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Understanding People Risk: A Holistic Approach

November 2014

 

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!Risk management is an integral part of the business continuity plan. However, traditional risk management strategies tend to overlook a potentially significant liability: human capital risk – the risk associated with people and how they are managed. This aspect of business risk includes all the ways that employees’ performance and behavior can enhance or compromise the organization’s ability to execute its mission. Human capital risk management requires consideration of two areas: people factors and organizational factors. People factors comprise the ways that employees’ performance can be affected by their relations with others; by their personal well-being; and by their talent, broadly understood to include technical and non-technical competencies, as well as personal qualities such as attitudes, biases, beliefs, values, and work ethic. Each of these factors can influence the others. In some cases, the impact can be negative. For instance, if personal well-being is compromised by a lack of fulfillment at work, it can lead to negative moods and behavior that can hurt personal relations and, in turn, team performance. But people factors can also enhance one another. For instance, healthy human relations will promote organizational citizenship, enabling the organization to optimize talent.

The process of assessing and addressing human capital risk is complicated by the fact that people factors are interwoven with the larger fabric of the organization. The workforce can make or break the organization, and the organization can just as easily make or break the workforce. It’s no accident, then, that healthy companies take human capital risk management so seriously, integrating it into their daily life in a way that supports and uplifts employees. Such an approach both diminishes the likelihood of negative outcomes and can reap real benefits. Well-run organizations not only attract and retain the right people; they also motivate them to go above and beyond the call of

duty to accomplish organizational objectives and to uphold organizational values. If a strategy of human capital risk management is to accomplish such goals, it requires careful attention to the reciprocal relationship between people factors and organizational factors. These organizational factors can be understood as the policies, practices, and procedures that shape culture and influence behavior. Three key organizational factors are: Fairness: The sense that polices, practices, and procedures are just and applied equitably

Values: The principles that drive an organization (including the principles that inform strategic business decisions and decisions about how employees are managed and how customers/users are treated)

Work Itself: Design of job roles and the interdependencies among roles, workgroups, and departments within an organization These areas can overlap. For instance, the quality of an organization’s diversity initiatives will have an impact on both its values and the sense of fairness. But even if each type of organizational factor isn’t perfectly discrete, this categorization helps convey the variety of forms

Human capital risk can result in: Poor performance Project derailment Bullying Harassment Loss of talent Violence

Real-world businesses face diverse risks, and the contributing causes that produce each of those risks are equally diverse.  

 

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!that they can take. It is this variety that produces such a multitude of risks for business, since each organizational factor can compromise each people factor, and vice versa. A few thumbnail sketches will illustrate in more concrete detail how this influence can play out in a workplace. In the chart below, the blue rows provide examples of how each people factor can affect each organizational factor. The green rows illustrate the inverse relationship, providing examples of how each organizational factor can influence each people factor.

Organizational Factors Fairness Values Work Itself

When managers don’t have the knowledge/ training to conduct employee evaluations, performance may not be evaluated fairly.

Misaligned leadership can cause the organization to pursue initiatives outside its purview.

The wrong talent can spoil even the most well-designed work roles.

Talent When assessments are conducted inequitably, poor HR decisions can be made and high potentials can go untapped.

When values aren’t in tune with mission objectives, the dissonance can drive off the very kind employees the organization needs to retain.

Overly demanding work schedules can erode talent.

A negative state of mind can reduce employees’ perception of fairness.

When employees feel exhausted, it can interfere with their ability to uphold organizational values, which might include cheerful customer service.

When a team leader is distracted by personal issues, it can lead to miscommunication within the team and across the organization. Personal

Well-being When rules aren’t enforced fairly, it creates a sense of insecurity, elevating employees’ stress levels.

When organizational values don’t resonate with employees, it can dispirit employees and diminish morale.

When work is incorrectly designed, employees may not find meaning and fulfillment in their roles.

Poor relations between a manager and employee can affect perceived fairness.

When relationships are weak, it can impede communication, increasing the likelihood that values will not be expressed consistently across the organization.

Lack of camaraderie can make even the most well-designed jobs difficult.

People

Factors

Human Relations

Discrimination can foster distrust, making conflicts more likely to occur and diminishing morale.

When an organization doesn’t live up to its values, interpersonal relationships can suffer.

Flawed work design can inhibit sharing of information, thwarting collaboration.

Legend People factors affect organizational factors Organizational factors affect people factors In practice, these factors manifest themselves in much more complicated combinations, necessitating integrated solutions in order to reduce business risk. Consider an organization in which employees are making allegations of harassment. The presenting problems may be a few individuals’ offensive behavior, the relationships it damages, and the legal liabilities it creates; however, the root causes can be far more complex. For instance, employees may be more likely to antagonize others when stress affects their personal wellbeing. Flawed work design can

 

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!exacerbate this stress when it produces needless workplace friction, perhaps as a result of poorly defined work roles. Other organizational factors can make their own negative contribution to the situation. For example, if leaders don’t consistently communicate the values of respect and civility, or if their own behavior contradicts these values, they can promote the kind of permissive or discriminatory culture that allows harassment to occur. A lack of fairness (whether real or perceived) also may be a contributing factor. If complaints of harassment are ignored (for instance, because managers are uncomfortable giving negative feedback) then offenders may be emboldened to escalate their problematic behavior. Recruiting practices can further increase the likelihood of harassment. If the organization is using employment-interviewing techniques that don’t weed out candidates with a past history of negative behavior, it can taint the organization’s talent pool and increase the chances of employee misconduct. A situation like this requires an array of complementary interventions that together provide a holistic solution. These interventions can include not only harassment prevention training but also:

• Audit of policies, procedures, and practices to ensure their alignment with mission & values

• Review of obstacles to standardization of policy (which might include practices used to hire, promote, and develop employees)

• Clarification of roles and responsibilities

• Leadership coaching to ensure that executive behavior supports the organization

• Construction of authentic performance management programs

• Education for management on how to address risks as they emerge

• Promotion of wellness resources such as EAP and Work/Life support services (e.g., to reduce stress)

• Training & Development to cultivate high-performance teams that can resolve conflicts in a healthy manner (e.g., before it escalates in the form of harassment)

Any one of these interventions will contribute to the organization’s recovery. However, they offer a comprehensive solution when implemented together. Our hypothetical organization dramatizes just one way that risk can manifest itself. Real-world businesses face diverse risks, and the contributing causes that produce each of those risks are equally diverse. This host of potential liabilities can be so daunting as to confound business leaders with uncertainty. An individualized needs assessment can provide the needed clarity. Armed with the findings of such an assessment, a customized and comprehensive risk-mitigating strategy can be developed, allowing the organization to confront the future with confidence.

Successful human capital risk management requires careful attention to the reciprocal relationship between people factors and

organizational factors.