HR Risk Management Types & Best Practices

October 7, 2022
HR Risk Management Types & Best Practices

One of HR's most important responsibilities is to identify and mitigate risks that might impact the well-being of the business. Businesses stand to risk financial loss, or loss in brand value, customer engagement, retention, etc. Although these risks need to be mitigated, it’s not always easy to see a problem coming.

Businesses overall face many risks, but each department needs its own risk mitigation strategies. For instance, product development departments manage risks associated with product bugs. It’s critical for leaders to understand the types of risks faced by HR and the best practices around mitigating those risks (for example, by improving people analytics and setting up proper protocols to identify issues early).

People Ops teams are responsible for a long lost of activities that may lead to risks such as bullying, burnout, and low morale. To ensure the smooth running of the company, HR must analyze and identify the risks, design and implement response strategies, and monitor ongoing risks. 

By understanding what to look for, HR teams can stay ahead of problems by using people analytics to identify emerging trends, pin-pointing the key drivers, and then take steps to de-escalate. 

But before that, you should first get acquainted with the various types of risks that a typical HR department faces.

Types of risk and Risk Mitigation in Human Resource Management. 

Compliance and regulations

Labor laws can be very intricate and companies can face huge repercussions when they fail to adhere to employment laws. Failing to comply with industry regulations and guidelines can affect your business in various ways, including losing licenses, paying hefty penalties and possible jail time for management if gross negligence or fraud occurs. 

HR managers can counter this by remaining up to date on the latest regulations in their specific industry, consulting with legal experts and sensitizing employees on the regulations and the ramifications (both internal and external) of failing to comply. They may also hire lawyers to inspect contracts and company policies to ensure compliance with laws and regulations.

Talent acquisition

Human resource departments are responsible for identifying, attracting and onboarding the right talent for the company. The HR department achieves this through job analysis, writing job descriptions, scouting and recruitment, orientation, training, negotiations, performance appraisals and compensation.

Failure to provide the right human capital through improper resource planning could lead to overstaffing or understaffing employees’ - causing chaos in the company. It can also lead to losses in recruitment if the company is constantly recruiting and letting go of talent that isn't a good fit. 

HR teams can prevent risks by creating a sound recruiting program and revamping their onboarding process. This will save your company the recruitment hustle most employers face and save the money you would waste recruiting and onboarding the wrong talent for your business. 

Leadership concerns 

Companies with shaky leadership causes significant risk for the whole business by causing high attrition, and in some instances, business partnerships. For example, in 2018, Udemy released a report on the employee experience where 60% of employees surveyed believed their managers needed more training and several employees felt unsupported in the workplace.

HR departments need to train their managers to ensure employee concerns are being handled fairly to mitigate risk arising from leadership challenges. Well-trained managers and leaders are worth their weight in gold to the organization. They design and implement policies that can outlive them, motivate and retain good talent while also meeting the company’s goals. 

Furthermore, HR can mitigate the risk of bad leadership by holding managers accountable and mandating employee feedback, while incorporating it into the manager's performance evaluation. This helps HR mitigate the risk caused by a bad manager before the situation escalates.

Employee development 

Employee growth and professional development are key to keeping them engaged at work. When companies invest in the growth of their employees' talents and strengths, productivity is increased by 12.5%. It is not uncommon for employees who feel stagnant at work to leave the company. 

Gallup research has also shown that employees who feel they get to use their strength and ability at work are 15% less likely to quit their jobs. HR departments can ensure employee work satisfaction by giving them learning opportunities and empowering them to grow through office and work-based incentives such as bonuses.

Employee health and safety

Human resource teams also have to mitigate day-to-day risks at the workplace. These include personal injury and health-related risks, environmental and property risks, reputational and abuse-related risks in the company. 

It is important to have a precise employee code of conduct manual fully equipped with the consequences of certain violations to mitigate such risks. HR should also educate its staff on the company dos and don'ts with regards to the workplace culture. 

Finally, you should not be afraid to implement the penalties and punishments in the employee code of conduct for employees who break it regardless of rank and importance to the company. Enforcement is critical in these cases.

Why risk management matters in HR

The HR department of any organization has one of the most impactful roles. HR is responsible for implementing a productive workplace culture to drive employee engagement, retention and job satisfaction. To achieve this, HR has to make sure that it provides a conducive work environment for people to thrive, challenge each other and advance the company's agenda. 

Because of this, the HR department has to be foresighted when dealing with potential risk factors and mitigate them before they happen. One real-life example of what can happen if HR risks aren’t mitigated, is the employee crisis that happened at Apple with the #AppleToo movement. Many employees were dissatisfied with how Apple treats them and how employee complaints are dealt with. This movement generated a lot of bad press for Apple, who could have avoided this if it had been proactive and not reactive in dealing with employee complaints. 

Other reasons on why risk management is important for HR include;

● Increases department’s contribution to company productivity

● Increases employee engagement.

● Optimizes workforce planning outcomes

● Achieves fair pay

● Increases diversity 

● Increases employee retention and turnover

● Advances learning and development.

● Enhances hiring practices and recruitment.

As you can see, effectively mitigating risk factors in the Human Resource department can have far-reaching implications for your workplace culture and morale. It can also help you implement your Diversity, Equity and Inclusion strategy, which is a major concern for companies around the world today. 

How can HR use people analytics to mitigate risk?

People analytics refers to the use of data and data analysis tools to understand, improve, and optimize the human element in your business. It aims to make a connection between people’s data and business data to aid strategic planning for the company.

The growth of people analytics can be attributed to the fast growth rate of technology and the shift to digital transformation. Due to these catalysts, HR departments are being asked to justify their decisions based on quantifiable data on decisions and outcomes. This is why people analytics can help HR mitigate the risks associated with the department. 

Most of the risk facing HR departments worldwide comes from a lack of real-time data monitoring and tracking, which would enable HR to predict and remedy potential risk factors before they can inflict material damage to the brand's image and bottom line. 

The growth of people analytics can be attributed to the fast growth rate of technology and the shift to digital transformation. Due to these catalysts, HR departments are being asked to justify their decisions based on quantifiable data on decisions and outcomes. This is why people analytics can help HR mitigate the risks associated with the department. 

With people analytics, HR managers can gather data from key indicators on risk and provide data-driven solutions to these risk factors. Some of the other benefits of people analytics to the HR department include:

Saves time

The use of people analytics in HR helps departments save time which is often used to answer employee questions and offering other forms of support. Not having the help of people analytics is especially detrimental for large and mid-sized companies with numerous employees because HR's time is taken up handling repetitive complaints. These complaints could be compiled into relevant data using people analytics, allowing the department to predict and adequately plan for employees' concerns. 

This frees up the department’s time to achieve other organizational goals, including preemptive risk mitigation. 

Eases the risk management process 

It is difficult for companies to manage risk and be objective without collecting proper data. Additionally, If HR departments fail to preserve proper records, they may face financial and legal penalties.

Strategic business planning

Traditionally the HR department has always been one of the most data-heavy departments in any company (eg. Payroll and other HRIS data). However, this data until recently was only used for internal purposes and to write descriptive reports. People analytics enables your business to use this data strategically to achieve business objectives such as higher revenue and decreased costs.

Improves onboarding process by eliminating manual processes.

Not only do people analytics increase the quality of hires by avoiding unconscious biases early on in the recruitment process, but data gathered on hiring and recruitment also can be linked to business outcomes like higher revenue. For example, a study in the Harvard Review found that applying an algorithm improves recruiters' capacity to uncover the top qualified candidates for jobs by more than 50%.

It can also ease this process by identifying high performers and those with high promotion potential based on employee data from surveys, online performance reviews, and other means.

Guides decision-making process.

By collecting HR data, your company has access to virtually every aspect of the employee experience. The data can help HR make insightful decisions because it enables the understanding of employees’ past behavior that influences their future actions, thus making them predictable. For instance, the data could demonstrate the major drivers, factors and indicators for quitting at a company.

The employer typically controls the drivers. For example, they may include compensation or learning spending. At the same time, the indicators are actions that tend to precede exits by employees, including change in absenteeism, change in the distance from the workplace, change in education level and more.

Employees' attributes range from their education level and experience, commuting time, tenure with their previous employer, and more when it comes to factors. Employees often raise these issues, but HR managers will not always notice trends and patterns in seemingly one-off employee complaints. 

Using a people analytics tool such as Ariglad means that data from complaints is synchronized and visualized for the HR department, so your company can use it to anticipate work complaints and find sustainable solutions.

By collecting HR data, your company has access to virtually every aspect of the employee experience.

Best Practices in mitigating HR risk and the role played by people analytics.

Risk management and mitigation in HR can be guided by four relatively easy steps, which are as follows;

Identifying the risk

HR teams must examine both general and specific risks, such as personal harm, health hazards, environmental, property, reputational risks, and abuse-related concerns since risks differ based on differences in business. The department should then systematically make a note of their risks.

Part of identifying the risks includes setting up protocols to assess and measure the risk caused by a certain factor. This is important because you are likely to waste time and resources tracking the wrong data points if you don't have data on what to prioritize.

Assess and prioritize these risks.

Once the risks are laid out, the next step is to categorize them based on the possibility and frequency of occurrence and the severity of the consequences for the different risks. This guides the team in understanding the priority of the risk and a business’ risk profile. Not all companies are opposed to risk. While some prefer to keep their risk profile as close to zero as possible, others are risk-tolerant and can entertain risk to a certain extent.   

Choose your risk mitigation strategy. 

Then HR has to decide the best way to mitigate the risks. As the team develops long-term sustainable risk response strategies, you should decide whether the risk is to be shared, avoided, accepted, modified, or transferred. It is important that you don't deal with each risk factor in isolation but rather build a holistic strategy that can cater to all situations that require risk mitigation.

Some of the more common techniques include risk avoidance, which aims to avoid compromising events entirely by eliminating hazards and activities that can negatively affect a company. 

Risk reduction is another strategy companies employ to manage risk by mitigating potential losses resulting from financial decisions. Companies may also choose to bear risks accepting or sharing responsibility in case projects go wrong. Based on the needs and goals of the organization, HR teams need to develop the most appropriate strategy to manage risk in the business.

Implementing the strategy 

HR departments need to develop action plans to reach their strategic goals by carefully communicating their plan to stakeholders, and outline the steps to carry them out (eg. Providing risk response training).

Even though HR teams have to engage in these practices for the company’s wellbeing, it may be hard to do so when external teams don’t understand the critical nature of a project like this.

These are also human-based teams, and there may be a high margin of error and biases that lead to recurring complaints on the part of employees. This is why integrating with a people analytics tool is important. 

People analytics extracts vital data from the employees’ concerns. It compiles it into comprehensible data that human resource departments can use to anticipate complaints based on trends and patterns depicted by the data, thus helping increase fairness and equality at work. 

The task of collecting and streamlining people's data is very time-consuming, using up time that the department can use to achieve its other objectives. Additionally, the HR team members are not necessarily experts on data analysis; therefore, streamlining remains a challenge even when data is collected. People analytics software utilizes AI to organize the data and make it available to companies as the need arises. 

Software tools make this process significantly simpler by converting employee feedback, complaints and engagement into relevant data to be used by your organization into one dashboard. 

For example, Ariglad flawlessly integrates with most company communication tools such as Slack or email, which provides a platform on which employees can submit and follow up on their communication with HR easily without getting bogged down in the sea of work emails. 

For more information on how Ariglad can help your HR department implement a strategy to mitigate risk, sign up for a demo of the platform and get first-hand knowledge of how it works.

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