What constitutes People Risk?

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In this blog we talk about the individual elements of People Risk Management and exactly what constitutes people risk.  Operational Risk Software can be key to supporting this discipline.   

Taken from: Mastering Risk Management 

Elements of People Risk 


Selection

People risk starts at the beginning with selection and choosing the wrong people. Poor selection leads to cost and wasted management resource. Effective selection is an opportunity to add benefit to the firm. 


Who do we want?

Go for fit rather than capability. In our previous blog we spoke about cognitive diversity. In an ideal world you need people who have different approaches. If you go for the piece of grit in the oyster you may get a pearl. But the key is that they must fit the firm’s values. Choose the person who fits your culture, rather than the person who appears to tick all the boxes of expertise and experience. You can teach people competencies, but you can’t change personalities.


Recruit with one eye on the future. We are often too certain about what and who we are looking for now. Have we really thought about the future and where the firm and the industry is going? The world and the firm will change, sooner than we may think or like. Another reason to go for fit – and flexibility. In a changing world, the competencies today may be quickly redundant. Learning agility and the ability to collaborate in teams are more important than skills. 


Who does the selecting?

The line manager. They are obviously critical, but are they trained with the skills necessary to be able to interview well? Is it clear what aspect of the selection process they care dealing with? Make sure those involved in the selection are clear about their role and the limit of their authority. Otherwise, they may give commitments which diverge completely from the benefit structures around the firm. 


Do you have a cadre of senior managers who understand the firm and its culture and have proved their worth as good selectors? In some firms, all senior managers are trained in the art of interviewing for that very purpose. Develop them into a panel to oversee all appointments over a certain level. They will ensure that you select for fit. 


The process

The process may include an outsourced recruiter. There’s nothing inherently wrong with outsourcing aspects of selection. But if you do, make sure the search firm thoroughly understands your business and doesn’t just rely on the specification given. If it’s a first assignment – whether for the firm or a particular department – at least the first third of the recruiter’s time should be spent inside the firm, working from there to get a clear understanding of its cultures, as well as the assignment itself. Only then can they go out to the market (the next third) and sort through the candidates (the final third). 

There is one other informal selection process, which goes back to the comment about selecting for fit – that is referral, contacts or recommendation. You may not have a current vacancy, but if you do come across somebody that way, create a role to get them on board. 


Succession Planning

You have established a clear enough picture of where you want the firm to be in two or three years’ time to be able to assess the skills you will need to get you through. You have an assessment process which identifies those people with the requisite skills. But if they go, can they be replaced?


At its most basic level, in an appraisal, you should be able to answer the question, who would replace you – and when? In other words, have you developed your subordinates so that you are effectively expendable? Or at least expendable in your present position. If the system works properly, your superior should be in the same happy state, with you pencilled in to fill their shoes. Which is a good question worth asking in a appraisal. 


While that may represent a robust succession plan for your job, it is of little use if the same person has been pencilled in to fill a number of gaps around the firm. In fact, you should have at least two people for each position because in practice less than 50% of people actually fill the roles for which they are pencilled in. 


The succession plan may need to be activated at very short notice, whether from natural causes such as illness or even death, or from the fact that a person or team simply resigns and walks out of the door. 


Crisis management is generally as far as most plans go. A crisis plan is fine, but a true succession plan should be a plan for the longer term, not just an immediate crisis. And the plan should be kept under constant review. If somebody leaves, will the job and skills required remain the same, or will a different organisational or skills structure better reflect the firm’s strategy and objectives? Perhaps the most sensible approach is to develop a pool of talent, because circumstances will almost certainly be different when the event happens. 


The plan should also include retirements. You may have succession for leaders, but not individual contributors in critical roles, who may effectively represent many hundreds of years of experience. Succession planning includes developing skills for those who can step into the role, either for sickness or absence, or for the longer term. 


True succession planning involves drawing up a skills matrix, performing a gap analysis and then acting on what it tells you. That may mean re-thinking the firm’s medium-term strategy, or it may mean re-thinking your view of current employees and whether they really are the best people in the medium-term. Succession planning is a classic control to minimise the impact of a sudden absence of personnel. 


Staff retention

The temptation at times of economic trouble is to cut staff, cut training and hope the storm will blow over. It may well be that staff have to be made redundant, but losing trained and skilled people will undermine future competitiveness and increase risk. It may be better to devote time to managing people costs more efficiently, for example by; improving absence management; being more rigorous with expenses; imaginative use of contractors, secondments, or flexible and part-time working. 


If you practice good people management, attrition should be low. Retaining trained and experienced staff is a key to excellent people risk management. You cannot afford to lose both the commitment and the intellectual capital of your best employees. Succession planning also involves retaining top talent. 


Since the human brain is the easiest way to carry information (and secrets) out of a firm, you should look at how corporate knowledge has been developed, documented and converted into intellectual capital. That’s one strategy to reduce the risks which an ex-employee can cause either maliciously or if, for instance, they can exploit their knowledge of your systems or strategy. Employment contracts and gardening leave can get you only so far. 


Another risk mitigation strategy to reduce the possibility of losing staff is, wherever possible, the exit interview. It may be too late for the employee who is leaving, but the interview may be able to give pointers which will help you retain those who remain. It is important to know why staff wish to leave. It will help the firm to gauge employee satisfaction, morale and welfare in order that it can make changes to limit the number of other staff that might wish to leave in future. 


The question is, when is the best time to have an exit interview? Emotions may be raw or there are many emotions competing against each other. While it may be that some ex-staff are not prepared to, it may be that asking for a meeting a month later, when the dust has settled, might elicit more information than in the heat of the departure. 


In the end, the best risk control technique is a pro-active human resources approach which seeks to create an environment in which people are valued, and there is a strategy for retaining talented employees and for minimising the damage that occurs when key people leave. 


The simplest form of succession planning is not to lose staff in the first place. 



In our next blog we will be covering the role of Appraisals and Performance in managing people risk.   

 

Mastering Risk Management by Tony Blunden and John Thirlwell is published by FT International. Order your copy here: https://www.pearson.com/en-gb/subject-catalog/p/mastering-risk-management/P200000003761/9781292331317    


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