Risk is an inevitable factor for every business. Risk comes in many shapes and sizes, and can come from many directions, both internally and externally. All organisations operate in an environment of economic uncertainty. Subjected to a wide range of internal and external influences, they are exposed to varying degrees of uncertainty and risk and this can directly affect their ability to achieve objectives. Hence it is important that all entities come into understanding that there is a critical need for organisations to identify, understand, prioritise and manage key risks with a pragmatic, integrated and coordinated approach.
What most organisations usually focus on is mainly the external risk uncertainties that arise due to unstable economic conditions. This is because there is a high tendency that such risks can tremendously affect the profit and growth of the company. Even though this point is extremely valid at any scenario, it is crucial that managers and decision makers understand the human impact towards risk.
The entire internal factors depend on Human Resources, their capabilities, knowledge and productivity. All activities in an organisation involve varying degrees of people interaction and risk. In fact, every activity an organisation engages in, every decision it makes or fails to make, involves people and carries an element of risk, as well as some opportunity.
In the long term there can be 2 main factors that can be identified as key elements for risk management, namely:
- An effective Enterprise-wide Risk Management (ERM) framework.
- HR management.
Traditionally, ERM frameworks does not give much priority towards the human resource aspect. Whereas Strategy, culture, morale, productivity and governance all have a significant human component and can all adversely affect an organisation’s performance and future. People are the biggest sources of risk and most risk exposures include a human element as their behaviour and actions that cause risk. At the same time, people are also critical in managing risk - it’s the people and their actions that mitigate risk.
Therefore it is clear that managing HR helps to mitigate risk up to a certain extent. The following can be few tips towards the merging of HR management and ERM:
- Align HR plans with the overall business strategy and risk framework.
- Ensure that organisational HR activities involve HR risk management.
- Clearly defining key roles, responsibilities and reporting persons regarding risk management throughout the organisation.
- Ensure that HR is taken into consideration by the Executive management who is responsible with designing, implementing and maintaining an effective risk management infrastructure.
- Identify techniques to mitigate HR risk and appropriate treatment plans.
- Develop an independent risk management system that follows common standards and focuses on the effectiveness of HR risk program as well.
A number of recognised organisations who have sound and robust risk management processes, have yet failed to recognise the gaps present in current HR practices, causing the entire system to fail. Hence it is important to strike a balance between the tw