Human Resource Risk Management

The Importance of HR Risk Management

Navigating the world of work is becoming increasingly challenging, and there are many HR risks that organizations need to handle to stay compliant and thrive.

HR risk management highlights on analysing the risks that employees of an organization pose to the business. HR risk management addresses risks related to poor employee management, employees’ behaviour, or risks related to the certain ways that human resources use to hire and fire employees.

The Relation between Human Resources Management and Risk Management

In order for people to understand the relationship between HR management and risk management, they must first understand the role of HR. An effective Human Resources Department helps employees to accomplish career goals.

That being said, HR is responsible for staffing, employee motivation, employee training, and several other activities conducted with the intention to accomplish the vision and mission of the organization. An HR Department that fails to fulfil their responsibilities, makes the organization more vulnerable toward risks. In addition, the organization will not be able to take full advantage of its employees and their contribution. 

To successfully integrate HR risk management and HR management, the HR manager must possess and demonstrate capabilities regarding leadership, communication, evaluation, training, and so on. A close relationship of HR with risk management will result in a better and more effective risk management.

What is HR risk management?

Risk cannot be avoided in business. Risk management is anticipating and getting ready for potential downfalls to minimize consequences, assessing and dealing with the potential risks that come with having a workforce. These risks are connected to how you hire, retain, and manage employees and other types of workers, as well as employee behaviour.

HR risk management is about contemplating likely scenarios and outcomes so you can minimize precarious situations, have adequate solutions in place, and even prevent problems from ever occurring.

There are four common risk management techniques that HR follows:

• Avoidance – Evading the actions that will generate or increase risk.
• Retention – Conceding the inevitability of particular risks because avoiding them poses more cost/risk than the loss.
• Loss prevention and reduction – Containing risks that can’t be eliminated and keeping losses to a minimum. 
• Transfer/Sharing – Shifting some or all of the risk to a third party.

How to apply these techniques will depend on the organization’s situation. It’s up to the organization to decide which of these methods makes the most sense for each risk area.

Image source : AIHR (Academy to Innovate HR)

What are the key HR risk areas?

Workforce risks

The complications of employing people pose challenges for any organization. Matters such as turnover, employee weariness, employee relations, workplace conflict and harassment, and lack of employee engagement all have the potential to negatively impact the company and prevent it from thriving. 

Modifications in the way people work bring new risk factors. An example is offering remote work setup. Employees may find this desirable, but a lack of in-person dialogue and connection can lead to feeling isolated and communication failures. This can decrease employee engagement and productivity. On the other hand, not offering this might lead to employees leaving for organizations that do.

Employee data management

Cyber security and data privacy are crucial responsibilities for every organization. Companies must manage employee data collection and storage safely and ethically, as well as have a privacy policy in place. Additionally, you must hold employees who handle sensitive customer data to high standards. Security breaches or misuse of personal information can leave companies vulnerable to lawsuits and brand damage. HR along with IT needs to ensure that the data is secure and used properly.

Compliance

Human Resources activities and policies need to be in line with many laws and regulations, often across states and countries. To stay on top of HR compliance, organizations must remain up-to-date on workplace safety and labour laws that continually change. This includes ensuring that all employee contracts are in agreement with applicable statutes and regulations.

Ethics

HR is vital in ensuring that organizations behave ethically regarding employees. Upholding ethical hiring and employment practices will help reduce the risk of employer – employee conflicts.

Learning & development

HR must make sure the company has the staff with the right proficiencies to achieve organizational goals. Employees also want to grow in their careers, and they look to widen their skills within the workplace.

While learning opportunities are based on organizational capabilities and competency needs, HR must also ensure that all employees have equal access to them. Limiting who can attend may seem unfair to those who are excluded.

Compensation & benefits

Fair pay and benefits should be maintained throughout the entire workforce. HR needs to balance how to provide competitive and fair compensation packages that are in line with the market and the company’s financial interests. They also need to ensure pay equity and inclusive employee benefits. Doing so will support compliance with regulatory requirements and help employees feel like they being treated fairly.

Mergers and acquisitions

There are many risks associated with the M&A process that include staffing and other HR matters, so HR professionals play a vital role. For instance, turnover is often a significant issue within leadership. Research shows that approximately 50 – 75 percent of key managers leave voluntarily within two to three years after a company has been acquired. When leaders depart too soon, it disrupts the M&A transition. Ideally, HR will help minimize turnover to reinforce success for the newly formed business.

How HR Managers Can Identify and Assess Risks in the Workplace

It is HR Manager’s responsibility to identify and assess any risks in the workplace. This can be a daunting task, but with the right tools and strategies, this can be made a lot easier. Here are some of the best ways to identify and assess risks in the workplace.

01. Look for patterns

One of the best ways to identify risks in the workplace is to look for patterns. If you notice that a certain department or team is consistently experiencing accidents or injuries, then there may be a problem that needs to be addressed. You can also look for patterns in employee behaviour. For example, if you notice that a lot of employees are complaining about back pain, then it may be time to bring in ergonomic chairs for everyone.

02. Conduct a risk assessment

Another way to identify risks in the workplace is to conduct an assessment of all employees. This can help you determine which areas have higher levels of risk than others and make adjustments accordingly. For example, if you notice that a lot of employees are working long hours, you may want to consider giving them some time off.

03. Use risk management tools

There are a number of different risk management tools that you can use to identify and assess risks in the workplace. These tools include checklists, matrices, and vulnerability assessments. By using these tools, you can get a better understanding of the risks that your workplace faces and come up with strategies to mitigate them.

04. Ask employees for feedback

One of the best ways to identify risks in the workplace is to ask employees for feedback. This can be done through surveys or interviews. By asking employees about their experiences and concerns, you can get a better understanding of what’s going on at work. This can help you make changes that will improve the workplace and reduce risks for everyone involved.

05. Talk to other HR managers

If you have questions about how to identify and assess risks in the workplace, then it may be time to talk with some other HR managers. They may have ideas that can help you out or point you in the right direction. If nothing else, they’ll have plenty of experience dealing with these kinds of issues and will be able to give advice based on what they know works (or doesn’t work).

06. Take a look at your competitors

Another great way to identify risks in the workplace is to take a look at your competitors. What are they doing that you’re not? What risks do they face that you don’t? By taking a look at what other businesses are doing, you can get some great ideas on how to improve your own workplace.

07. Use technology

Finally, another way to identify and assess risks in the workplace is by using technology. There are a number of different software programs that can help you identify risks and make changes accordingly. 

Conclusion

Why is HR risk management important?

Having an HR risk management plan puts you in a position to prevent or appropriately deal with problematic employee situations. It can protect the safety and well-being of both employees and the organization. As the business ecosystem remains volatile, HR has to keep up. HR risk management enables HR teams to proactively approach issues within their area of expertise and make sure that the organization can function smoothly and effectively.

Risks are a part of life, and that includes the workplace. By taking the time to identify and assess risks, you can make sure your workplace is as safe as possible. Mitigating these risks is also important, so make sure you have a plan in place for dealing with any issues that may arise.

Reference

Andrea Boatman, | n.d. 

https://www.aihr.com/blog/hr-risk-management/#Why 

Vesa Hyseni | The Importance of HR Risk Management | 2021

https://pecb.com/article/the-importance-of-hr-risk-management#:~:text=HR%20risk%20management%20focuses%20on,to%20hire%20and%20sack%20employees.

Florian Jung | Employee Turnover in the Context of Mergers | 2021.

https://www.grin.com/document/1152762