Firing Line: Contingency Planning Is Key

Secretary of the Treasury Timothy Geithner is heading the effort to identify financial institutions whose collapse would adversely impact the financial system.

The institutions, identified by the government as "Tier 1 financial holding companies," could encompass banks, insurers and possibly large hedge funds. Main Street could probably identify several obvious candidates: Bank of America(BAC Quote), Citigroup(C Quote), AIG(AIG Quote) and General Motors(GM Quote).

As we rush to regulate, we also need to look how we arrived at our current position in order to learn how to avoid a similar situation in the future.

Contingency planning is not a strong suit for most businesses, and the result can be nothing short of catastrophic. No matter what size company you are, you must plan for failure, or at least make a contingency plan for adverse conditions that could adversely impact your business.

When I was a fighter pilot, I spent the last step of every plan or brief covering contingencies. The question was always: What could go wrong during the mission that we can think about now? Before we ever got close to executing the mission, we would "what if " our plan backwards and forwards. What if the flight lead gets shot down? Who takes over? What if we encounter more enemy aircraft than the intelligence reports predicted? What if the weather over the target is cloudy?

I do the same contingency planning with companies I advise as a consultant. What if our competitor releases a similar product after our rollout? What if our tech group cannot fully support our project? What if oil prices rise 20%? What if we lose our top salesperson? I run teams through a timed business breakout exercise, similar to a war game.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting