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.
In simple terms, scenario planning is a “strategic planning method expressly developed to test the viability of alternative strategies," according to Mal Warwick's Fundraising When Money is Tight. Warwick suggests six steps for creating an effective scenario plan, starting with asking yourself, "What keeps you awake at night?" to draw out fundamental issues, and concluding with tests of your strategic choices using “what-if” reasoning.
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.
So, an organization might come up with three or four scenarios, both good and bad, and study the positive and negative outcomes and make real decisions about the future whether that's next week or years from now.
On the other hand, 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.
Scenario planning usually anticipates gradual change, such as a loss of revenue over time. Contingency planning is for a sudden, drastic turn of events.
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