Basic Trope: One character starts a plan that benefits them regardless of whether it succeeds or fails, either because of consolation prize or a hidden plan that is fulfilled by the foiling of the first.
Downplayed: If The Plan has five outcomes, the chancellor benefits from three.
Justified: The Chancellor is an experienced planner and expert at seeing the silver lining.
If the Dragon kills the Knight and the Princess, he will become powerful enough to break free of the Chancellor. If the Knight wins, he and the Princess will have enough evidence to expose the Chancellor. Either way, the Chancellor loses.
Reconstructed: The Dragon would be a mindless beast if not for the spell Chancellor uses to control it. If the knight breaks his control on the dragon, then it will become a mindless beast and cause more destruction than the Chancellor would and so he can frame the knight as the true villain.
Your return to Xanatos Gambit was always part of The Plan... If you don't, my victory will be even more crushing. Take your choice, but it's not like it matters at this point.