What are Contingencies?

A contingency is a future event or circumstance that is possible but cannot be predicted with certainty. Contingencies are a potential negative event which may occur in the future such as a natural disaster, fraudulent activity such as financial crime or a terrorist attack. In finance, managers often attempt to identify and plan for any contingencies that they feel may occur with any significant likelihood. To mitigate risk, financial managers often err on the conservative side, assuming slightly worse-than-expected outcomes, and arranging a company’s affairs so that it can weather negative outcomes with the least distress possible.