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Risk management in Human Capital

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Risk management in Human Capital

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“Business people need to understand the psychology of risk more than the mathematics of risk.”
― Paul Gibbons, The Science of Successful Organizational Change: How Leaders Set Strategy, Change Behavior, and Create an Agile Culture

“Business people need to understand the psychology of risk more than the mathematics of risk.”
― Paul Gibbons, The Science of Successful Organizational Change: How Leaders Set Strategy, Change Behavior, and Create an Agile Culture

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Risk management in Human Capital

  1. 1. Risk Management in HR www.humanikaconsulting.com Management HUMAN CAPITAL:
  2. 2. Seta A. Wicaksana 0811 19 53 43 wicaksana@humanikaconsulting.com • Managing Director of Humanika Amanah Indonesia – Humanika Consulting • Managing Director of Humanika Bisnis Digital – hipotest.com • Ahli Senior di Komite Kebijakan Pengelolaan Kinerja Organisasi dan SDM (KPKOS) Dewan Pengawas BPJS Ketenagakerjaan • Lecturer Fakultas Psikologi Universitas Pancasila • Pembina Yayasan Humanika Edukasi Indonesia • Book writter: “SOBAT WAY: Mengubah Potensi menjadi kompetensi” Elexmedia Gramedia 2016, Industri dan Organisasi: Pendekatan Integratif menghadapi perubahan, DD Publishing, 2020 • Organizational Development Expertise • International Certificate of HR As A Business Partner • Doctoral Candidate in Economics, Fakultas Ilmu Ekonomi dan Bisnis Universitas Pancasila in HRM. • Fakultas Psikologi S1 dan S2 Universitas Indonesia • Mathematics: Cryptology sekolah ikatan dinas Akademi Sandi Negara
  3. 3. Introduction ➢ There is a ruthless and increasing competition in all economic sectors. ➢ Quality became important for competitiveness, specially in the service firms. ➢ Quality is a fundamental factor in increasing the competitiveness and realizing the goals and performances of firms operating in the service industries.
  4. 4. Why Do we Study HC Risks? ➢In the last decade, RM has emerged and progressed rapidly in business management field. ➢The scholars were focusing on identifying a missing link in RM field, which is the human link. ➢This is why the scholars study the role of human in the organizational risk issues – HC Risks.
  5. 5. Human Capital “The uncertainty arising from changes in a wide range of workforce and people management issues that affect a company’s ability to meet its strategic and operating objectives” Young & Hexter, 2011
  6. 6. Negative Outcomes of HC Risks • Lack of suitable HR risk management, in addition to other factors in business, leads to poor governance, poor service quality and poor competitiveness of organizations. • HR risks can threaten a project and part or whole of an organization, • Failure to manage HR risks may threaten the sustainability of organizations. • Therefore, people are key for attaining organisations’ objectives and goals.
  7. 7. 4HC RISKS (Ernst & Young, 2008)
  8. 8. HC Strategic Risks Definition : People -related issues that limit the ability to achieve strategic objectives • Key Sub -Areas : • Talent Management and Succession Planning • Ethics and Tone at the Top • Alignment of Pay and Performance
  9. 9. HC Operational Risks Definition: – Meeting organizational objectives through effective/efficient use of human resources • Key Sub-Areas: • Internal controls • Policies and procedures • Vendor management and sourcing • Employee training and development
  10. 10. HR Compliance Risks Definition: Processes/controls to keep a company out of trouble. Note: reducing these risks has little bearing on being able to “make the business better. ” • Key Sub -Areas : • Regulatory compliance • Fraud • Monitoring regulatory changes
  11. 11. HR Financial Risks • Definition: Global organizations view this, along with compliance, as the most traditional categories of risk • Key Sub -Areas : • Equity/incentive compensation • Financial accounting and disclosure • HR performance metrics and cost management
  12. 12. 5 basic principles organizations should follow • Hiring the Right Talent • Proper Education and Training • Create an Employee Handbook and Update it Regularly • Conducting Scheduled HR Compliance Audits • Communicate, Communicate and Communicate
  13. 13. Top 8 HC Risk Management 1. Workplace Culture 2. Workers Comp Injuries, Medical Costs, and Lost Productivity 3. Employment-related Lawsuits 4. Employee Benefits Liability 5. Network & Data Security Risks 6. Theft & Embezzlement 7. Training & Competency 8. Turnover
  14. 14. Workplace Culture • The team culture that unites everyone in the organization to achieve the desired goals of the organization’s leadership. • The second culture is one of safety and risk management. •Employee Unrest – caused by either the perception of unfair treatment or concern over the direction of the organization. Impact: higher employee turnover, decreased morale, decreased productivity, and a drag on overall growth. •Lack of Leadership – most organizational failures relate back to a breakdown in leadership. This is never more apparent than cultural failures. Leadership needs to buy in and practice what they preach in both of these areas. ‘Do as I say and not as I do’ is a recipe for disaster here. •Uncontrollable circumstances – these can run the gamut from catastrophic weather to economic crisis. In these situations, a strong culture can save the organization. However, it is exceedingly rare that a lackluster culture is improved by an external crisis. Typically, even average organizational cultures fail during chaotic circumstances.
  15. 15. 2. Workers Comp Injuries, Medical Costs, and Lost Productivity • Worker injuries can be prevented but you’re not going to be able to prevent all of them. • They do happen from time to time. Some of them may result from freak accidents but often, they result from an unsafe work space, improper procedure, or an outside influence (think hit by a reckless driver). Potential impacts to your organization may include: •Loss of productivity •Increased labor costs (Anyone able to work overtime?) •Decreased employee morale •Medical & Disability payments •Fines and Regulatory Penalties (Hi OSHA! Haven’t seen you in a while.) •Employee Turnover Expenses
  16. 16. 3. Employment- related Lawsuits • The kicker is it can be inadvertent just as much as it can be intentional. • organization needs processes in place to make certain that employees feel like their complaints and feedback are heard and taken seriously. Here are some effects: •One or several lawsuits that will cost you significant sums of money for legal defense, damages, and even the employee’s attorney fees in states that allow fee shifting. •Employee morale will plummet if the collective opinion is that the organization isn’t doing enough or nothing at all to protect them from discriminatory treatment or an unsafe work environment. •Decreased employee productivity and increased missed days – if you don’t feel safe where you work, you’re not going to have too many reservations about calling out ‘sick’. •Tarnished brand image – if it gets bad enough, a toxic work environment can lead to a negative opinion within the business community and pool of potential new hires. You might simultaneously find yourself unable to hire top talent and losing business out the back door based on this public image. In the present age of technology, this type of information spreads like wildfire and can be memorialized forever.
  17. 17. 4. Employee Benefits Liability Always keep in mind that how you administer your benefits program can open you up to risks related to who has access, how you inform them about their eligibility, support in enrolling, and what they are covered for (or receiving). Beware of these specific causes and effects: •Poor communication can result in employees or dependents misunderstanding which benefits they are eligible for, deadlines for eligibility, or extreme disappointment when employee expectations are not met…results in lower morale, higher employee turnover, and a potential lawsuit (legal expense and damages) •Program Design issues can be inadvertent or intentional; inadvertently excluding eligibility for an employee or group of employees or intentionally excluding eligibility when regulations or legal statutes are misunderstood or ignored…results in a very costly lawsuit (legal expense and damages) as well as potential regulatory fines.
  18. 18. 5. Network & Data Security Risks From opening suspicious emails to voluntary sending log-in credentials or financial information, your staff is on the front line of combatting intrusion or possibly opening the door, so a hacker can waltz right on in. The key here is training and awareness because the causes mostly relate back to improperly followed procedures. Potential costs: • Lost data • Network and business interruption • Lost revenue during down time • Costs to fix the damage or replace the data • Forensic audits • Regulatory fines & penalties
  19. 19. 6. Theft & Embezzlement • Theft is a very common and often difficult risk of loss to protect against. It seems like every year there is a story about a disgruntled or financially strapped employee that has pocketed a large sum of employer money. • The causes here vary but often it comes down to an employee who has fallen on hard times, has a behavioral issue (ie – gambling habit), or is disgruntled and wants to settle the score. • The ultimate losses here are any assets that are unrecoverable, the loss of an employee (sometimes they’re even really good at their job), and any public relations exposure associated with the event/s.
  20. 20. 7. Training & Competency • This risk really crosses every aspect of your organization’s daily operations. Training & Competency failures typically result from a poor or missing program that doesn’t set your employees up for success. • Causes here are usually apathy or unawareness of training deficiencies. The results are across the board from liability lawsuits brought by customers or outside third-parties, a hacking event, an employment liability claim, repeated workers comp injuries, and even all the awful effects of an employee death. • Most Risk Management Services programs focus heavily on training.
  21. 21. 8. Turnover • Turnover is a common theme in almost every aspect of HR Risk Management. The causes originate from everything above. The costs of unhealthy employee turnover rates can be crippling for an organization. • In fact, some studies show that a single lost employee results in expenses equal to a multiple of that employee’s yearly salary.
  22. 22. Prioritizing Risks (cont.) Impact Rank-order risks in terms of two key indicators: Likelihood -
  23. 23. Prioritizing Risks With respect to each potential risk: • Is it relevant to your organization? • Might it have a material impact on your organization? • If relevant and material, is it an enduring risk? • If relevant, material, and enduring, is it addressable? Lesson: Focus where it matters most!
  24. 24. Some Definitions • Uncertainty: The degree we are unsure about whether an outcome will occur and its consequences, good or bad. • Risk: An undesirable outcome and its consequences. • Opportunity: A desirable outcome and its consequences.
  25. 25. Alternatives for Dealing with Risk • Tolerate – no steps to address the risk • Eliminate it; the possible outcome is unacceptable • Minimize the likelihood of an outcome occurring and/or its potential impact as far as possible • Diversify the risk across a number of different areas • Concentrate all risks into one area or theme • Hedge – assume additional risks to be able to reduce exposure, should the risk in question arise • Transfer the risk to an external party, or purchase insurance Source: Lambert (2010)
  26. 26. Danger Don’t allow this perspective to dominate the way that leaders approach human resource strategy • Might miss important opportunities! • Taking advantage of opportunity = placing your organization in position to benefit from an uncertain future event
  27. 27. Keys Take Away • HC risks are present at every step of the hiring, retention, and daily operations processes. • Take a proactive approach and make sure that human resources planning is always top of mind. • If it isn’t, the consequences will sneak up on you and these issues have a habit of snowballing. So be safe, get out ahead of them. • And will lose the Talent.
  28. 28. Learning and Giving for Better Indonesia www.humanikaconsulting.com

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