Defination• Contingency theory is a class of behavioral theory that claims that there is no best way to organize a corporation, to lead a company, or to make decisions.
Contingency management• Contingency management leads to preparedness in the event of an emergency, disaster, or system failure• It utilizes risk assessment and is intended to identify vulnerabilities and threats, and to implement countermeasures to prevent an incident or limit its impact should it occur.• Planning for operational continuity and disaster recovery are key components of contingency management.
Purpose of contingency management• Some business resources and functions are critical to an organization’s success and continued operations.• Therefore, it is essential that an organizations processes operate effectively without excessive interruption.• Contingency management supports this objective through the creation of plans, procedures and technical measures that can enable the efficient recovery of business operations following a business disruption or disaster.
Vulnerability• The identification of vulnerabilities is a vital step in contingency planning and the implementation of countermeasures that prevent an incident or limit its impact if it does occur.• A vulnerability is a weakness in a business system, a security procedure or internal controls, which can be exploited by a threat source.• Some vulnerabilities can be eliminated or minimized through operational or technical solutions specified in a contingency plan. However, it is not possible to eliminate all risks.
Threat• Contingency management requires the identification of threats.• A threat may take the form of a natural event such as a flood, tornado, earthquake or hurricane, or it may assume a technical or man- made form that may be radiological, chemical, biological, mechanical or electrical in nature.• A threat may also be an intentional act such as an act of terrorism, a demonstration, a bomb, assault, theft or a computer incident.
Contingency Planning• Contingency planning identifies interim measures to respond to threats and recover from a business or system disruption.• Such measures may involve the relocation of operations and IT systems to an alternate site; the recovery of functions using alternate equipment and personnel; or the reliance on manual rather than technical methods to perform critical functions.• Contingency planning requires the creation of plans and procedures and the identification and implementation of technical measures that will enable the recovery of business processes, IT systems and data following a business disruption.
Factors affecting contingency• A small business can be negatively impacted by all sorts of changes or events, from natural disasters to entrance of new competitors into a market.• A contingency plan is a document that outlines how a business will respond to such emergencies if they happen to occur. Contingency planning is the process of creating a contingency plan.
Goals• One of the primary factors that influences contingency planning are the goals of the business owner or owners.• The way business owners choose to respond to different contingencies will reflect their ultimate goal for the business.• For example, a business owner might have the goal of selling his company in the future, so he might outline the circumstances under which he will sell the business or how he will respond to purchase offers in a contingency plan
Government Regulations• Government regulations can have a large impact on businesses, and a contingency plan might include instructions for how the company should deal with changing regulations.• For example, if the government increases taxes on certain types of business operations, it could reduce the profitability of those operations, prompting a business to shift its focus toward more profitable activities.
Profitability• A business owner might decide to pursue different courses of actions in response to certain contingencies based on the profitability of the company.• For example, a business owner might be more willing to sell his company if turns out not to be as profitable as he planned. Business owners might also plan to shut down a business in the future if it fails to make a profit within a certain time frame.
Considerations• The amount of time spent on brainstorming possible contingencies and how to deal with them can influence the thoroughness of contingency planning.• If managers spend an inadequate amount of time planning for contingencies or thinking about the possible responses to contingencies, they might fail to plan for certain events or choose the best way to respond to contingencies.• Companies not prepared to deal with contingencies might be slower to respond to opportunities and threats.
• The optimal course of action is contingent (dependent) upon the internal and external situation• Contingency theory has sought to formulate broad generalizations about the formal structures that are typically associated with or best fit the use of different technologies
• Organizations are open systems that need careful management to satisfy and balance internal needs and to adapt to environmental circumstances• There is no one best way of organizing. The appropriate form depends on the kind of task or environment one is dealing with.• Management must be concerned, above all else, with achieving alignments and good fits• Different types or species of organizations are needed in different types of environments
• Fred Fiedler’s contingency model focused on a contingency model of leadership in organizations. This model contains the relationship between leadership style and the favorableness of the situation. Situational favorableness was described by Fiedler in terms of three empirically derived dimensions• The leader-member relationship, which is the most important variable in determining the situations favorableness• The degree of task structure, which is the second most important input into the favorableness of the situation• The leaders position power obtained through formal authority, which is the third most important dimension of the situation
Fiedler contingency model• stress is a key determinant of leader effectiveness• distinction is made between stress related to the leader’s superior, and stress related to subordinates or the situation itself• In stressful situations, leaders dwell on the stressful relations with others and cannot focus their intellectual abilities on the job
Fiedler contingency model(cont.)• intelligence is more effective and used more often in stress-free situations• that experience impairs performance in low- stress conditions but contributes to performance under high-stress conditions• altering or engineering the leadership situation to capitalize on the leader’s strengths
• William Richard Scott describes contingency theory in the following manner: "The best way to organize depends on the nature of the environment to which the organization must relate"