The loss of one key employee can cripple a small business. To protect yourself, draw up contingency plans for human resource risks such as death, disability, family leave or employees quitting. With a good plan, you can reduce uncertainty about your business’ future by reducing the risk of team failure.
Contingency plans have several components. The first part identifies your goals — to make it easier to replace departing personnel, for instance, or to reduce the chance of their leaving. The risk-assessment section lists potential human resource risks, then ranks the probability any given risk will occur and how severely it would affect your company. The business impact analysis looks at how losing a given employee will affect your operations, your finances and your ability to complete contracts. Finally, you will need to identify your strategies for dealing with the risks.
You can manage human resource risks by retaining, reducing, avoiding or transferring them. Reducing the probability of a key staffer leaving or mitigating the effects reduces the risk. You could, for example, pay her more or start training a replacement. To avoid risk, you avoid the activity that causes it. If your IT person says she’ll quit if you increase her workload, for instance, you avoid the risk by agreeing to her request. You retain the risk if you decide the probability of losing an employee is low and not worth the effort to prevent it.
Key person insurance transfers the risk of your key staffers leaving from you to your insurer. The policy protects against the death or disability of your key employees, the ones your company would collapse without, including yourself. You or your heirs can use the proceeds from the policy to keep the company running until you find a replacement or close down the operation, if necessary. “Entrepreneur” magazine recommends you take out as big a policy as you can afford.
If you live in an area at risk for tornadoes, hurricanes, fire or other disasters, your contingency plan should include those worst-case scenarios. A fire could wipe out your entire IT department, or a hurricane could leave your employees evacuated and scattered for weeks. Potential solutions include dispersing your IT department or similar critical functions to multiple locations, or cross-training employees so that if one department goes down, someone else can step in.