The term contingency management is the arrangement to safeguard some of the risk in a business project. It can be the same as the term risk management. The two terms are not necessarily synonymous with each other. But if you look at the meaning, they can be one and the same.
In any business, risks can be anticipated and managed to reduce the chances of occurrence of disaster that might damage the business. Business could face risks such as, loss of cash, employees and even assets. The two terms contingency management and risk management are the same in their overall context.
The whole purpose of both these management tools is to foresee the total cost of a given project in advance. This will prevent failure or irregularity from happening.
Companies plan their projects prior to their execution. They study and learn the underlying technologies, methods and practices of the business before they attempt to execute their projects. As a result, the companies minimize the risks of their products from getting defective.
The companies also make certain that their business will have a steady cash flow and keep enough business. The more organized and systematic the business is, the less the possibility that the company will fail. The companies also take certain measures to prevent complications from occurring, such as, preparing for contingencies.
The businesses consider the possible scenario of difficulties arising before it happens. It means that they try to determine if there is a likelihood of complications during the project. One of the approaches that is used is the idea of to-plan-to-manage. In this method, the stakeholders must be involved before the actual project is even started.
The participants must discuss and ensure that the plan is well-coordinated and fits the requirements of the stakeholders. During the planning phase, the stakeholders should be able to look into the implications of the project before implementation.
When the project is completely implemented, the strategies and decisions need to be updated. These changes are then made to the plan. If the company fails to adapt to change, they will face the same consequences in the future.
According to experts, the only risk that contingency management tools can take care of is the damage to the business. It doesn't necessarily mean that the business will end up broke but there will be reduced problems.
The other risk is when the company will never get its customers, as a result of bad delivery or poor service. For instance, a company might have taken a contract to deliver several freight containers or shipping containers but the truck transporting them is never used.
Contractors who failed to deliver to the agreed upon deadlines can cause the business to go into bankruptcy. On the other hand, the time the company takes to rectify the situation can be wasted.
Contingency management tools are really useful in averting such situations. For example, the payment period of a contract might be extended to avoid a lawsuit. The company also needs to make sure that it gives the best of its capabilities when an issue arises, so that it won't happen again.