Both contingency and scenario planning are structured ways for organizations to think about the future.

Although the terms sometimes are used interchangeably, contingency planning is a specific type of scenario planning. Scenario planning usually anticipates gradual change, such as a loss of revenue over time. Contingency planning is for a sudden, drastic turn of events.

Scenario Planning

In simple terms, an organization might come up with three or four future scenarios, both good and bad. By studying imagined positive and negative outcomes, it can make real decisions about the future--whether that's next week or years from now.

According to consulting giant Deloitte, which provides scenario-based consulting and training to all types of organizations:

Scenarios are stories about how the future might unfold for our organizations, our communities, and our world. Scenarios are not predictions. Rather, they are provocative, plausible, and data-rich 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, providing our organizations with different challenges and opportunities. The purpose of scenario planning is to stretch our thinking about emerging changes and the opportunities and threats that the future might hold.

The following six steps for creating an effective scenario plan are quoted from  Mal Warwick's Fundraising When Money is Tight:

• What is the question? What keeps you up at night?
• What don't you know? What are the strategic uncertainties (ex. how long a recession will last) about which you need more information?
• Gather the necessary information
• Explore broad trends (ex. social dynamics, economic forces, political issues, technological developments)
• Write stories to illustrate what the world will look like if the worst--or best--happens
• Test strategic choices. How will they play out in the context of the scenarios you've written?

Contingency Planning

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. Planning for a tornado strike or broken water pipe, or any other rare but organization threatening event may seem like an unnecessary use of an nonprofit's limited time, but it's like an insurance policy or an umbrella on a cloudy day.

Risk Management

According to Jesse Feiler in The Nonprofit Risk Book: Finding and Managing Risk in Nonprofits and NGOs, “[…] risk can be regarded as any issue that may cause an organization to lose sight of or divert from its mission, purpose, or daily operations. Risk can come from a single event or from multiple vulnerabilities interacting across some or all of an organization’s departments, divisions, or functions.”

For nonprofits, risk management may refer to assessing finances or insurance coverage, but it also may refer to screening volunteers, training employees and reducing liability, to name a few.

Developing a risk management plan is key to ensuring that your organization is not caught off guard by unforeseen events or oversights. Risk management may involve any of the following actions:

• purchasing Directors' and Officers' insurance for your board members
• implementing a volunteer screening process
• developing a disaster plan

To learn more about risk management, check out the staff-recommended resources list at the bottom of this page.

See also our related Knowledge Base articles:

• Where can I find emergency funding ideas for my nonprofit?
• How much should my nonprofit have in operating reserve?

A Call for Nonprofit Risk Management
Stanford Social Innovation Review

Nonprofit Insurance Coverage: You Need More Than a Directors and Officers Policy
Venable LLP

Public Entity Risk Institute