Managing Human Capital Risk

01 October 2014

Human Capital Risk is often expressed as Human Resource and personnel related risks which trigger exposures to an organization’s ability to achieve its strategic and operational goals or objectives. Many recognized principles of risk management include activities that create and protect the value of an organization and proactively address areas of uncertainty while also making an allowance for human factors and fallibilities.

The traditional four-quadrant approach to risk assessment – Financial, Strategic, Operational and Hazard – still applies to organization-wide identification and management of risk. However, the influence of Human Capital implications cannot be underestimated and should be managed accordingly. In order to do so, organizations need to ensure that Human Capital Risks are incorporated within their risk management framework.

A Suggested Approach
Identify your key human capital risks and determine how these risks may rank against other known or emerging Financial, Strategic, Operational and Hazard risks currently impacting your company’s goals and objectives. These may include human capital concerns within the following categories:

  • Failure to attract required employees
  • Loss of key personnel / knowledge
  • Accident / injury
  • Plan financial and operational risks
  • Absenteeism
  • Inadequate or declining productivity
  • Succession planning issues
  • Legal and legislative compliance issues
  • Unionization and labour issues
  • Plan solvency risks
  • Inadequate attrition
  • Employee engagement

Prevention is Better than Cure 
When managing risks – including human capital ones – many organizations are often overly focused on minimizing overall insurance costs. This can sometimes result in missed opportunities to implement strategies that would benefit total cost of risk through prevention, mitigation or avoidance. The cheapest option is not always the most cost effective one and may expose the business to additional risks.

The implementation of a wellness program within an organizational benefit offering is a prime example. the initial costs may include introducing proactive programs such as health screenings, awareness campaigns, healthy eating initiatives, and employee assistance programs. If targeted specifically at the issues affecting the business, the resulting improvement in absenteeism, productivity, medical and disability costs can be significant and produce an attractive return on investment.

The integration of such alternative strategies should be customized to fit with the specific workplace environment of your industry. Any health trends emerging in your workforce should be identified and monitored so that programs can be updated and refocused helping to keep employees engaged and to maximize the value of the program to your organization.

At Jardine Lloyd Thompson Canada Inc. we provide a contract review service as it relates to your insurance coverages. As an additional value-added service to our clients, our team of experienced professionals will review your contract and advise on how it may impact on the insurance policies that you have in place.

What's next...?
JLT Canada invites you to consider your overall risk profile and how human capital issues may rank against other risks. By conducting a robust assessment of your risk tolerance and of the potential costs and benefits of proactive mitigation efforts, you can determine if your current employee benefits program is sufficiently effective or flexible enough to ensure that you meet your Human Capital objectives now and in the future.