Using Integrated Risk Management in Human Resources

By Jordan MacAvoy

November 18 2020 - Every modern organization operates in an environment of uncertainty. Tons of internal and external risks could affect your organization’s ability to attain its objectives. Typically, risks come in different forms, and they touch on all aspects of your organizational setup. They can arise at any time and from anywhere. Unfortunately, most organizations spend a lot of time and resources managing risks that arise from economic and commercial forces to the extent of forgetting about risks that relate to human resources.

The long-term success of any organization depends on how it manages its workforce. That also entails mitigating risks that result from having a workforce in the first place. Your organization’s culture, strategy, morale, and governance have a human element, thus the need to consider HR a critical component of your risk management strategy.

Although integrating HR and risk management sounds straightforward, many organizations with robust risk management strategies still fail to recognize gaps in their HR practices. Therefore, while undertaking risk management, you shouldn’t take your eyes off the HR ball because, in doing so, you’ll be missing out on your business objectives.

The HR-Risk Management Nexus

HR is an essential component of risk management because:

• Employees are the most significant source of risk since most risk exposures have a human element. Risk is caused by people, their behavior, and their actions.
• Employees play a critical role in managing risk. Their actions help mitigate risk, and if well-trained, they can be your first line of defense against risk.

A positive HR environment helps to reduce risk, besides increasing your organization’s ability to manage risks. Therefore, the significance of integrating risk management into human resource management cannot be understated. Here’s why HR and risk management are inter-connected:

• Wrong acquisition of employees could lead to positions getting filled by incompetent individuals. This not only results in poor performance but also drains your organization’s valuable executive time.
• Often, risks arise from deficiencies in employee’s abilities and skills. Therefore, improving employees’ performance also entails creating risk awareness. Aligning HR with your risk management strategy goes a long way in helping you to mitigate HR-related risks.
• An ineffective HR planning system can lead to errors in forecasting your organization’s demand and supplies. Risk management also entails predicting HR shortages, more so during the organization’s periods of growth. When such forecasts are made correctly, you’ll eliminate the risk of growth stagnation and meet your strategic objectives.

How to Align HR with Risk Management

You need to ensure that all your organization’s HR activities have an element of risk management. Your HR strategy should also be aligned with the organization’s risk framework and overall business strategy. A common risk management framework should be implemented throughout the organization, and relevant HR standards should support it.

It’s best to create a culture of risk management right from the time you bring new employees on board. Roles and responsibilities should be clearly defined, more so those that relate to risk management. This way, you will implement well-defined HR risk mitigation controls to respond appropriately to any risks that may emerge.

In many organizations, the HR department rarely gets involved in risk management. This task is often seen as a preserve of top management and the finance and IT department. However, the HR department should also be part of the team that designs, implements, and maintains your organization’s risk management framework.

Key Considerations to Keep in Mind

When integrating your risk management and HR strategies, there are some key considerations to keep in mind, including:

Your Workforce’s Tech Competence

Most risks that you’ll encounter result from technology use. Therefore, it’s best to ensure that employees understand the technologies you use at the workplace and their threats. Once they master the technology, you’ll have a capable workforce that can pinpoint and mitigate the risks you face.

Compliance Regulations

In recent years, multiple regulations have been implemented, mostly for data security purposes. As you educate your employees about risk, it’s equally important to create awareness about data security. Regulatory agencies are increasingly cracking down on the methods that organizations collect, store, and transmit data. Therefore, HR teams should be at the forefront of helping organizations mitigate risks relating to data compliance regulations.

Your Onboarding Strategies

Thanks to cutthroat competition in the labor market, many organizations are struggling to attract, recruit, and retain talented employees. It’s essential to align your onboarding strategy with your risk management strategy. This will enable you to bring onboard employees who meet your organization’s quality standards. It’s best to keep in mind that your workforce's quality determines your ability to handle risks.

In Summary

Risk is an inevitable element of organizational management. Since employees are your organization’s primary risk vector, it’s essential to use integrated risk management in human resources. Likewise, the role of the HR department in risk management shouldn’t be understated.

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