Both contingency and scenario planning are structured ways for organizations to think about the future. However, although the terms sometimes are used interchangeably, contingency planning is a specific type of scenario planning.
In simple terms, scenario planning is a “strategic planning method expressly developed to test the viability of alternative strategies," according to Mal Warwick's Fundraising When Money is Tight. Warwick suggests six steps for creating an effective scenario plan, starting with asking yourself, "What keeps you awake at night?" to draw out fundamental issues, and concluding with tests of your strategic choices using “what-if” reasoning.
According to Global Business Network, which provides scenario-based consulting and training to all types of organizations:
Scenarios are not predictions. Rather, they are plausible accounts of how relevant external forces — such as the future political environment, scientific and technological developments, social dynamics, and economic conditions — might interact and evolve in the future.
In scenario planning, an organization typically creates three or four scenarios that capture a range of possibilities; examines the opportunities and threats that each may bring; and makes short- and long-term strategic decisions based on these analyses.
On the other hand, a contingency plan is your organization’s “Plan B” or "worst case scenario" plan. Also called a business continuity plan or disaster recovery plan, it creates an organized and coordinated set of steps to be taken if an emergency or disaster strikes. Examples of emergency or disaster include: natural disasters, like hurricanes; crime, like arson; or economic conditions, like a recession.
Contingency planning is done to avoid or minimize damage, loss or injury, and to ensure that the organization’s key operations continue. According to The Bridgespan Group, a nonprofit strategy consulting and executive search firm:
Having Plans B, C, and D in place and knowing when to move to each can mean the difference between pacing your organization through a marathon and a slippery slide into financial and organizational exhaustion.
How to craft contingencies? Many organizations start by asking themselves what they would do if they had to cut their budget by 10 percent, by 20 percent, and even by 30 percent.
They also specify the tripwires that would cause them to move from Plan A to Plan B, C, or D: an X percent fall in fee-for-service revenues, for instance, or a Y percent drop in donations or foundation funding, or a Z percent decrease in the organization’s cash reserves.
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