Human Capital Risk Management

What is human capital?

Human capital is the collection of knowledge, talents, skills, abilities, experience, intelligence, training, judgment, and wisdom possessed individually and collectively by individuals in a population.

These resources are the total capacity of a workforce that represents a form of wealth which can be directed to produce economic value. Every organization, no matter how small, has human capital. Human capital is an emerging risk for many organizations as employees are now more likely than ever to have multiple career changes throughout their lives, and workers tend to switch companies more frequently. According to recent research, human capital risk ranks fourth out of eleven top risks in terms of potential business impact. Despite this, areas such as IT, finance, supply chain, and reputation often dominate the conversation when it comes to an organization’s risk management.

Having a structured, systematic approach to human capital risk management can result in more accurate,
comprehensive and effective management of human capital risks.

What risks are associated with human capital?

Human capital risks are events and employee behaviors that occur within or outside the workplace that can affect the organization’s operational and financial results. Human capital risks include:

• failure to attract required employees
• selection of the wrong candidate
• undesirable turnover
• absenteeism
• presenteeism
• unsatisfactory performance
• accident/injury
• legal compliance issues
• fraud
• loss of knowledge

Having a structured, systematic approach to human capital risk management can result in more accurate, comprehensive and effective management of these risks than relying on informal processes, intuition and subjective judgments.

How can the risks associated with human capital be managed?

A strategic human capital focus can add to the future evolution of the organization and the development of a stronger, more successful operation. Some of the things organizations can do to effectively manage human capital risk include:

• Offer a competitive compensation and benefits package that includes paid sick leave policies.
• Continuously monitor levels of employee engagement.
• Utilize data and analytics to develop and refine strategies.
• Develop and enforce safety compliance policies.
• Clarify individual job expectations and duties.
• Consider offering nonmonetary benefits as a way to reduce turnover and increase number of applicants.

Human capital risk assessment should involve people from across the business, not just in HR. One of the advantages of this is that the process can build understanding and create consensus. This process tends to result in a more strategic approach to human capital risk management, which in turn results in lower rates of turnover, increased engagement, and operational efficiency,