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Many organizations will continue to struggle with risk because they lack the sophistication to break it down in terms of the different actions available to them. Robert McKellar’s description of ‘near term’ and ‘contingency’ risk aptly illustrates the point.

Near-term risk management plans generally focus on avoidance, prevention, and damage limitation through preparation for effective responses to a manifested risk. Such plans are implemented through on-going programmes designed to maintain an appropriate level of preparedness at all times, with our level of preparedness defined by the severity of a risk.

A contingency plan on the other hand, is so called because its implementation is contingent on something happening in the future. In our context, a contingency plan aligns our posture with the emergence of a given scenario. For example, at the project level, a plausible negative three- to five-year scenario might be a ‘melt down’ of the operating environment: an intermittent civil conflict might blow up or spread to other sub-regions; there might be a dramatic increase in terrorism; and so on. One contingency plan to address this might be exit from the country. Just because we might have to exit, it does not mean that we start doing so now. But we can increase our preparation for exit in line with the emergence of the ‘melt down’ scenario, as identified by monitoring our warnings and indicators.

The ideal contingency plan would enable us to invest just enough in terms of preparation to stay ahead of events without wasting resources in over-preparation, and would have ‘back down’ points built into it so that a return to normal operations remains an option for as long as possible. In the exit strategy example, if the ‘melt down’ scenario became active, we might evacuate non-essential staff and equipment, and limit the movement of personnel still on the ground. We might test our emergency evacuation plans to ensure that we are really ready for the emergent stage if it comes. But we do not over-commit by closing down our operation and leaving, and we can easily restore full operations if the situation improves.

Both near-term and contingency plans result in specific implementation initiatives. With near-term risk management, these are on-going programmes which are built into day-to-day operations, while with contingency plans they are more likely to be intermittent reviews followed by discrete projects aimed at adjusting our preparation for a negative future.

Source: A Short Guide to Political Risk, Robert McKellar, Gower Publishing, Farnham, 2010.

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