Capital Risk Management – Taking On Human

human capital risk

Far too often a major communication gap exists between a company’s risk management program and their human resources department. This lack of communication means that most companies are failing to effectively monitor their human-capital risks. Human-capital risks are those threats to the company that stem from issues such as skill shortages, employee retention, and issues of succession.

Given the recent growth in the interest of enterprise risk management, it was only a matter of time before managers began to take notice of and incorporate human-capital risks into their risk management strategies. Unfortunately, most organizations have still yet to discover this issue and the important role it can play in a well-rounded risk management program.

One primary reason for the communication gap between human resources and risk management seems to lie in a simple misunderstanding between the two parties as to whose responsibility it is to handle human-capital risks. Also, complicating things further, there is the issue that, given this lack in understanding, no real route for effective communication has ever needed to be established between the two parties. It is this lack of means combined with the confusion of duty that has created this failure on the part of both departments to even recognize the issue, much less handle it in an effective manner.

Another mitigating factor in the poor handling of human-risk management is the widely varying perspectives with which these two departments view the issue. From a strictly risk management perspective, many of these employees grant very little significance to the issue, while human resources employees rank it as among the most crucial factors to a company’s health.

However, despite the seriousness with which they view human-capital issues, human resources still tends to overlook the problem, most likely due to their proximity to the matter, handling these issues on a daily basis but still not seeing its overall risk implications as a whole.

Recent studies have shown that, to the surprise of many, even those companies with more highly developed corporate governance, risk, and compliance programs have still failed to recognize human-capital risk as a legitimate issue worthy of inclusion in their risk strategies. On the other hand, these studies also revealed that companies with strong strategic workforce planning programs appeared to have taken much greater notice of the matter and were actively beginning to implement the issue into their risk strategies.

In order for human-capital risk to receive the full attention it deserves, companies are going to have to step up and take this topic off the shelf, and really work to begin tying these issues in to their risk management programs. This lack of attention may be due in part to a lack of understanding on the part of executives as to what exactly human-capital risk is and how it needs to be handled. To do this effectively will require a joint effort on the parts of both enterprise risk management and human resources, working together to help educate the executive officers, as well as analyzing and strategizing on how best to associate this issue into their preexisting risk programs.

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About the Author

Scott Cox is a writer for Conselium Executive Search.

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