Every business encounters bumps in the road but, with adequate contingency planning, you can respond quickly to limit the damage caused. Business owners always want their businesses to run smoothly. Yet, inevitably things go wrong. Sometimes those things are beyond your control, such as weather or inflation. In other cases, you fail to meet customer demands or let down other stakeholders involved in your business. With adequate planning, you can avoid most failures with internal causes but you still likely encounter some failures, especially in service businesses where you produce your product on the spot, which makes it harder to consistently deliver quality service 100% of the time. Below, you see the typical service encounters involved in a hotel visit, each with the potential to fail in delivering on guest expectations, such as a long line at check-in.
Of course, goods face the potential for failure, as well, but focusing on 0 defect manufacturing processes that are part of Six Sigma and effective quality control testing helps a manufacturing business avoid many failures. Regardless of whether your business generates failures in the production of goods or services, the results may be catastrophic; resulting in declining revenue due to poor reputation, losing loyal customers, and potentially even legal consequences.
Adding contingency planning to your marketing strategy and business planning reduces the impact of such failures to meet the expectations of your stakeholders. Contingency planning involves anticipating potential sources of service failure and developing detailed plans for reducing the impact of failure on your customers so you can respond quickly when a failure occurs.
Contingency planning
While it’s tempting to try to pass on the blame for a failure to an outside force beyond your control, most likely your customers don’t buy into that argument. For instance, over Memorial Day weekend, US airlines canceled over 7000 flights worldwide due to a combination of poor staffing, weather, and the cascading effect of one delay on other flights. Passengers stranded by the cancellations don’t care about your problems as a business. They just want to get to their destinations or return home to show up for work.
The problem is compounded when airlines fail to anticipate problems and warn passengers of cancellations in time to help them plan accordingly. I mean, how could an airline not know about weather predictions or effectively deploy their staff? It’s just not feasible. Moreover, these same airlines don’t engage in effective contingency planning so each event causing a cancellation leaves passengers without adequate information, long lines at gates as passengers try to rebook onto other flights, and increasing frustration from passengers left to fend for themselves. I once sat in Houston’s airport for 7 hours with no accurate information beyond the airline would get a plane for us soon. Argh. Can you say ANGRY?
Sources of failure
Internal sources of failure likely cause the most dissatisfaction among customers. Internal sources of failure include:
- Long lines at checkouts or to receive other services
- poor product performance, including poor quality, difficulties encounters in set up or installation
- poor customer support
- failure to deliver on promises, such as delivery delays, products look or work differently than advertised
- breakdowns in communication, such as phone lines that go unanswered, few or no options to contact the company, lying to customers, etc
External sources of failure are sometimes difficult to predict but some sources are so common that customers expect companies to make alternative arrangements. For instance, the weather may interfere with operations but weather is predictable so companies with adequate contingency planning can jump into action ahead of weather that might disrupt operations. For instance, when the weather is predicted to impact airline operations, airlines should go ahead and let passengers know what other arrangements are available.
Steps in contingency planning
List all problems
The first step in contingency planning is to anticipate possible problems and assign a probability to each problem. Problems with a high probability of occurring require a contingency plan that details the steps to take when a problem occurs.
Develop a contingency plan
Once you know potential problems you might encounter, develop a detailed contingency plan that includes:
- Which metrics indicate a problem is likely to occur. For instance, a potential delivery delay might include metrics such as tracking information both internally, in terms of packing and shipping orders, and external tracking information from vendors. Include a timeline of how often you check this information and the systems or person responsible for monitoring critical metrics.
- A step-by-step process that goes into action once a threat of failure is detected. For instance, in the case of a delivery delay, this might include verification of delay, notifying customers of the impending delay, and a plan to avoid future delays. Delays are especially problematic for industrial customers because your delay means they face a failure in meeting the demands and expectations of their customers/ clients. The sooner they know about a delay, the easier it is for them to accommodate the delay without impacting their customers.
- As part of avoiding future problems, you must thoroughly investigate the source of the problem so you can implement new procedures to avoid future failures. If you’re afraid of conflict or difficult conversations<, you’re not alone. However, avoiding these discussions does more harm than good. Difficult conversations are an essential part of doing business, and they can help you build stronger relationships with your employees, customers, and suppliers. Remember that most problems emanate from poor procedures rather than the failure of your staff or vendors so start with a good attitude when dealing with them rather than start by pointing fingers. Put better processes in place, such as allowing for more safety stock or using calculations to determine better order quantities and lag times in the future. Below, you see an example of an Excel spreadsheet set up to make these calculations.
Image courtesy of Unleashed Software - Who has valuable information about problems and what factors into the solution? Involve frontline employees who are the first to see a problem or receive customer complaints in fleshing out the problem, not just management. Take their feedback and advice before forming your contingency plan as this gains you more buy-in from the folks who must implement the plan. As a business owner, you often have to make difficult decisions. These decisions can be tough to make, but they’re necessary if you want your business to succeed. For instance, changing a vendor when they fail to deliver on time too frequently or canceling a flight knowing you’ll receive negative press in the wake of cancellations. So when you face a difficult decision, take a deep breath and remind yourself that you’re capable of making the right choice.
- No matter how well you plan or how strong your business is, there are times when things are tough. These difficult times are challenging, but they’re also an opportunity to learn and grow. When you face a difficult situation, remember that it’s only temporary and that you’ll come out stronger on the other side.
- There are some tasks that are just too difficult to do on your own. So when you face a situation beyond your skill set, don’t be afraid to ask for help from professionals. This is a great way to get the support you need to overcome any challenges you face. For example, not everyone is the boss when it comes to grasping the difficult aspects of investing to optimize the ability of your excess cash to work for you while maintaining sufficient cash flow to ensure smooth operations. Rather let professionals like M&R Capital Management do the heavy lifting for you.
Set people up for success
As mentioned, most problems are process problems, not people problems when it comes to effectively managing business operations. Part of your contingency planning, therefore, involves setting up a process for notification and management of the problem by assigning ownership of the problem by answering these questions:
- Who is the first point of content once a problem is detected?
- Are there others you should notify once a problem is detected?
- What communication efforts are involved? Email? Phone? Providing multiple forms of communication reduces the chances the problem is overlooked by the responsible party.
- How long should you wait for that person to resolve the problem before moving to the next responsible party on the list?
Communicate your plan
Be sure everyone knows about the contingency plans, where to find them in a situation where they must be implemented, and fully understands the process.
Conclusion
Contingency planning is a complex, but necessary part of operating any type of business. Service businesses are especially likely to experience events where businesses must quickly and efficiently implement the contingency plan.
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