Human resources (HR) departments used to focus solely on hiring, training, and managing employees. Today, however, human resource management has evolved to encompass risks posed by technology, social media, the gig economy, and other factors. HR professionals now need to have a comprehensive risk management strategy to help prevent, monitor, and mitigate risk.
An Introduction to Risk Management
HR teams engage in recruiting, conflict resolution, and other activities that introduce potential risks, such as abuse, property damage, and personal injury. To address these risks, HR teams go through a five-stage process that involves identifying and assessing risks, developing and implementing a response strategy, and monitoring ongoing risks.
Types of Risks in HR
Every time an HR team mails out checks or administers employee benefits, the organization is at risk of financial abuse. The hiring process also makes an organization vulnerable. This HR activity may lead to discriminatory practices and hiring unsafe or unsuitable candidates. Occupational health and safety activities can lead to environmental and personal injury or death risk if not handled properly.
Employee supervision, conduct monitoring, and dismissals can also lead to business risks, such as abuse, reputation damage, property damage, release of personal information, and compensation costs.
The Five Stages of Risk Management
The first stage in risk management is to identify the risk. HR teams must consider both general and specific risks — such as abuse, personal injury, environment, and reputation — before they can move on to the second stage of assessing and prioritizing risks. During the second stage, HR teams may categorize risks based on the possibility or frequency of occurrence or by the severity of consequences. They should then create a risk map to prioritize the next steps.
The third stage of risk management involves developing a risk response strategy, such as avoidance, acceptance, modification, or transfer of risk, followed by implementation in the next stage. When implementing a risk management strategy, HR teams should outline the steps necessary to carry out the strategy, communicate the plan to stakeholders, and provide risk response training.
The final stage involves monitoring the risks by analyzing the strategy’s effectiveness. HR teams should consider how well the plan is meeting its goals, whether the risks have changed, if the employees are adhering to the risk management plan, if the organization’s communication strategy is effectively conveying the risk management strategy, and whether the risk management response needs to be updated.
Risk Management Techniques
When facing risk, HR teams can choose from four risk management techniques: avoidance, acceptance, modification, and transfer or share.
4 Risk Management Response Options
Avoidance is an appropriate risk management technique for high-risk situations, while risk acceptance is more suitable for situations in which the potential rewards outweigh the potential costs.
The modification response involves modifying the activity and implementing policies and procedures to reduce the possibility of severe consequences. Choosing to share the risk by obtaining insurance or to transfer the risk by outsourcing to a vendor is another risk management response commonly used by HR teams.
Key Factors to Consider When Creating a Risk Management Plan
Regardless of how comprehensive a risk management strategy may be, if HR teams neglect to consider factors that might hinder implementation, failure is inevitable.
Insufficient employee technological skills, outdated recordkeeping, negligent hiring, poor onboarding, ineffective training strategies, employee conflicts, high turnover rates, and occupational fraud may cripple an otherwise robust risk management strategy.
A few steps HR teams could take to address these weaknesses may include offering training to help employees improve their technological skills, developing a plan to stay aware of changes to domestic and international data regulations, simplifying the onboarding process, investigating causes of turnover to identify the pain points of each stage of employment, and creating an anonymous reporting system to prevent occupational fraud.
Tips for Effective Risk Management
HR teams can improve their risk management strategies by taking advantage of the following tips.
6 Ways to Improve Risk Management Strategies
One of the best ways to improve an organization’s risk management strategy is to foster transparency. By writing down behaviors and characteristics that contribute to a hostile work environment and discussing their dangers with employees, HR teams can help maintain a healthy company culture.
HR teams should also create safeguards to protect employees from digital threats by investing in secure systems and educating employees on safe digital practices. By ensuring employees have the tools and knowledge to practice safe online behavior, organizations’ data will be much more secure.
A few other ways to improve a risk management strategy include regularly updating risk assessments, building an internal team to stay aware of changes to regulations, building a community of external safety resources, and developing a contingency plan — because no risk management strategy plan is foolproof.
Why Risk Management Is So Critical
Though risk in business is inevitable, an effective risk management strategy can help reduce the costs and alleviate the consequences of risk. HR teams that take a proactive approach to risk management will be prepared with an appropriate response that ensures the well-being of both the company and its employees.
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