3 Tips to Manage Human Capital Risk

3 Tips to Manage Human Capital Risk

It can be said that a business’ greatest asset is their human capital. While many people believe that products and services drive revenue, it’s the people who create and provide these goods that make them worthwhile. A great business plan that is executed poorly by inept leaders is not worth nearly as much as a mediocre plan executed by great leaders. One aspect of managing HR for your business is to mitigate against risk. Here are a few tips to help you manage your human capital risk.


What is Human Capital Risk?

Understanding that almost everything that can go wrong in a business has a human capital component helps us understand the basics of human capital risk; it’s any risk that results from your human capital.

Five risk areas include:

  • Dissatisfaction: When employees are not happy with work conditions, advancement, compensation, and other aspects of their job
  • Attrition: When a company faces high turnover, causing high costs and low productivity
  • Corruption: When employees misuse their position for illicit personal gain
  • Workplace Disasters: When accidents or disasters hurt your workers, damage your property, or hurt your reputation
  • Careless Hiring or Retention: When companies hire or retain employees who are not qualified for their work or are untrustworthy

Using a human capital risk approach to managing your HR department should be an integral part of your strategy. Rather than just being the people who do payroll and other administrative processes, the risk approach makes your HR department proactive throughout the business to prevent problems.

Plan Ahead for Human Capital Risk

Human capital risk strategies do more than relabel old HR concepts, it helps put focus on planning ahead for problems so you can prevent them before they happen or react swiftly to mitigate the damage. According to an article by Lowers and Associates, people often wait to plan for a problem until something bad happens. But a crisis leaves no time for a management team to brainstorm solutions.

To plan ahead, analyze your business with a risk-based approach to see where possible problems could arise. Consider the ways that the five risk areas could affect how your company functions and make plans to mitigate them before they happen.

Use Positive Action to Mitigate Employee Risks

The first three areas of human capital risk involve employees behaving badly. While you should manage that risk by creating systems that limit an employee’s ability to do damage, an enforcement approach can only take you so far.

Some of the best ways to mitigate these kinds of risks is to build a workforce where your employees are compensated properly, engaged with the work they do, happy with their jobs, and have a clear path for advancement. These positive actions push employees to work harder and be more loyal.

This can be particularly important when recruiting overseas, because cultural expectations can vary so much from region to region. To keep employees happy in multiple regions, you will need to tailor how you work with your employees to their expectations to mitigate these risks.

Identify and Collect Good Data

One area that typically limits human resources departments from managing risk is a lack of data. The only way to analyze your human capital risk is to collect and analyze the right kinds of data. While every business generates reams of data, the problem is finding the right metrics that measure key components of your human capital risks.

It’s often advantageous to consider these metrics when measuring risk:

  • How will turnover patterns and age demographics impact growth plans?
  • Are the company’s development and succession plans working to fill the pipeline with qualified future candidates?
  • Is the company retaining its top performers?
  • Are certain HR policies, programs, or practices having the desired effect or, perhaps, unintended consequences?

When you define the right metrics to measure, it can help you analyze where your risk mitigation strategies are working and where they are not so you can adjust as necessary. Without the right data, you won’t be able to accurately analyze how you manage human capital risk.

Another way to mitigate risk when working with international employees is relying on a global Employer of Record partner.  Using infrastructure developed by a third-party provider can help your company hire compliantly without having to manage the ins and outs of your new country’s labor laws. Get in touch with us today to learn more.

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