Key Person Risk Management
Document Type: Guide
Version: 1.0
Last Updated: February 2026
Distribute To: Owners, Executives, HR
Purpose
Identify and mitigate key person risk to protect business continuity and value.
What is Key Person Risk?
The potential impact on a business if a critical individual:
- Dies unexpectedly
- Becomes disabled
- Leaves voluntarily
- Is terminated
- Retires
Why It Matters in Construction:
| Factor | Impact |
|---|---|
| Client relationships | Often personal |
| Estimating knowledge | Learned over years |
| Operational expertise | Not easily documented |
| License/certification | May be individual |
| Banking/surety relationships | Trust-based |
| Employee loyalty | May follow key person |
Identifying Key Persons
Assessment Questions:
For each potential key person, ask:
- What would happen if they left tomorrow?
- How long to replace their capabilities?
- What relationships would be at risk?
- What knowledge would be lost?
- What certifications/licenses are involved?
Key Person Identification Matrix:
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KEY PERSON ASSESSMENT
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Name: _____________________________________________________
Role: _____________________________________________________
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IMPACT ASSESSMENT (1-5, 5 = highest risk):
Client relationships: ____
Institutional knowledge: ____
Technical expertise: ____
Leadership/management: ____
Licenses/certifications: ____
Banking/surety relationships: ____
Employee retention impact: ____
Revenue generation: ____
TOTAL SCORE: ____
Risk Level: ☐ High (30+) ☐ Medium (20-29) ☐ Low (under 20)
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REPLACEMENT DIFFICULTY:
Time to replace: ______ months
Internal candidates: ☐ Yes ☐ No
External availability: ☐ High ☐ Medium ☐ Low
Training required: ______ months
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CURRENT MITIGATION:
☐ Key person insurance
☐ Documented processes
☐ Cross-trained backup
☐ Retention agreement
☐ Succession identified
☐ Knowledge documented
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Common Key Person Roles
In Construction Companies:
| Role | Typical Risk |
|---|---|
| Owner/CEO | Everything |
| Lead estimator | Pricing accuracy, bid success |
| Top superintendent | Project execution |
| Controller/CFO | Financial management |
| Business developer | Revenue pipeline |
| Lead project manager | Major project success |
Mitigation Strategies
1. Key Person Insurance
Purpose:
- Provide cash for transition
- Cover revenue loss
- Fund recruiting/training
- Protect credit/bonding
Coverage Amount: Consider:
- 2-5× annual compensation
- Revenue they generate
- Recruiting/training costs
- Business disruption
Policy Types:
- Term life
- Permanent life
- Disability (income and buyout)
2. Documentation
Document:
- Processes and procedures
- Client relationships (CRM)
- Vendor relationships
- Institutional knowledge
- How-to guides
Goal: Capture knowledge before it walks out the door
3. Cross-Training
| Key Person | Backup(s) | Training Status |
|---|---|---|
For Each Key Person:
- Identify potential backup
- Create training plan
- Provide exposure opportunities
- Regular backup activities
4. Retention Strategies
Compensation:
- Competitive base
- Performance bonus
- Profit sharing
- Deferred compensation
- Phantom equity
Non-Financial:
- Career development
- Autonomy/authority
- Recognition
- Work environment
- Flexibility
5. Non-Compete Agreements
Elements:
- Reasonable scope
- Reasonable duration
- Geographic limitation
- Tied to consideration
Note: California has significant limitations
6. Retention Agreements
Components:
- Stay bonus (vesting schedule)
- Deferred compensation
- Golden handcuffs
- Change in control provisions
7. Succession Planning
For Each Key Person:
- Internal successor identified
- Development plan in place
- Timeline for readiness
- Transition plan documented
Key Person Risk Mitigation Plan
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KEY PERSON RISK MITIGATION PLAN
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Key Person: _______________________________________________
Risk Level: ☐ High ☐ Medium ☐ Low
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INSURANCE:
☐ Life insurance Amount: $____________ Carrier: __________
☐ Disability Amount: $____________ Carrier: __________
DOCUMENTATION:
☐ Role documented
☐ Processes written
☐ Relationships in CRM
☐ Knowledge captured
BACKUP/SUCCESSION:
Primary backup: _________________________________________
Development plan: ☐ In place ☐ Needed
Readiness timeline: ______________________________________
RETENTION:
☐ Competitive compensation review
☐ Retention agreement in place
☐ Non-compete (if applicable)
☐ Career development plan
RELATIONSHIP PROTECTION:
☐ Secondary relationships with clients
☐ Multiple contacts established
☐ Transition plan documented
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Review Date: ________________
Next Review: ________________
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Building Redundancy
Relationship Redundancy:
| Client/Relationship | Primary | Secondary |
|---|---|---|
| Major Client A | ||
| Bank | ||
| Surety |
Knowledge Redundancy:
| Knowledge Area | Expert | Backup | Documentation |
|---|---|---|---|
| Estimating | ☐ | ||
| Project Mgmt | ☐ | ||
| Financials | ☐ |
Monitoring Key Person Risk
Annual Review:
- Key persons still accurate?
- Risk levels changed?
- Insurance adequate?
- Backups developing?
- Retention effective?
- Documentation current?
Warning Signs:
- Decreased engagement
- Life changes
- Market demand for skills
- Competitor recruiting
- Dissatisfaction signals
Related Documents
- Succession Planning
- Buy-Sell Agreements
- Employee Retention
- Business Planning
Template provided by support.construction. Protect against key person dependency.