Human resources risk management and EAP services: EAPS can be valuable partners in helping control and monitor organizational efforts to reduce human capital risks.

Most of the risks involved with many businesses are related to people and human resources (HR). As more business leaders recognize this, "HR risk management" is a concept that will become an integral part of the process of overall business risk management.

Business risk management traditionally has not focused on people, although people are at the core of managing any endeavor. Instead, business risk management focuses on such things as policies, procedures, planning, and bottom line results of business activities. Risk managers, however, are becoming increasingly aware of "people issues," particularly as they relate to change.

By integrating the disciplines of human resources and business risk management, HR risk management can optimize productivity and contribute positively to the bottom line of any organization. Working together, business risk managers and HR executives can create a very effective approach to change that minimizes harm to the organization and revitalizes the workplace.

Under the HR risk management concept, HR professionals will adopt the techniques of risk managers and hold themselves responsible for managing the value of human capital assets within their organizations. The questions they should seek to address are along the lines of the following:

* Does our board communicate clear objectives to staff?

* Do we support the business objectives and risk management/internal control system by creating an appropriate culture, code of conduct, set of human resources policies, and performance reward system?

* Do our own people and our external providers have the knowledge, skills, and tools to support the achievement of company objectives?

* Is our management committed to fostering trust and integrity?

* In our international operations, are we taking advantage of and dealing with implications of local cultures?

Even if HR professionals can show they have developed internal role clarity and accountability, who is likely to take responsibility for the implementation of risk management processes? Essentially, much of this will fall to HR departments. The traditional role of compliance will become one of creating a critical junction between effective risk management and greater organizational value. This can only be achieved if HR departments develop a coherent and persuasive approach to risk management.

Likewise, EAP/work-life/health promotion companies must become more sophisticated in understanding the role they play in human resources risk management. We as service providers must develop a clear sense of how to utilize the generic risk management process within the sphere of HR management.

OVERALL BUSINESS CONTEXT

What is good HR risk management? It is important to take a broader view of human resources than simply hiring and firing workers, setting salary levels, and administering benefits. Human resources should consider the operational performance of people in the work environment and all dimensions of how people link to their jobs and to their work organizations.

First, there needs to be a process for reviewing risks on a broad enough basis to capture all key risk areas and rank them in terms of priority (i.e., to assess the risks for severity/impact and frequency/volatility). This applies to HR risk as much as to financial, general business, or strategic risks.

It is often hard to assess HR risks accurately because they need to be considered within their overall business context. For instance, we routinely presume that labor turnover is "bad" and consider it a high-risk area. But whether turnover is "good" or "bad" in risk terms depends on who is leaving and joining and what is driving the situation.

To take one example, the benefits to technology organizations of rapid staff turnover are cost and structural flexibility and access to new ideas, knowledge, and skills. Meanwhile, some work organizations that demonstrate consistently low or stable rates of labor turnover experience significant, rapid changes in either their profitability or share price. The potential risks of labor turnover, therefore, are critically dependent on context.

What is the process of HR risk management? It consists of two broad categories of activities: risk assessment and risk control. Risk assessment comprises risk identification, risk analysis, and risk prioritization. These might involve the following:

* Key performance indicators (KPIs);

* Checklists;

* Project or divisional reporting;

* Corrective action processes from quality systems; and/or

* Comparisons with historical or financial data.

Risk identification may reveal not only risks that stem from people or events, but also risks posed by specific needs that are not being addressed. For example, a financial manager may identify a slow but steady drop in productivity He/she makes management aware of the situation, and management is motivated to address it. An HR manager will then define the risk in terms of the human element--perhaps the line manager is not communicating effectively with staff, or perhaps workers feel their concerns are not being heeded.

Risk analysis looks at decision-making processes, cost control and management, schedule reviews, product return rates, and product and service reliability and uses statistical or other formal techniques and models to quantify the risks. In risk prioritization, the significance of each risk is placed into the overall context of the business and the exposures are examined.

MAKING THE BUSINESS CASE

Having identified risks and quantified and prioritized them, the risk management process is now about controlling/ mitigating the risks. Risk control consists of planning, resolving issues, and continuous monitoring.

This is precisely an entry point for EAPs and work-life programs. As partners with our client companies, we can offer valuable resources to HR executives during the risk control stage. Through risk control initiatives such as employee surveys, team building exercises, and ongoing 360-degree multi-raters, we can help HR executives monitor the success of their efforts. Results can be tracked and benchmarks can be established as each goal is achieved.

The challenges to be faced from our perspective as service providers in this environment include bridging the short term with the long term, the operational with the strategic. It is necessary to carry top management with us, and increasingly our clients need to present a business case to justify their investment in us. The discipline required to do this professionally is one of the biggest tasks facing the EAP/work-life industry.

How can we make the business case? Business risk managers will be entirely conversant with the concept of return on investment (ROI). We know from experience that ROI usually is not the driver in selling EAPs or work-life programs to organizations, but it will be useful in valuing the contribution of such services from an overall risk management perspective. As soon as the phrase "business case" is mentioned, finance departments embark on some form of ROI calculation.

There can be important differences in the definition of the elements in the ROI equation for different applications, which can lead to wrong decisions when comparing ROI absolute values across organizations, industry sectors, and cultures. In order to derive a good outcome from ROI calculations, the "earnings," or benefits, need to be large compared with the "outlays," or costs. In the absence of dearly articulated or quantifiable benefits, client organizations must logically seek to drive down costs.

On the benefit side, the strategic benefits of HR risk management amount to developing the following:

* The ability to anticipate change;

* The resilience to cope with the pace and complexity of change; and

* The capacity to generate innovative and alternative solutions to take advantage of opportunities and meet changing market conditions.

With respect to the short-term operational side, an organization should seek higher efficiency, productivity, and quality and lower turnover, especially of so-called "knowledge workers." Costs, meanwhile, are influenced strongly by the context, nature, and current status of the company and its business strategy The biggest cost investment in adopting the HR risk management framework will have to be made in human capacity building, management knowledge, leadership, and measures directed at changing work ethics, the work culture, and the work environment.

It needs to be clarified that our client organizations do not need to make huge investments to achieve these benefits. As part of an overall HR strategy, an EAP or work-life program can be defined in terms of cents per head per month. Cost savings can be identified that accrue over time and eventually can be recognized in tangible ways. These savings might be things like a 20 percent improvement in efficiency, improved reporting and scheduling, or greater knowledge about workplace "hot spots," trends, or issues of conflict. These can lead to targeted expenditures on problems, thereby reducing waste.

With a pre-program baseline using business costs, surveys, and industry benchmarks and a monitoring system to record progress, a compelling argument can be made to management that our services add value. Beyond reports that are generated by service activity, such as client utilization/engagement rates, EAPs and work-life programs can use basic financial information from their client organizations to add another dimension to reporting that would carry more weight with business executives. Indeed, HR risk management for companies must presume integrated information across the entire enterprise, which means a foundation of communication for strategic and proactive actions, policy making, and collaboration to improve company-wide performance in a cost-effective manner.

In conclusion, organizations will become increasingly sophisticated in their approach to people in the workplace and adopt formal methodologies and processes to manage their risks. Many of these can be introduced, coordinated, and supported with our participation, but we have to be at the same level of organizational maturity to be a good strategic partner.

Bob Smith is director of professional services for IPS Worldwide, a privately owned multinational company specialising in human resources risk management and health services with core competencies in employee assistance, training, consulting, and technology. IPS Worldwide offers services to hundreds of organizations in more than 60 countries.