hi everyone in this business topic video i just want to take a look at a topic uh called contingency planning which is an important part of business strategy and features in the a-level business specifications but isn't always covered in detail by the textbooks something you need to be aware of and have an understanding of without needing to know lots of detail so let's see whether we can cover this in the next 10 minutes or so the reason why contingency planning is important in terms of business strategy is because of this concept called risk and uncertainty and in in business as in life the key is to remember to expect the unexpected nothing ever happens quite how you expect it to happen and contingency planning is therefore part of a broader series of of processes that businesses usually undertake which are basically around managing the risk in the business identifying dealing with the risks that potentially threaten a business planning for them and if things really do go wrong trying to manage the business out of a crisis what do we mean by risk well it can be a bunch of different things it could be the possibility that a business could lose money or incur significant additional costs perhaps it could be reputational damage the damage to a business's brand customer relationships goodwill it all it could also be the risk that things happen that threaten the achievement of key business objectives and of course the other side of risk is that it's just the flip side of not being as successful as you want to be a hopeful outcome for example a new product launch just just doesn't happen in the way that you hoped it would that's what we mean by risk and of course businesses deal with risk in in a variety of ways one of one of one way of course is simply to ignore it and to wait and see what actually happens there are other things you can do however rather than ignoring risk you can try and minimize the impact of risk so for example taking out insurance is a classic example of of risk management and contingency plans are part of those processes of risk management another way of dealing with risk is to embrace it and say well bring it on let's see whether we can handle threats and risks in our sector in our industry better than competitors you don't have to look far in business to see examples particularly within the functional areas of how businesses handle risks on a day-to-day basis for example let's pick a couple out here a spare capacity you may have covered that i'm sure you have covered it in capacity management so one reason why you would not operate at a hundred percent capacity utilization is that you want to have some spare capacity to handle maybe an increase in demand that's a good example of risk management similarly when you're looking at investment appraisal the process of evaluating and analyzing the likely returns of some possible investment projects perhaps using payback or net present value that's a good example of of the ways in which finance can help manage and assess risk and let's take one more uh marketing so before you launch a new product on the wider market you might test market it in a certain location or area to see what the customer response is perhaps supported by additional market research so every day businesses are managing their risks with contingency planning however it tends to be about the bigger risks where things go wrong that it the impact is potentially significant to the business and therefore if those risks are significant it's important to identify them to have a plan for how you'll deal with them if they happen so therefore contingency planning is about preparation it's about identifying the likely quantifiable ideally problems that may arise the potentially significant but unexpected and certainly unwelcome events that you need to plan for and the aim of contingency planning is to focus on the big risks and to plan for how the business will respond perhaps it may be responding to a crisis or responding to a change in the external environment such that the business isn't significantly damaged by those risks there we go we've outlined what contingency planning is let's just give you a few examples to hopefully put that into context lots of examples out there of where businesses perhaps fell short with their contingency planning and perhaps also their crisis management two great examples from the from the automotive industry uh toyota have had a a significant history of of major product recalls and one problem in particular that related to the accelerator pedals on cars sold in the us has led to very substantial costs and fines and damages not just financial but also reputational damage for toyota in the us similarly volkswagen of course i'm sure you recall the issue that arose in 2015 with uh the apparently deliberate manipulation of software that enabled vw engines to pass emissions tests when in fact uh they were they were not uh emitting or they were emitting uh gases that uh that would simply not have passed those tests under any normal circumstance and one of course very close to home that happened a few years ago was the famous horse meat scandal when we discovered that a large proportion of of processed meat products sold by uk supermarkets uh contained uh some and so in some cases a lot of horse meat uh which came as a bit of a shock uh to those of us who are big fans of those types of products another example of an industry where contingency planning is absolutely vital is the travel industry so we know that the external environment there for travel industry travel operators in particular tour operators is is is is always a source of risk in particular now of course with the the geopolitical implications of of the increasing incidence of terror so businesses like thompson and thomas cook have to have very strong contingency planning in place to deal with the crises that emerge when terrorist incidents impact on their holiday makers and of course thomas cook has been in the news a lot over the last few years in particular in response uh to its uh its failed response to the to the death of uh two young children and one that's one of its results in corfu a great example of really poor crisis management by that business a couple more for you to have think about um i think perhaps the best example currently about the need for contingency planning is the whole issue about whether the uk uh should or is about to leave the european union the so-called brexit debate and of course we've got a referendum in the uk in june on that some recent surveys suggested that very few large businesses have actively completed their contingency plans for what may happen to them in the event of brexit and of course the whole issue around data security and the impact of increasingly significant breaches of personal data uh where that where we entrust businesses to look after our data for us the example on the screen there being the recent cyber attack on the talk talk database so contingency planning therefore is an important part of how businesses manage risk i guess a couple of points to to to reflect on if you're answering a question uh in relation to contingency planning the first is to make the point that businesses can't handle and plan for every eventuality so it's important to identify the risks that are likely to be significant to the business and try to this try to assess their probability and the likely impact for example the likely damage or cost on the flip side businesses simply cannot ignore major risks and as they become more significant in particular to larger businesses the importance of contingency planning for the board of directors i think is is rising there we go that's an introduction hopefully useful to you on what's meant by contingency planning with a few examples to help put it into context