I implement understudies as much as possible, typically from our ensemble members. Generally the rest of the ensemble can cover the missing person if they need to go on.
We emphasize from the beginning that understudies are not guaranteed a performance, and that they are doing this as a way to help their castmates, to improve in their abilities, and to show they are ready to larger roles. It seems like every show at least one understudy has to go on at least once, whether in a dress rehearsal or performance. This year, our Prince in Cinderella was out sick for final dress, and we had to replace two actors in The Tempest - one fairly last minute due to grades. With all 3, it was an eye opening experience for us directors, seeing how those actors have grown and knowing that they are ready for a lead role.