This revision presentation for business students outlines (with examples) some of the key things that can go wrong in business and explains the basics of risk management and contingency planning.

1. Managing Risk
& Contingency
Planning

2. In business,
things go
wrong…
always!

3. What can go wrong? (1)
http://www.buncefieldinvestigation.gov.uk/

4. What can go wrong? (2)

5. What can go wrong? (3)

6. What can go wrong? (4)

7. What can go wrong? (5)

8. What can go wrong? (6)

9. What can go wrong? (7)

10. What can go wrong? (8)

11. So, what can be
done to prepare
for, and manage
risk?

12. Three key concepts
• Risk management
– The identification and acceptance or offsetting
of the risks threatening a business
• Contingency planning
– A plan for unforeseen events, including back
up procedures, emergency response and post-
event recovery
• Crisis management
– The process of responding to and minimising
the damage from an adverse event

13. What is risk in business?
• The possibility of loss
• A threat that may prevent or hinder
the ability to achieve business
objectives
• The chance that a hoped-for
outcome will not occur

14. Different ways to deal with risk
• Ignore it (wait and see)
• Reduce probability of risk
• Reduce or limit the consequences
• Share or deflect the risk (e.g. by insurance)
• Make contingency plans - prepare for it
• Adapt in order to maintain performance
• Treat it as an opportunity- particularly if it
affects other competitors

15. What is risk management?
• Identifying what and how things can
and might go wrong
• Understanding the potential effects if
things go wrong
• Devising plans to cope with the threats
• Putting in place strategies to deal with
the risks either before or after their
occurrence

16. Examples of risk management
Area Risk Management Action
Marketing Avoid over-reliance on customers or products
Develop multiple distribution networks
Test marketing for new products
Operations Hold spare capacity
Quality assurance & control
Finance Credit insurance to protect against bad debts
Investment appraisal techniques
People Key man insurance – protects against loss of key
staff
Rigorous recruitment & selection procedures

17. What are contingencies?
Uncontrollable
events that are not
anticipated for in the
business plan

18. Contingency planning
• Businesses prepare contingency plans
because things do go wrong from time to
time
• Contingency planning involves:
– Preparing for predictable and quantifiable crises
– Preparing for unexpected and unwelcome events
• The aim is to minimise the impact of a
foreseeable event and to plan for how the
business will resume normal operations
after the crisis

19. Drawing up a contingency plan
• Recognise the need for contingency planning
• Identify possible contingencies
– All the possible adverse and crisis scenarios
• Specify the likely consequences
• Assess of the degree of risk to each eventuality
• Determine risk strategy:
– To prevent a crisis
– To deal with a crisis should one occur
• Prepare plan and identify responsibilities
• Test the plan (crisis simulation)

20. The “what if” question
• Scenario analysis
– This involves constructing multiple but equally
plausible views of the future
– The scenario consists of a “story” from which
managers can plan
• Sensitivity analysis
– Involves testing the effect of a plan on
alternative values of key variables
– e.g. the effect of a 25% loss of capacity

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