Managing key person risk
Key person risk is the disruption and uncertainty that can happen when an essential team member, at any level, is suddenly unable to work. In a small team, this can be particularly dangerous, as individuals hold distinct areas of responsibility, processes aren’t written down or recorded anywhere and whole areas of the business can stop when they don’t arrive.
Managing key person risk should be an integral part of the planning strategy for any business.
To manage key person risk effectively, business owners need to make a conscious effort to mitigate the potential fallout.
Where to start…
1. Sharing information and knowledge
This is the most important factor!
You must have an element of cover to reduce the risk. Start by identifying the key processes and information that must happen on a day to day basis, and get those processes documented, or at the very least ensure that someone else knows they need to happen and how. There are systems that can help you do this, from Sweetprocess to Scribe, or just ask everyone to record a video on their phone of their key tasks and store those in a central ‘hub’ that everyone can access (securely!) should the need arise.
2. Succession planning
If you can identify and nurture potential successors before an unexpected resignation or prolonged absence, you’re more likely to achieve a seamless transition, with much lower stress levels.
3. Empower your team
Another prudent approach involves empowering your team to make decisions and take on differing responsibilities. In the same way that a hierarchical structure creates ‘bottle-necks’, too much reliance on individuals increases key person risk. Spreading authority among the team distributes the burden and safeguards against potential vulnerabilities, but also makes team members feel more valued themselves.
Other things to consider:
- There are a range of insurance solutions available to cover your business from the impact of key person risk. Key person insurance can provide financial support where a vital team member is incapacitated or unable to work.
- Creating a business continuity plan can also help minimise the impact of losing a key person by considering and addressing the main risk factors, which will vary by business, ahead of time. This can be a fairly complex process and becomes increasingly so as a business grows. The steps outlined above provide a starting point, but this is an area to return to regularly over time, as a business, and team, change and evolve.
- Finally, think about ways to improve the retention of your team within the business. A strong culture can help hugely here, and steps such as the implementation of an EMI scheme can ‘tie’ your team closely to your business too.
If you’ve read this and feel that your business might be exposed, spend some time thinking about the steps that you can take to reduce the risk over time. This isn’t a quick win. but you can improve things fairly quickly. Speak to your HR advisor about culture, contracts and retention, and if we can help in any way, please get in touch. We’re here to help!
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