What is risk management?

HR departments that issue employment contracts, publish codes of conduct, undertake performance management and ensure that line managers are offered appropriate training and support are all engaged in managing risks of one kind or another. But the term
‘risk management’ is also used to mean a systematic and strategic approach that aims to ensure the potential upsides and downsides of particular courses of action are identified at the planning stage and subsequently taken into account. Risk management in this sense is
strategic because it requires standing back from day-today operations and asking ‘what if’ questions designed to put on the table a range of relevant data. This represents a shift from the traditional view of financial risk that fell squarely within the province of accountants to one that is now recognised as multidimensional and multidisciplinary.

Here are some of the latest from CIPD-London findings

How can HR professionals contribute to the risk management process?


Involving HR practitioners fully in the process of strategic risk management should mean that the job of identifying and prioritising risks is more effectively carried out. Organisations, particularly those with a strong technical or financial bias, may often neglect people issues when it comes to managing risks. But, as was seen above, risk management professionals have few illusions about their importance and in fact rank
them very high.


What is the level of understanding in the HR community about strategic risk anagement?

The interviews revealed wide variations in interpretation by HR practitioners of what a ‘risk management’ approach means in practice. Only a minority of those interviewed could describe their organisation’s overall approach to managing risk. It was clear that the presence of a well-defined system of risk management, and consequently organisations’ experience of integrated risk management practices, were patchy.
The role of the industry regulator was an important factor influencing how HR was involved with risk management.

In the firms consulted in financial services, the media and the public sector as a whole, there was evidence of a strategic risk management focus in which HR had a key role. In each case, there was a close working relationship with sector or industry regulators, with HR having specific areas of involvement:



In  financial services, HR has been involved in the design of the training and competence assessment elements of the regulatory process and is heavily involved, along with the regulator, in the day-today monitoring of those directors and employees regulated by the Financial Services Authority (FSA). 

In the media sector, there was evidence of significant joint working with the regulator and other bodies on key risk areas such as recruitment and skills development issues. 

In the public services, HR was working across agencies and departments and with external bodies to identify and manage risks, as part of implementing transformational change in how HR is delivered.

In business services, there were significant issues with a range of regulatory regimes, but responsibility was highly devolved and HR had minimal involvement, mainly with policy and procedure development.

In both engineering and manufacturing, HR’s involvement with risk management was by and large at a tactical or operational level, except where it was drawn into major governance-orientated projects such as compliance with Sarbanes Oxley. The view from
the engineering sector was that a business impact rather than a risk management approach was currently favoured except in large and/or multinational firms.

Only in a minority of cases, however, was there evidence of integrating HR within a strategic risk management model. The best example was where the HR director had a clear picture of the organisation’s risk agenda, was a key player in dealing with risks, and saw this as an opportunity to add real value to the business rather than simply to minimise or avoid possible risks.


What is the value to the HR function of becoming more closely involved?


The research evidence quoted above confirms that when people management issues are seriously addressed in a risk management context, they come high on the agenda. For example, mergers frequently fail because management is unable to reconcile divergent cultures. Organisations underperform because employees lack commitment, or are absent from work.

Problems occur in senior management where succession planning has been ineffective. These are all people management issues and the way they are tackled – or neglected – will be reflected in the bottom line. They are also strategic in that their effects are felt mainly in the medium or longer term, rather than in the short term. The risk management process can highlight the fact that these and other HR issues are fundamental to
the long-term health of an organisation.

It will be clear that adopting a strategic risk management approach requires people management issues to be placed squarely on the mainstream business agenda, in many cases with a high priority for attention and action. The risk agenda doesn’t necessarily mean HR people adopting a wholly different agenda or dramatically changing policies and practices.

Essentially, risk management provides a framework for linking HR policies and practices with wider business outcomes. This is another opportunity for HR to show its
understanding of the way the business works, and how action in one area has repercussions in another.

CIPD surveys confirm there is a strong relationship between a positive psychological contract and performance. At the same time, the findings show that many employees
are reluctant to place high levels of trust in the organisation. This is clearly one of the major long-term threats to employers’ ability to maximise employee commitment and engagement. Although commitment and engagement emerge from the interviews with
organisations that have implemented a strategic risk agenda as high on their list of risk priorities, the same cannot be said for employers generally. Building and maintaining employee trust is clearly a key issue for most organisations.


HR is involved in risk management across a range of Focusing on strengthening the HR contribution industry sectors. However, its involvement is often at to managing  Organisational risk fits well into HR the operational end of the spectrum and confined to professionals’ aspiration to behave in more strategic issues falling within the traditional ambit.

Prof.Lakshman Madurasinghe MA.,MS(Psy).,PhD., Chartered Fellow CIPD-Lond., Consultant Psychologist /Attorney

Web site: http://lmadurasinghe.googlepages.com