Toolkit for Building a Tiered Financial Contingency Plan

This toolkit will help business leaders formulate or update their financial contingency plans with tactics applicable during the COVID-19 crisis and beyond.

As the COVID-19 crisis evolves, colleges and universities are under acute pressure to realize savings and balance unprecedented budget shortfalls. However, a purely reactionary approach to financial challenges can leave institutions even more vulnerable. Amid immediate pressures, leaders may be tempted to prioritize tactics that can be implemented most quickly—not those that promise the most savings. Rather than reacting to tightening budgets with one-off labor cuts, leaders should create a contingency plan that proactively identifies and sequences savings opportunities based on potential financial scenarios.

A financial contingency plan has three basic elements. The first element is a metric to measure and project an institution’s financial health. The second element is defined thresholds or triggers that signal varying states of financial health. The third element consists of cost containment tactics triggered by each threshold to improve institutional finances.

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Basic elements to a contingency plan

Create tiers of action

The first critical step in creating a financial contingency plan is to identify potential cost containment tactics and organize them into separate tiers. The tiers specify which tactics the institution will pursue immediately and which it may pursue if financial conditions worsen.

Commonly, a plan includes three tiers. The first tier includes tactics to pursue immediately. The second tier includes tactics to implement if finances worsen. The final tier includes the emergency or “doomsday” tactics, if required.

Some institutions will prioritize tactics and build a contingency plan using only the framework from this resource. Others can use the Tactic Scoring Worksheet as a tool to narrow down a list of tactics. The worksheet is a calculator that can help institutions appropriately assign tactics to contingency plan tiers via a weighted scoring mechanism.

68%

Of institutions track projected revenue loss and/or incremental expenses vs. budget in their scenario planning

Set action triggers

Once institutions know which tactics they plan to implement in each scenario, they must determine when to execute them. To that end, the second critical piece of a financial contingency plan is selecting specific triggers for each tier of tactics.

Concrete triggers enable an institution to react and respond to worsening conditions quickly, without further debate or planning. An effective contingency plan should enable an institution to take action as soon as appropriate. Therefore, triggers must be based on leading, rather than lagging metrics.