Contingency Planning: Building a Better Mousetrap
Many executives have to dance around budget issues throughout the year, often in short-order. How many times does a macro-economic event occur that requires executives to reduce spending? This happens at least yearly at many firms. Some places call it “giveback.” Others call it “contingency.”
Whatever the name, people malign it and describe the process similarly to a root canal.
After a recent discussion on contingency, I thought of the stage gate process often used for product development. In that process, an organization defines 3 to 5 stages before launching or refreshing a product. At each stage, there’s an opportunity to continue, stop, or redefine.
So in budget planning, I think that perhaps a step-wise approach could be effective. For instance, in defining a budget for developing a mobile app, the budget set-up could follow something like (timeframe and costs are illustrative only):
- Step 1 – competitive assessment & define requirements
- timeframe: 3 months
- budget: $25,000
- Step 2 – build prototype
- timeframe: 3 months
- budget: $50,000
- Step 3 – test app
- timeframe: 1 month
- budget: $10,000
- Step 4 – launch with marketing support
- timerame: 2 months
- budget: $50,000
The owner starts the year asking for $110,000 and 9 months to complete this project. In this example, management has three clear places to reconsider budget and if need be, stop.
There are numerous ways to do this, but it seems valuable to plan for “contingency” since this occurs frequently at many firms.