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Who? Works for You? Companies Routinely Try to Reduce Their Risk Exposure in Accounting, Legal, Public Relations Rind Even Supply Chain Management. but There Is One Area That Needs More Oversight: Human Capital

By Glasscock, Tom | Risk Management, November 2011 | Go to article overview

Who? Works for You? Companies Routinely Try to Reduce Their Risk Exposure in Accounting, Legal, Public Relations Rind Even Supply Chain Management. but There Is One Area That Needs More Oversight: Human Capital


Glasscock, Tom, Risk Management


Payroll is a top-ranking line item on income statements, and the cost of turnover is a constant corporate concern. Human resources can have long-term, costly consequences, so it is important for businesses to treat human capital risk management just as seriously as they would any other area that creates risk.

Fortunately, there are three way that risks inherent to the human capital life cycle can be managed. The first is the alignment of the workforce with overall business objectives. The second is planning: ensuring that organizations are prepared for future changes. The third is in the execution of risk-sensitive HR processes, especially those governing layoffs.

1. Identify At-Risk Issues in the Workforce

Far too many organizations are blind when it comes to understanding the dynamics of their structure. Who reports to whom? What's the turnover rate of Group A vs. Group B? Are diversity goals being met? Are key skill sets being lost to retirement or reassignment?

I once worked for a global telecom company that struggled to access personnel data after transitioning to a new human resources system. There were all kinds of discrepancies. Some employees were double counted because they reported to two different managers and some people who were no longer with the company were still listed in the system.

In one noteworthy example, the head of international sales insisted that he did not have anyone working for him in Ireland. It turned out there were a few dozen employees under him based in Dublin. (Who were they reporting to, I wondered.)

In another example, a large pharmaceutical company was so decentralized that the team in charge of producing the company's annual report had to call the heads of each subsidiary to ask "how many people do you have?" before reporting a global workforce total.

What does this have to do with risk? Human resources lacking an accurate picture of the workforce is like the finance department lacking visibility into the availability of operating cash. An organization's employees are a portfolio of investments. The elements within this portfolio just have arms, legs and, most importantly, valuable heads atop their shoulders. If you cannot measure and analyze this portfolio, you cannot manage it. And if you cannot manage it, you are certainly not going to get optimal results from your workforce.

As common as it is, even the term "head count" is not commonly defined. More often than not, organizations lack a consistent definition of head count, something exacerbated by the "creative staffing" morass of full-time, part-time and flex-time employees, telecommuting, contractors and shared resources. The risks include the unnecessary costs of unseen redundancies, an inability to identify and remedy issues (such as understaffing in a key market), and inadvertently losing top performers because they were not recognized, rewarded or promoted.

To resolve such issues, clarity and accuracy are crucial. Miscalculate workforce costs and what was thought to be a profitable organization may actually be hemorrhaging money once the correct numbers come in.

Managers need a real-time, comprehensive view of the workforce to make staffing decisions, identify potential trouble spots and use talent in the most effective--and profitable--way possible.

Organizational charts are a great way for businesses to visualize their workforces in an intuitive, useful way. But for these tools to be effective, companies must keep a few factors in mind.

First, the solution must combine workforce data from multiple sources. And it must be easy to access. In today's complex, global organizations, workforce information may be scattered across multiple HR systems, buried in various accounting schemes or perhaps even misfiled somewhere, so having a way to combine and normalize this data for a "single version of the truth" is critical.

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Who? Works for You? Companies Routinely Try to Reduce Their Risk Exposure in Accounting, Legal, Public Relations Rind Even Supply Chain Management. but There Is One Area That Needs More Oversight: Human Capital
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