ADVISORY
By Steve Ford
Colorado, USA
The purpose of this paper is to provide a brief overview of contingency planning and how it fits into the overall scenario planning process. Furthermore, this paper will illuminate the significant steps of the scenario planning process and the importance of scenario planning in the modern marketplace.
Contingency Planning
Contingency planning is a component of risk management (PMI, 2017). The purpose of contingency planning is to proactively establish which project risks (both positive and negative) can be moderated against using various methods of mitigation. One form of contingency response is the strategic reserve. These reserves may take on several different forms. Schedule contingency, for example, is a duration estimate that accounts for possible schedule overruns and provides a time contingency. Budgetary contingency, such as a management reserve fund, protects against cost overruns by having a ready reserve of allocated funds available in the event a task or subroutine goes overbudget (PMI, 2017; Kerzner, 2018). Other contingency strategies include insurance tactics, hardware redundancies, software backup, alternate physical locations, legal strategies, human resource substitutions, and even comprehensive strategic alternatives regarding changes in the sociopolitical environment.
A contingency for a positive risk, such as a sudden and unexpected influx of resources, could be to initiate an internal effort to innovate or perhaps acquire additional human resources. In any case, all quantified risks are listed in the risk register. The risk register includes the action to take, resources required, decision-maker, risk owner, contingency plan, trigger conditions, contingency plan if the response fails, and residual and secondary risks that may trigger from the primary risk (PMI, 2017). Risk quantification and the risk register directly impact the decision-making matrix in that one can effectively categorize the level of decision-making authority needed to respond to the risk (PMI, 2017). Risk quantification is also used to establish cost and schedule contingency plans (PMI, 2017). For instance, a realized risk with high impact and high-resource mitigation may require a high-level authority to implement the corresponding mitigation strategy. In contrast, a risk with low impact and low-resource contingency utilization may only require low-level authority to implement a mitigation strategy (Kerzner, 2018).
Contingency Planning vs. Scenario Planning
Scenario planning is a strategic planning and risk management methodology to develop multiple, holistic, plausible scenarios for the future in order to gain insight and create strategic alternatives (Wilkinson & Kupers, 2013). Scenario planning was simultaneously developed by Herman Kahn (a member of the RAND corporation) in the United States and Gaston Berger in France in the 1950s (Wilkinson & Kupers, 2013). Scenario planning seemed to catch on and continued on a small scale until the 1970s when Shell oil publicly championed the process as part of its strategic planning and risk management operations. Immediately afterward, scenario planning came into vogue (Wilkinson & Kupers, 2013).
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How to cite this article: Ford, S. (2020). Contingency Planning vs. Scenario Planning, PM World Journal, Vol. IX, Issue VII, July. Available online at https://pmworldlibrary.net/wp-content/uploads/2020/07/pmwj95-Jul2020-Ford-contingency-vs-scenario-planning2.pdf
About the Author
Steve Ford
Colorado, USA
Steve Ford holds a BS from the US Air Force Academy (2004), an MS in Space Studies from the University of North Dakota (2009), and is currently in the Doctorate of Management- Project Management program at Colorado Technical University (2021). Steve is currently the managing member of Advanced Applied Project Management Solutions (LLC), a project management consultant firm. He holds numerous project management-related qualifications, including Project Management Professional (PMP), Lean Six Sigma Black Belt Professional, Project Management- Lean Process Certified, Lean Supply Chain Management Certified, and Lean Culture Certified. He has more than 18 years of aerospace and construction experience in project management. He can be contacted at steven.w.ford.jr@gmail.com.
To view other works by Steve Ford, visit his author showcase in the PM World Library at https://pmworldlibrary.net/authors/steve-ford/
