Understanding the Sources of People Risk: A Holistic Approach http://www.ccainc.com/

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Understanding People Risk:
A Holistic Approach
November 2014

2. Real-world businesses face diverse risks,
and the contributing causes that produce
each of those risks are equally diverse.
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Risk management is an integral part of the business continuity plan. However,
traditional risk management strategies tend to overlook a potentially significant liability:
human capital risk – the risk associated with people and how they are managed.
This aspect of business risk includes all the ways that employees’ performance and behavior
can enhance or compromise the organization’s ability to execute its mission. Human capital risk
management requires consideration of two areas: people factors and organizational factors.
People factors comprise the ways that employees’ performance can be affected by their
relations with others; by their personal well-being; and by their talent, broadly understood to
include technical and non-technical competencies, as well as personal qualities such as
attitudes, biases, beliefs, values, and work ethic.
Each of these factors can influence the others.
In some cases, the impact can be negative. For
instance, if personal well-being is compromised
by a lack of fulfillment at work, it can lead to negative moods and behavior that can hurt
personal relations and, in turn, team performance. But people factors can also enhance one
another. For instance, healthy human relations will promote organizational citizenship, enabling
the organization to optimize talent.
The process of assessing and addressing human capital risk is
complicated by the fact that people factors are interwoven with the
larger fabric of the organization. The workforce can make or break the
organization, and the organization can just as easily make or break the
workforce. It’s no accident, then, that healthy companies take human
capital risk management so seriously, integrating it into their daily life
in a way that supports and uplifts employees. Such an approach both
diminishes the likelihood of negative outcomes and can reap real
benefits. Well-run organizations not only attract and retain the right
people; they also motivate them to go above and beyond the call of
Human capital risk
can result in:
Poor performance
Project derailment
Bullying
Harassment
Loss of talent
Violence
duty to accomplish organizational objectives and to uphold organizational values.
If a strategy of human capital risk management is to accomplish such goals, it requires careful
attention to the reciprocal relationship between people factors and organizational factors. These
organizational factors can be understood as the policies, practices, and procedures that
shape culture and influence behavior.
Three key organizational factors are:
Fairness: The sense that polices, practices, and procedures are just and applied equitably
Values: The principles that drive an organization (including the principles that inform strategic
business decisions and decisions about how employees are managed and how
customers/users are treated)
Work Itself: Design of job roles and the interdependencies among roles, workgroups, and
departments within an organization
These areas can overlap. For instance, the quality of an organization’s diversity initiatives will
have an impact on both its values and the sense of fairness. But even if each type of
organizational factor isn’t perfectly discrete, this categorization helps convey the variety of forms

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that they can take. It is this variety that produces such a multitude of risks for business, since
each organizational factor can compromise each people factor, and vice versa. A few thumbnail
sketches will illustrate in more concrete detail how this influence can play out in a workplace.
In the chart below, the blue rows provide examples of how each people factor can affect each
organizational factor. The green rows illustrate the inverse relationship, providing examples of
how each organizational factor can influence each people factor.
Organizational Factors
Fairness Values Work Itself
When managers don’t have
the knowledge/ training to
conduct employee
evaluations, performance
may not be evaluated fairly.
Misaligned leadership can
cause the organization to
pursue initiatives outside its
purview.
The wrong talent can spoil
even the most well-designed
work roles.
Talent
When assessments are
conducted inequitably, poor
HR decisions can be made
and high potentials can go
untapped.
When values aren’t in tune
with mission objectives, the
dissonance can drive off the
very kind employees the
organization needs to retain.
Overly demanding work
schedules can erode talent.
A negative state of mind can
reduce employees’
perception of fairness.
When employees feel
exhausted, it can interfere
with their ability to uphold
organizational values, which
might include cheerful
customer service.
When a team leader is
distracted by personal
issues, it can lead to
miscommunication within the
team and across the
Personal organization.
Well-being
When rules aren’t enforced
fairly, it creates a sense of
insecurity, elevating
employees’ stress levels.
When organizational values
don’t resonate with
employees, it can dispirit
employees and diminish
morale.
When work is incorrectly
designed, employees may
not find meaning and
fulfillment in their roles.
Poor relations between a
manager and employee can
affect perceived fairness.
When relationships are weak,
it can impede communication,
increasing the likelihood that
values will not be expressed
consistently across the
organization.
Lack of camaraderie can
make even the most well-designed
jobs difficult.
People
Factors
Human
Relations
Discrimination can foster
distrust, making conflicts
more likely to occur and
diminishing morale.
When an organization doesn’t
live up to its values,
interpersonal relationships
can suffer.
Flawed work design can
inhibit sharing of information,
thwarting collaboration.
Legend
People factors affect organizational factors
Organizational factors affect people factors
In practice, these factors manifest themselves in much more complicated combinations,
necessitating integrated solutions in order to reduce business risk. Consider an organization in
which employees are making allegations of harassment. The presenting problems may be a few
individuals’ offensive behavior, the relationships it damages, and the legal liabilities it creates;
however, the root causes can be far more complex. For instance, employees may be more likely
to antagonize others when stress affects their personal wellbeing. Flawed work design can

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exacerbate this stress when it produces needless workplace friction, perhaps as a result of
poorly defined work roles.
Other organizational factors can make their own negative contribution to the situation. For
example, if leaders don’t consistently communicate the values of respect and civility, or if their
own behavior contradicts these values, they can promote the kind of permissive or
discriminatory culture that allows harassment to occur. A lack of fairness (whether real or
perceived) also may be a contributing factor. If complaints of harassment are ignored (for
instance, because managers are uncomfortable giving negative feedback) then offenders may
be emboldened to escalate their problematic behavior. Recruiting practices can further increase
the likelihood of harassment. If the organization is using employment-interviewing techniques
that don’t weed out candidates with a past history of negative behavior, it can taint the
organization’s talent pool and increase the chances of employee misconduct.
A situation like this requires an array of complementary interventions that together provide a
holistic solution. These interventions can include not only harassment prevention training but
also:
• Audit of policies, procedures, and practices to ensure their alignment with mission & values
• Review of obstacles to standardization of policy (which might include practices used to hire,
promote, and develop employees)
• Clarification of roles and responsibilities
• Leadership coaching to ensure that executive behavior supports the organization
• Construction of authentic performance management programs
• Education for management on how to address risks as they emerge
• Promotion of wellness resources such as EAP and Work/Life support services (e.g., to
reduce stress)
• Training & Development to cultivate high-performance teams that can resolve conflicts in a
healthy manner (e.g., before it escalates in the form of harassment)
Any one of these interventions will contribute to the organization’s recovery. However, they offer
a comprehensive solution when implemented together.
Our hypothetical
Successful human capital risk management requires careful attention
organization
to the reciprocal relationship between people factors and
dramatizes just
organizational factors.
one way that risk
can manifest itself. Real-world businesses face diverse risks, and the contributing causes that
produce each of those risks are equally diverse. This host of potential liabilities can be so
daunting as to confound business leaders with uncertainty. An individualized needs assessment
can provide the needed clarity. Armed with the findings of such an assessment, a customized
and comprehensive risk-mitigating strategy can be developed, allowing the organization to
confront the future with confidence.