Risk Management: Critical Component Of Human Resource Management



Effectively managing risk is a critical part of management. Recent disastrous events experienced by private and public sector organizations illustrates the impact unexpected occurrences caused by workforce failures can have on populations, the environment and the economy. Water utilities make people sick; nuclear power plants threaten entire communities; manufacturers produce defective products that can harm users… all impact operational effectiveness and create potential legal liabilities. And organizations that expose themselves to legal liability can destroy shareholder value and even fail to survive.

The importance of managing risk must be an organizational priority. Employees must be competent and must focus attention and resources on strategies that minimize risks. Risk management includes evaluating what can happen, what is happening and what has happened. Environmental scanning, scenario-based planning and data analysis are all tools for anticipating future events. Policies, procedures and protocols can guide actions when event are occurring. And “after action reviews” can provide information that can inform management as to what has worked and what has not worked in the past.

But when organizations think of risk management they often limit their perspective to operational issues, forgetting that operational failures are most often caused by people making poor decisions or decisions they are not qualified to make. Poor selection and training can result in the organization being in the hands of people not equipped to be effective. And as the technology used and the operational demands change a failure to invest in retraining can result in a workforce that does not fit the current context.

Workforce planning has received far less attention by those responsible for risk management than it should in many organizations. This is generally due to a lack of recognizing that not doing workforce planning can create exposure to liabilities and operational crises (see earlier posts).  If events truly are unpredictable it is difficult to plan effectively for them. But the use of scenario-based planning makes it possible to formulate visions of possible futures that create pessimistic, optimistic and most likely scenarios.  Strategies for coping with multiple futures enable an organization to move to a higher state of readiness to cope with the future that manifests.

Workforce planning is also an effective tool for reducing the risks that an organization will not have the people with the required knowledge, skills and abilities necessary for effective functioning. There are those cynical about the value of planning (they love quotes like “rain dancing has no impact on the rainfall – it only makes the dancers feel better”). But justifying the investment of resources in workforce planning is somewhat like investing in education… you might think it expensive but try costing out the alternatives. The component steps in the workforce planning process illustrated are:

  1. Identify critical roles/occupations
  2. Determine the adequacy of the current workforce
  3. Identify gaps that exist today
  4. Project demand in 1, 2 and 5 years
  5. Identify gaps that will exist in the future if no action is taken
  6. Define sources of additional people and ways in which people will be lost
  7. Develop a strategy to close gaps and ensure future workforce viability.

Another concern is that today’s requirements may become less important in the future, replaced by new priorities. This mandates that planning be continuous and that staffing, development, performance management and rewards management strategies are continually updated to keep them aligned with current realities.

The Human Resource function must develop workforce management strategies and programs that get the right people (competent and committed) and develop them to ensure they are able to do what is needed. HR must develop strategies that effectively define, measure and reward performance in a manner that ensures employees focus on contributing to organizational effectiveness. Failure to recognize HR’s critical responsibility for risk management makes their world riskier.