Business 101: Principles of Management

Companies must plan for the expected and the unexpected. In this lesson, we will talk about the contingency school of management and how that thought process and viewpoint helps companies to prepare for both the expected and unexpected.

Always Be Prepared

I have to say, I was never a Boy Scout. I do not mean that I did a lot of bad or wrong things when I was younger (okay, I did some things when I was younger), but what I mean here is I was never an actual Boy Scout. I have a lot of respect for people who did become Boy Scouts, as they had to go through a lot of training and exercises to get badge after badge. And, while it might sound odd, the contingency school of management is a lot like the motto of the Boy Scouts, which is 'Always be prepared.'

Planning, organizing, leading and controlling must be tailored to the needs of the company.

What is the Contingency School of Management?

Companies or individuals that subscribe to the contingency school of management do so because they believe there is no one process, system or approach to running a business. The thought here is planning, organizing, leading and controlling must be tailored to the specific issues or circumstances a company might face or is facing. Some questions to ask in the very beginning by the management team might include:

• What is the correct thing for us to do in this situation?
• Should all departments have the same structure or should each be unique?
• Should all decisions be made at one location or all locations?
• What should incentives look like for our team?
  

  Companies had to develop contingencies after the housing market crisis.

Managers who subscribe to the contingency school of management believe that while you can have systems and theories in place to run your business, the right things to do depend on a complex variety of critical environmental and internal contingencies. There can be different structures and management philosophies in place unique to each department or business unit, but even they can go wrong down the road or need to change based on internal and external pressures or circumstances. Thus there will be plans and systems in place, and they can be the same or different for each department, but should a problem arise, those systems too should, and very likely will be, changed.

Look at it this way: Before the housing market crashed, companies were cruising along and doing good business. They had their plans and systems in place to run their business, then bam! The bottom fell out of the economy. They then had to develop contingencies to deal with that issue. So they could have believed in a contingency management approach that there is no one set way to run a business and then when the market changed, they had to develop contingency plans to deal with that change. That is where contingency planning comes in. Contingency planning is an approach that believes if you want to run a business effectively for any period of time, you must be prepared for emergencies or disruptions that relate to how your business runs. The goal or thought process is that you need to make sure that your company can still run or operate despite anything that might come up that could stop it from doing so.

Contingency planning is one area that can help individuals work through business emergencies.

While it has not been around for a long time in relation to other management theories, it is one of the most important aspects of management. Let's face it, things go wrong, and when they do, businesses have to have some sort of contingency plan in order to survive what went wrong. There are small issues like the power going out for a while and not having phones to large issues like all of your data crashing, and contingency planning is the one area that will help you work through these emergencies should they arise. Think of it this way: If you do not plan for things like this and they happen, you are in much deeper trouble, as you will not know how to react to what did.

Key Aspects of Contingency Management

There are several key elements or aspects of contingency management that we need to understand so we really can fully grasp its concept. The first component is business continuity planning. Business continuity planning is planning and enacting activities that either prevent problems from arising or allow for a plan should an anticipated risk actually occur. The preventing of problems from happening portion is a lot like the emergency brake in a car. You rarely if ever (hopefully) have to use it, but if you do it is there in case of an emergency, like your main brakes going out. Thus, it was planned for and is in place should a critical part of your company (in this case, your brakes) fail. I think we can all agree that would be a very serious issue, and car manufacturers have planned for that by including an emergency brake in the car.

There are several key aspects of contingency management.

The second portion or aspect is having a disaster recovery plan. A disaster recovery plan is the planned processes or procedures a company will take to recover from a disaster. When we say disaster, we mean something very serious such as your data center burning down. In this case, should something of this magnitude happen, there would be a plan in place to continue working while the issue was addressed as well as a plan to address the issue should it actually happen. It is something like an insurance policy and plan if something catastrophic happens to your business and you cannot continue to work until it's resolved.

Environmental Scanning

Companies do not just come up with issues or areas that might cause them to lose time or money and need some sort of contingency plan. Rather, they conduct what is called an environmental scan, or environmental scanning, to understand, for lack of a better word, what is out there. Environmental scanning is the careful monitoring of an organization's internal environments (aspects within the company's four walls) and external environments (aspects external to the company) to look for early signs of opportunities or threats. Those threats are the areas where contingency planning will come into play. Typically, when looking at the internal environment, companies look at several different areas:

• Human resources
• Manufacturing
• Finance
• Data networks

These areas will be reviewed, and any aspects that might cause the company to be negatively impacted - what to do if there is a strike, what to do if an important piece of machinery goes down - will be addressed. When looking at the external environment, companies look at:

• Technology
• Politics
• Competitors
• Economy
  

Environmental scanning involves monitoring for threats or opportunities in organizations.

Once again, if they see an issue that could arise - say, the election of a new president - they will address that possible issue with contingency planning.

Lesson Summary

As we discussed, the contingency school of management is a management approach that believes there is no one process, system or approach to running a business. Contingency management, or people that follow it, will develop contingency plans, which are plans to address any major or minor issues that could negatively impact the company. They will look at the internal and external environments, and once they understand the potential problems and the level of severity they have, they will develop business continuity plans, which contain planning and enacting activities that either prevent problems from arising or allow for a plan should an anticipated risk actually occur and a disaster recovery plan that has planned processes or procedures a company will take to recover from a disaster. Contingency management is just like the Boy Scouts. People and companies that follow it believe they should always be prepared.