I often see connections and correlations between systems and methods. As a consultant to Human Resources departments over the past 25 years, many times I have used the business-centric disciplines of risk management and economics to challenge and defend HR initiatives, projects and goals and align HR strategy with organizational strategy. It’s not as far-fetched as you might think and, in fact, it translates HR initiatives into a “business” language. Let’s consider how that happens.
I first started thinking about “human capital risk management” about 15 years ago when I worked more heavily with technology initiatives. Within the disciplines of project management and strategy, considering the risks that human beings posed to a project was practical. Today, this term has gained strength and is now showing up in HR conversations that don’t involve technical initiatives. For example, I discovered this article from the Wall Street Journal (https://bit.ly/4b19oeb) about “Managing Human Capital Risks” – “Because people touch the many aspects of an organization, a focus on human capital risk is a very important part of an effective risk management and compliance program. Yet it is also because of this ‘human factor’—the complex involvement of people in the many aspects of the business—that ownership of human capital risk management can end up ill defined,” says Michael Fuchs, principal, Deloitte Consulting LLP. “In fact, many organizations today face major challenges in this area due to a lack of clarity around roles and responsibilities assigned to human capital risk management.” Mr. Fuchs goes on to say, “Effective human capital risk management is the shared responsibility of HR, risk and compliance functions and senior business leaders. It is a cooperative effort combining deep experience in human capital, risk management and compliance, and business strategy and operations.” My thoughts exactly.
Specifically, a risk is defined as “a situation involving exposure to danger” or “exposing someone or something valued to danger, harm or loss.” In my opinion, humans are the riskiest components of any organization and the quote from Michael Fuchs above indicates to me that he agrees. Humans are unpredictable, emotional, inconsistent, and fragile. They can create brilliantly good and brilliantly bad endeavors. They often need constant nurturing to continue to sustain performance. Many in Human Resources and social articles advise us that humans are our most valuable assets and therefore the risk management definition would be applied to anything that might expose these human assets to “danger, harm or loss.” The result has been the growth of protection policies regarding discrimination, ageism, and equality as well as safety, worker’s compensation, and other public and private policies. And these policies are ethical and good.
But don’t humans also represent a risk to the organization themselves? I would say, yes. So, the humans of the workforce are both an asset AND a liability, i.e., a “risk.” You can bet your executive team knows this and this is where HR professionals often disconnect from the organization. Singing the praises of “our most valuable asset” doesn’t convince the executive team to approve an initiative because they are also thinking of humans in the workforce as a liability and a risk. If nothing else, the workforce represents a risk to the organization’s cashflow and financial position, and they are duty-bound to consider that.
Human capital risk management already exists in the form of Legal Counsel, Public Relations, Loss Mitigation, and other “risks” to the organization. Each of those functions represents a specific type of “risk” – litigation and compliance, public reputation, theft/waste, etc. From an HR perspective, we can add others such as the loss of intellectual capital, under-preforming productivity, poor management of resources, poor costs management of workforce expenses. The connection between “risk management” and “human resources management” starts to make more sense now – as well as its ability to support HR Strategy and initiatives.
Now let’s consider economic analysis and its correlation to HR. According to the American Economic Association, Economics is “the study of scarcity, the study of how people use resources and respond to incentives, and/or the study of decision-making.” After establishing the link between risks and human resources, can you see a correlation here too?
Scarcity of talent and resources is a common theme in the current environment of HR professionals. HR spends their days assessing how the organization is using its “human” resources and whether decision-making regarding workforce management (i.e., assessing toxicity) is of a sufficient quality to prevent the loss of talent and resources. HR professionals also spend a great deal of time working with incentives for employees and the workforce to improve productivity through greater engagement and motivation.
HR Economics focuses on the use of the human resources that constitute 30-50% of the fixed expenses of an organization and the management of the costs and quality of these resources. Suddenly these terms are no longer odd applications to the function of the Human Resources Department, but terms more aligned with the actual work and its alignment with organizational strategy.
The upskilling of HR to improve the management of resources, programs and costs through the application of risk management and economic principles creates direct alignment between HR strategy and organizational strategy. It may seem theoretical to draw these bridges between risk, economics and human resources. But it is in drawing these bridges that we discover how to translate and align HR strategies with organizational strategies. Alignment requires a common language.
#hrstrategies #hrstrategy #humancapitalmanagement #hr #humanresources #leadership #leadershipskills #leadershipdevelopment #riskmanagement #economics #upskilling #professionaldevelopment
If you want more, check out HRPMO University’s new mini-class – Business Translation for HR – on our Courses page.
I first started thinking about “human capital risk management” about 15 years ago when I worked more heavily with technology initiatives. Within the disciplines of project management and strategy, considering the risks that human beings posed to a project was practical. Today, this term has gained strength and is now showing up in HR conversations that don’t involve technical initiatives. For example, I discovered this article from the Wall Street Journal (https://bit.ly/4b19oeb) about “Managing Human Capital Risks” – “Because people touch the many aspects of an organization, a focus on human capital risk is a very important part of an effective risk management and compliance program. Yet it is also because of this ‘human factor’—the complex involvement of people in the many aspects of the business—that ownership of human capital risk management can end up ill defined,” says Michael Fuchs, principal, Deloitte Consulting LLP. “In fact, many organizations today face major challenges in this area due to a lack of clarity around roles and responsibilities assigned to human capital risk management.” Mr. Fuchs goes on to say, “Effective human capital risk management is the shared responsibility of HR, risk and compliance functions and senior business leaders. It is a cooperative effort combining deep experience in human capital, risk management and compliance, and business strategy and operations.” My thoughts exactly.
Specifically, a risk is defined as “a situation involving exposure to danger” or “exposing someone or something valued to danger, harm or loss.” In my opinion, humans are the riskiest components of any organization and the quote from Michael Fuchs above indicates to me that he agrees. Humans are unpredictable, emotional, inconsistent, and fragile. They can create brilliantly good and brilliantly bad endeavors. They often need constant nurturing to continue to sustain performance. Many in Human Resources and social articles advise us that humans are our most valuable assets and therefore the risk management definition would be applied to anything that might expose these human assets to “danger, harm or loss.” The result has been the growth of protection policies regarding discrimination, ageism, and equality as well as safety, worker’s compensation, and other public and private policies. And these policies are ethical and good.
But don’t humans also represent a risk to the organization themselves? I would say, yes. So, the humans of the workforce are both an asset AND a liability, i.e., a “risk.” You can bet your executive team knows this and this is where HR professionals often disconnect from the organization. Singing the praises of “our most valuable asset” doesn’t convince the executive team to approve an initiative because they are also thinking of humans in the workforce as a liability and a risk. If nothing else, the workforce represents a risk to the organization’s cashflow and financial position, and they are duty-bound to consider that.
Human capital risk management already exists in the form of Legal Counsel, Public Relations, Loss Mitigation, and other “risks” to the organization. Each of those functions represents a specific type of “risk” – litigation and compliance, public reputation, theft/waste, etc. From an HR perspective, we can add others such as the loss of intellectual capital, under-preforming productivity, poor management of resources, poor costs management of workforce expenses. The connection between “risk management” and “human resources management” starts to make more sense now – as well as its ability to support HR Strategy and initiatives.
Now let’s consider economic analysis and its correlation to HR. According to the American Economic Association, Economics is “the study of scarcity, the study of how people use resources and respond to incentives, and/or the study of decision-making.” After establishing the link between risks and human resources, can you see a correlation here too?
Scarcity of talent and resources is a common theme in the current environment of HR professionals. HR spends their days assessing how the organization is using its “human” resources and whether decision-making regarding workforce management (i.e., assessing toxicity) is of a sufficient quality to prevent the loss of talent and resources. HR professionals also spend a great deal of time working with incentives for employees and the workforce to improve productivity through greater engagement and motivation.
HR Economics focuses on the use of the human resources that constitute 30-50% of the fixed expenses of an organization and the management of the costs and quality of these resources. Suddenly these terms are no longer odd applications to the function of the Human Resources Department, but terms more aligned with the actual work and its alignment with organizational strategy.
The upskilling of HR to improve the management of resources, programs and costs through the application of risk management and economic principles creates direct alignment between HR strategy and organizational strategy. It may seem theoretical to draw these bridges between risk, economics and human resources. But it is in drawing these bridges that we discover how to translate and align HR strategies with organizational strategies. Alignment requires a common language.
#hrstrategies #hrstrategy #humancapitalmanagement #hr #humanresources #leadership #leadershipskills #leadershipdevelopment #riskmanagement #economics #upskilling #professionaldevelopment
If you want more, check out HRPMO University’s new mini-class – Business Translation for HR – on our Courses page.
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