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Contingency planning: risk assessment and mitigation

Edexcel IAL Business · WBS13 Business decisions and strategy

Some changes are unplanned and sudden: a flood, a cyber attack, the loss of a key manager. Contingency planning means preparing for such events in advance so that the business can keep operating and recover quickly.

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Risk assessment

Risk assessment identifies what could go wrong, how likely it is and how serious the impact would be, so that resources go to the biggest risks. The specification names three types:

Natural disasters: floods, earthquakes, storms, wildfires, pandemics; damage to premises, supply chains and staff.
IT systems failure: hardware failure, software errors, power cuts, cyber attacks and data breaches; can stop sales, production and payments and damage trust.
Loss of key staff: death, illness or resignation of a founder, director or specialist; loss of knowledge, contacts and leadership.

A simple risk matrix scores each risk for likelihood and impact; high-likelihood, high-impact risks are tackled first.

Business continuity

Business continuity planning sets out how the business will keep its essential functions running during and after a crisis:

backup premises, equipment and suppliers;
data backups held off-site or in the cloud, and tested recovery procedures;
insurance;
clear roles and communication plans for staff, customers and the media;
regular testing and updating of the plan.

Succession planning

Succession planning identifies and develops people who can take over key roles when the current holder leaves, through training, mentoring and job rotation. It provides continuity and keeps the culture, reassures investors and motivates ambitious staff. Limits: chosen successors may leave or may not want the role; insiders may be too similar to their predecessor when fresh thinking is needed. In the January 2020 WBS13 paper, Question 3 was a 20-mark question on the value of succession planning at a large e-commerce group whose founder stepped down as chairman.

Costs and benefits

Contingency planning costs money and management time for events that may never happen, and plans can never cover every scenario. But it reduces the scale of losses, speeds recovery, protects reputation and can be required by insurers and large customers. Its value depends on how likely and how damaging the risks are for this business.

Worked example

A small online retailer stores all its orders and customer data on one office server. Recommend two contingency measures.

Risk: IT systems failure (server breakdown, fire, cyber attack) would stop all sales.
Measure 1: automatic daily backups to a cloud service, with a tested recovery procedure, so trading can resume quickly.
Measure 2: cyber security software, staff training on phishing, and insurance against cyber incidents.
Both are cheap relative to the cost of lost sales and reputation.

Answer: Off-site backups with a recovery plan, plus cyber security and insurance.

Key idea: Risk assessment: identify likelihood and impact of natural disasters, IT failure and loss of key staff. Mitigation: business continuity plans and succession planning. Plans cost money but limit damage and speed recovery.

Check yourself

A cyber attack shuts down a retailer's website. This is an example of which risk named in the specification?
- IT systems failure
- Loss of key staff
- Natural disaster
- Overtrading
Show answer
IT systems failure. Cyber attacks cause IT systems failure.
Succession planning is designed to reduce the risk of
- natural disasters damaging premises
- a fall in the gross profit margin
- losing key staff without anyone ready to replace them
- a hostile takeover
Show answer
losing key staff without anyone ready to replace them. It prepares successors for key roles.
Which is part of a business continuity plan?
- Arranging backup premises and suppliers in case the main site is unusable
- Setting next year's sales target
- Designing a new logo
- Calculating the payback period
Show answer
Arranging backup premises and suppliers in case the main site is unusable. Continuity plans keep essential functions running.
In a risk assessment, which risks should usually be dealt with first?
- Those with a low likelihood and a low impact
- Those that are cheapest to insure
- Those that affected competitors last year
- Those with a high likelihood and a high impact
Show answer
Those with a high likelihood and a high impact. Focus resources where the expected damage is greatest.
Which is a drawback of contingency planning?
- It makes recovery slower
- It uses money and time for events that may never happen
- It increases the impact of a disaster
- It is banned by insurers
Show answer
It uses money and time for events that may never happen. The cost is certain; the event is not.
Explain one benefit to a business of succession planning.
Show answer
It ensures someone trained is ready to take over a key role if a leader leaves, so the business keeps continuity in its decisions and culture and investors stay confident.. Successor ready, then a benefit.

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Last updated 8 November 2026. Spotted a mistake? Tell us.