contingency plans. It should be a part of the job responsibility of the contingency planner to talk
to managers about possible but unexpected developments, as a means of increasing the chance that a plan will have been prepared when the event strikes. The planner must also exert a co-ordinating role over the actions which are thrown up by the plans. These are of two types: (a) actions needed immediately after the plan is ready, but before the contingency condition (let us call this the ‘crisis’). (b) actions needed in the vent of the crisis. The planner must ensure that everyone concerned knows that preliminary actions are needed (a) and that these are executed; he must also ensure that where secrecy does not render it inappropriate, everyone knows what actions he has to take if the crisis occurs. In these cases everyone concerned must read the contingency plan before it is filed away. THE PLANNING
PROCEDURE
Firstly a proposal is made to the top manager that a plan is advisable (e.g. if the only competitor on product AB 12 suffers a major fire or other catastrophe, creating the possibility of a sudden and largely temporary increase in sales). The top manager approves the proposal and asks the contingency planner to prepare a plan. The planner can work either alone, or through the efforts of a supporting section of department, or in a committee of experts which will differ for each plan. Whichever alternative is adopted a simiiar procedure is required. The following notes highlight the most important aspects of this procedure: (a) All assumptions made are carefully listed, and the source of all data is noted on working papers. The authority for any firm policy statement is also noted (e.g. Board Minute 35.12, or Sales Director verbal, or memo 1l/6/70 from Works Manager). Where applicable the probable or possible error in information is also noted. (b) A section of background comment containing the reasons for the selection of the particular course of action proposed and the rejection of alternatives is included, accompanied by any other explanatory remarks which are likely to be helpful. (cl Preliminary action. i.e. action required prior to the crisis, is listed in step by step form with the name of the person responsible, a control date for completion and a statement of the action required. A contingency plan is, in this respect, no different from any other type of
LONG
RANGE
PLANNING
action plan as used in management or an implementation plan resulting from a profit improvement project. Contingency action, i.e. action required after the outbreak of the crisis is listed as far as possible in a similar way. The main difference here is that since the ‘enemy’s’ or ‘nature’s’ actions are’uncertain one cannot always specify a single valid and binding course of action. Many of the actions must be conditional. For example, if the Sales Manager from ABC Ltd. (the lirm whose factory has just burned down) requests us to supply our competitive product to his factory in completely plain containers we should stall for time, then refuse If the Sales Manager requests us to supply his customers, temporarily, with our own product direct, in our containers, we should agree. The greater the number of successive steps that are planned the greater the by objectives
statement is tantamount to saying that his company is not subject to contingencies. You have nothing to lose by trying it. Not the least of the technique’s many virtues is the fact that it can be introduced without risk, without capital expense and at a sufficiently slow pace to match the available freetime of one of the company’s senior managers. n
number of conditional possibilities. A hint about the scale of this problem is shown in Figure 1, a decision tree. This branching of conditional actions is what in the end limits the usefulness of contingency planning. One way of restricting the number of alternatives is to phrase instructions in the form of attempting to reach specified objectives rather than stating exactly how to execute each minor task. Whether the aim or whether the specific action to be taken is stated, the action statement should consist of four elements: A code or item reference An action statement, framed in the imperative mood Time limits, e.g. start and complete dates Personal responsibility, e.g. Chief Buyer For example : ‘Phase I Step 4, Invite union representative for preliminary discussion (Action, BJK before end of C day)‘. It would be a bold man who would assert that contingency planning has nothing to offer to his company. Such a
REFERENCES (1) G. Donaldson, Strategies for emergencies. Harvard Business Review (1969). (2) Robert J, Mockler, Theory and practice of planning (a review of milestones in planning literature), Harvard Business Review (1970). (3) H. lgor Ansoff, Corporate Strategy, McGraw Hill, New York (1965). (4) George A. Steiner, Top Managemenf Planning, Macmillan, New York (1969). (5) James R. Collier, Effective Long Range Business Planning, Prentice-Hall, New York. (6) Melville C. Branch, Planning: Aspecfs and Applications, John Wiley, New York. (7) Bruce Payne, Planning for Company Growth, McGraw-Hill, New York. (8) P. P. LeBreton and Dale A. Henning, Planning Theory, Prentice-Hall, New York.
4
us of
.
etc etc
royalty scheme
1
11
1
13
‘--r ompetctor infrigtsyt our
discussions
position
2
Ignore the situation at first
owing
etc
6 lsns to withdraw
We demand compensation
etc
etc
etc 17
We commence
etc
B He denies infringement
We threaten
holdina
Figure
APRIL,
1971
1. A
Decision
Tree
of Contingency
discussions
etc
etc
Actions.
73
J. Clay* Cumberland
The author makes a case for the preparation of contingency plans to anticipate the occurrence of sudden situations which represent a threat or an opportunity for a company, such contingencies would include : currency d&valuation, a take over bid, nationalisation, shortaae of raw materials, actions by a cornpet: itor, e.g. a new product or a price war, and legislation by governments, referring to conditions of work, products and packages, terms of trade, etc.
M
ANY
OF
THE
BEST
FEATURES
OF
industrial systems, plans and policies can be traced back to an origin in a closely related system, plan or policy of the armed services, of the United Kingdom before or after the industrial revolution and of other military bodies stretching back to classical times. This is only to be expected since when industry began to develop beyond the stage of cottage-based craft industries the armed services were the only model available. Furthermore the model had been tested over several thousand years and had to work effectively in far more demanding circumstances than industry had to face: such aspects as the sudden death of commanders, the annihilation of entire units and even the dramatic effect of new weapons were commonplace. In view of this it is surprising that one of the best features of the military system, and one which is eminently suitable for use in industry and commerce has been almost completely ignored. This is the use of contingency planning which enables a war department to react defensively t: sudden, undesirable situations created or threats, or offensively to suddenly desirable situations or opportunities. Industrial and *Michael J. Clay is Management Services Manager of a large British chemical company. He is author of over a hundred articles, and co-author of the text book Performance and Profitability, Longman 1965.
70
Planning
commercial organisations do not usually do this. For many years those which did any planning produced a single budget of expected sales and costs. The best practice at the time was to compare draft budgets with desired levels and break even charts, and make alterations as necessary to achieve in the final budget as close a result as possible to the desired result. In the last few years an extension of this basic idea of budgeting has been developed. In the technique of profit planning companies consider alternative objectives, alterative strategies and alternative policies for several years ahead. After much preplanning the company settles for a single plan which is revised annually. From this point the procedure is almost identical to the older budgetary control. In the budgetary control technique plans or budgets are prepared for all items of expense (materials, labour, direct expenses, cash, overheads, profit and loss, stocks, etc.) and are developed from a single sales budget. In production planning, plans are prepared for production units and perhaps also for related stockholding, purchasing and distribution activities based on received or expected customer orders or the need to replenish stocks. Three new terms are in use for new activities but the terms are often not used precisely and the activities covered apparently overlap. It is suggested that corporate planning is the preparation and execution of comprehensive plans related to total company activities (e.g. including management development, new product dedevelopment. company growth and computer applications). Long range planning or long term planning relates to activities more than 5 years ahead (some authorities say 2 years ahead). A strategy is a plan covering the major features of the method to be used in the future to attain an objective and strategic planning is the process of creating sound strategies. Corporate planning is thus a special type of strategic planning. But after some preliminary discussion of alternatives, both techniques become exclusively con-
cerned with a single course of action . . . the expected course of action and the expecred set of events. No prior attention is paid to unexpected events, whether favourable or unfavourable to the company’s interests. Certainly attention may be paid to variances in a company’s standard cost accounts, and the management by exception technique similarly highlights discrepancies from planned achievements, but both of these techniques are operating historically, on past events. It is the post mortem to establish the cause of death rather than the restorative to cure the ailment or the prophylactive to prevent its occurrence. If an unexpected situation occurs it is assumed that a ‘professional’ manager will instantly adapt himself to the changed position. It is a requirement of every manager that he should be flexible and capable of changing course from time to time. This argument contains truth but is not the whole truth. In the first place we have to draw a distinction between two situations. Firstly there are unexpected events which it is reasonable to expect a capable manager to respond sufficiently quickly so as to maximise benefit to the company without killing himself and his staff in the process. Secondly there are situations in which the response required is so quick, the issues are so complex, or mistakes so likely that a manager who is unprepared cannot be expected to make the right response. In addition to all this we also must draw a distinction between threats and opportunities which may affect the company as a whole, as against those which are purely the internal affair of one or more departments. To make the whole thing more concrete, it is reasonable to expect the company to make an unprepared and instantaneous response to a ‘flu epidemic which removes 20 per cent of the staff; it may or may not be reasonable to expect an instantaneous and unprepared response to a currency devaluation: it is certainly unreasonable to expect a company to be able to mount an immediate and unprepared defence to a sudden take-over bid from a competitor.
LONG
RANGE
PLANNING
The type of preliminary effort and organisation that is required to enable bodies to respond instantaneously, effectively and safely to suddenly presented opportunities and imposed threats is closely similar to the contingency planning carried out in the plans departments of the armed services and in some government departments. The planning departments of the services exist in order to prevent their being caught napping either by an unexpected enemy move, or by an unexpected demand by the field commanders, war cabinet, chiefs of staff, etc. An extraordinary range of projects is tackled. In a situation in which A, B, C and D countries are at war with us, (E) the cabinet may wish to know the likely effect if a fifth country, F, declared war upon us. How would F’s resources, physical location and other aspects affect the war? Would it make the outcome definite, or make little difference? This is a variation on the basic offensive and defensive strategic planning tasks undertaken. Again, a commander may conceive the idea of capturing a radar installation by a sudden raid and bringing selected components home. How many men, what ships, what timing and state of weather and tide would be needed ? A plan may be called for on action in the event of an invasion. The planners would probably require more information before starting work, e.g. invasion by air or by sea, by how many troops, in what area and so on? No doubt many of the actions proposed by the planners would be set in train as a precautionary measure before an invasion materialised, e.g. bridge demolition contingency instructions to the territorial army or home guard. Another type of plan would be designed to answer a question on timing . . . How long could the nation hold out in the event of a complete stoppage of oil imports? The translation of the latter into industrial terms (how long can we carry on if the supply of a major raw material is interrupted?) is striking and immediate. There is considerable experience in industry and other large organisations of a special case of contingency planning; this is the type of planning which is done as a threat gradually intensifies. Typical examples are the plans drawn up by industry in 1970 as the threat of a national dock strike emerged and intensified, and preparations made by motor manufacturers to counter probable strikes at component suppliers’ factories. Also oil companies built up strategic stocks of oil before the closure of Suez and this helped the British economy to continue functioning normally despite the i rnmediate shortage of oil from the Middle
APRIL,
1971
East, which followed the Six Day War. But in the more general form of the technique the preparatory work is done before an unplanned threat or opportunity emerges and here business organizations have apparently little or no experience. But before we can recommend universal adoption of contingency planning by industry, we must be a little more certain about the nature of the costs and benefits of this type of planning, as applied to industry and of the problems ,entailed. SUITABLE SUBJECTS FOR CONTINGENCY PLANNING
As a preliminary we can dismiss from the field an entire range of contingencies which is outside the scope of the present study. The technique of disaster control has been devised to handle all those emergency conditions which can threaten the safety of human and other resources. In this technique contingency planning is applied to unlikely eventualities such as fire, flood, hurricane, subsidence, landslip, bursting of tanks, dropping of aerial objects, lunatic action, sabotage, riot and many other possible disturbances. The technique is applied by the safety officer. The industrial analogue of military battles and campaigns is the performance battle (economics, productivity, profitability, etc.); our field of study, therefore, mainly relates to economic and commercial contingencies. However, it is not exclusively economic as in the case of anti-burglary action, before or after the event. Planning activities can be considered under two headings. Defensive Contingency
Planning
Several examples are given below of suitable subjects for contingency planning in many companies. Of course the list is not exhaustive. One may readily think of others, both threats which are standard throughout industry and those which are specific to one company. (a) Possiblelitigation on publicliability: patents contracts pollution, etc. (b) Possible legislation on pollution: safety standards conditions of employment product specifications terms of trade. Some of the plans will require that specified actions are taken in the event of the materialisation of the threat. But there are many plans from which immediate actions flow, e.g. one has to establish a strategic stock for certain imported raw materials before the supply is interrupted. Similarly one takes out an insurance policy before trouble starts.
A price war, started by a competitor. Sudden obsolescence of a principal product resulting from a new improved competitive product. A take over bid or merger proposal. An accident which incapacitates all the Board at once. The need to withdraw suddenly a product that is being nationally marketed. 6) The need to modify all models of product X currently on the market. (9 The need to change an advertising campaign in the middle, owing to an unexpected unfavourable effect. C_i)Desire to prevent or minimise bad publicity for a sudden unfavourable event. (k) An epidemic disease in the factory or offices. 0) A strike of clerical and junior management grades. (m) Destruction or loss of vital company records. (n) Discovery of major fraud in proof senior gress, or corruption management. (0) A strike by engineers or operatives. The second type of contingency plans can be called o&tsive plans; these are designed to improve the company’s situation by taking advantage of opportunities, perhaps sudden short term, transitory or uncertain. Many of them have equivalents in the first category, for example: (4 Litigation started by the company on others’ liabilities: patents contracts pollution, e.g. of the company’s fresh water intake from a river. (b) A price war started by us, (cl Sudden obsolescence of all products which compete with product Y resulting from own successful development work. (4 A take-over bid or merger proposed. (4 The need to mount an advertising or publicity campaign as an immediate reaction to some favourable news, e.g. if cigarette smoking is proved not to be harmful to health. The need to obtain fX permanent short term capital for expansion, take over, etc., under favourable market conditions. The desire to send a team of experts overseas for 3-6 months to help an associate or customer in an emergency. ORGANIZATION CONTINGENCY
OF PLANNING
At this stage in the argument it does appear that there is extremely wide scope
71
and many possible applications for a contingency planning fuction in a business. Given the need, the next question relates to the organization of the function. Who will run this function ? Will it be part time or full time? To whom should the planner report? Who is empowered to demand that plans be prepared and who is allowed to study the highly confidential results ? Clearly, the staffing of this function, as of any other, depends on the workload imposed; a larger staff will be needed for a multi-divisional international corporation than for a small jobbing joinery business. It is usually a safe policy to start a new function on a small scale, prove its value, then expand until the required standards of performance are In most firms contingency achieved. planning could be started as a part time job for a single middle manager. Ideally he would be a manager whose present job has a planning .bias. The allied functions of profit planning, corporate planning and long term planning, all of which are recent innovations, are usually tied to an annual planning cycle and consequently are likely to have peak and trough workloads. A happy solution could be to enlarge the scope of the underloaded profit planners to include contingency planning responsibilities. An additional advantage of this arrangement is that the personnel are already concerned with planning on a company wide scale and are acquainted with most of the expected problems. The only essential difference between this activity and contingency planning is that the latter deals with activities and events which are less likely to materialise. Other planners such as production planners and project planners tend from the nature of their jobs to have a narrower outlook. To whom should the planner report? It is not necessary for the function to report to the Chief Executive although the latter will have a great influence on the type of work done. Contingency planning should report at a sufficiently high level so that all the confidential problems of the company can be freely discussed between the planner and his manager and so that the function remains a tool of the Board. All this suggests that the function should report to an official such as: l The Company Secretary. l The Administration Director. l The Planning Director. l The Head of Administrative Services. There can be no single correct answer to the question of who may call for a contingency plan to be prepared. Perhaps there should be no restriction on who could or should suggest the need for a plan (e.g. the insurance clerk in the
Accounts Department may first realize the company’s vulnerability in certain specialized areas such as public liability). Authorisation should, however. be restricted to the top manager to whom the contingency planning function reports. Once the plans are prepared the most severe restrictions must be placed on access to them. Each contingency plan must have a restricted circulation individually authorised to the top manager noted above. These will all include all Board members but beyond this the ‘need to know’ principle must be used, i.e. details are not disclosed to individuals unless they need to know. Such secrecy is essential since the plans concern the company’s innermost thoughts, plans and policies on competition, and defending its position in the world. FILING AND
INDEXING
Safeguarding and referencing the planner’s data efficiently is of the utmost importance owing to the importance and the secret nature of the information contained. It is suggested that each plan should be prominently numbered and only two copies made. One would be fled and locked away in the archives, a second tied and locked away in the manager’s ofice. The top sheet of each plan should list the approved circulation and this should be signed by the manager. One suitable way of classifying plans is to place each in a folder, number both plan and folder serially and prepare a separate index, with cross references, of the material filed. Anyone on the approved circulation could borrow the file copy on signature; in the event of the contingency arising it may then be necessary to issue a photocopy of the relevant plan to each executive concerned. However, the preparations for any contingency could be carried out without each manager having a complete copy of the plan; a summary of the necessary actions would be enough. All plans eventually become outdated. It will be necessary to include a system for keeping them permanently up to date. The front sheet of each plan should contain, in addition to the approved circu‘lation, a control date at which time a revision would be necessary. Each plan would be reviewed annually. As a necessary compensation for the secrecy of the results it is advisable to be as open as possible about the need for and the existence of contingency plans. All managers should be encouraged to report on possible threats and opportunities which could perhaps be the subject of contingency plans. It should be a part of the job responsibility of the contingency planner to talk
to managers about possible but unexpected developments, as a means of increasing the chance that a plan will have been prepared when the event strikes. The planner must also exert a co-ordinating role over the actions which are thrown up by the plans. These are of two types: (a) actions needed immediately after the plan is ready, but before the contingency condition (let us call this the ‘crisis’). (b) actions needed in the vent of the crisis. The planner must ensure that everyone concerned knows that preliminary actions are needed (a) and that these are executed; he must also ensure that where secrecy does not render it inappropriate, everyone knows what actions he has to take if the crisis occurs. In these cases everyone concerned must read the contingency plan before it is filed away. THE PLANNING
PROCEDURE
Firstly a proposal is made to the top manager that a plan is advisable (e.g. if the only competitor on product AB 12 suffers a major fire or other catastrophe, creating the possibility of a sudden and largely temporary increase in sales). The top manager approves the proposal and asks the contingency planner to prepare a plan. The planner can work either alone, or through the efforts of a supporting section of department, or in a committee of experts which will differ for each plan. Whichever alternative is adopted a simiiar procedure is required. The following notes highlight the most important aspects of this procedure: (a) All assumptions made are carefully listed, and the source of all data is noted on working papers. The authority for any firm policy statement is also noted (e.g. Board Minute 35.12, or Sales Director verbal, or memo 1l/6/70 from Works Manager). Where applicable the probable or possible error in information is also noted. (b) A section of background comment containing the reasons for the selection of the particular course of action proposed and the rejection of alternatives is included, accompanied by any other explanatory remarks which are likely to be helpful. (cl Preliminary action. i.e. action required prior to the crisis, is listed in step by step form with the name of the person responsible, a control date for completion and a statement of the action required. A contingency plan is, in this respect, no different from any other type of
LONG
RANGE
PLANNING
action plan as used in management or an implementation plan resulting from a profit improvement project. Contingency action, i.e. action required after the outbreak of the crisis is listed as far as possible in a similar way. The main difference here is that since the ‘enemy’s’ or ‘nature’s’ actions are’uncertain one cannot always specify a single valid and binding course of action. Many of the actions must be conditional. For example, if the Sales Manager from ABC Ltd. (the lirm whose factory has just burned down) requests us to supply our competitive product to his factory in completely plain containers we should stall for time, then refuse If the Sales Manager requests us to supply his customers, temporarily, with our own product direct, in our containers, we should agree. The greater the number of successive steps that are planned the greater the by objectives
statement is tantamount to saying that his company is not subject to contingencies. You have nothing to lose by trying it. Not the least of the technique’s many virtues is the fact that it can be introduced without risk, without capital expense and at a sufficiently slow pace to match the available freetime of one of the company’s senior managers. n
number of conditional possibilities. A hint about the scale of this problem is shown in Figure 1, a decision tree. This branching of conditional actions is what in the end limits the usefulness of contingency planning. One way of restricting the number of alternatives is to phrase instructions in the form of attempting to reach specified objectives rather than stating exactly how to execute each minor task. Whether the aim or whether the specific action to be taken is stated, the action statement should consist of four elements: A code or item reference An action statement, framed in the imperative mood Time limits, e.g. start and complete dates Personal responsibility, e.g. Chief Buyer For example : ‘Phase I Step 4, Invite union representative for preliminary discussion (Action, BJK before end of C day)‘. It would be a bold man who would assert that contingency planning has nothing to offer to his company. Such a
REFERENCES (1) G. Donaldson, Strategies for emergencies. Harvard Business Review (1969). (2) Robert J, Mockler, Theory and practice of planning (a review of milestones in planning literature), Harvard Business Review (1970). (3) H. lgor Ansoff, Corporate Strategy, McGraw Hill, New York (1965). (4) George A. Steiner, Top Managemenf Planning, Macmillan, New York (1969). (5) James R. Collier, Effective Long Range Business Planning, Prentice-Hall, New York. (6) Melville C. Branch, Planning: Aspecfs and Applications, John Wiley, New York. (7) Bruce Payne, Planning for Company Growth, McGraw-Hill, New York. (8) P. P. LeBreton and Dale A. Henning, Planning Theory, Prentice-Hall, New York.
4
us of
.
etc etc
royalty scheme
1
11
1
13
‘--r ompetctor infrigtsyt our
discussions
position
2
Ignore the situation at first
owing
etc
6 lsns to withdraw
We demand compensation
etc
etc
etc 17
We commence
etc
B He denies infringement
We threaten
holdina
Figure
APRIL,
1971
1. A
Decision
Tree
of Contingency
discussions
etc
etc
Actions.
73