The potential to predict people risk with the help of science and analytics.
KPMG global research shows that between 2013 and 2015 only 3 percent of employee fraud was identified by proactive risk-focused analytics. With so many organisations lacking even the most basic risk analysis structures, we look at the importance of people risk analytics and how organisations can get started.
In 2016 it is people and their ideas, not machines that deliver competitive advantage. People are an organisation’s greatest asset, with Human Resources Directors (HRDs) tasked with turning human capital
investment into profit and performance.
However, employees don’t just create value, they can destroy it too. HRDs may not want to admit it, but the reality is that their people are also their organisation’s greatest risk.
Growth is easy to measure. Risk is not. It’s a complex metric to quantify. It’s not a number you can put on the balance sheet and yet it can impact brand value or current/future potential. Risk is non-linear. The same results can stem from both company-wide systematic failures or from something random such as a single, bad hire. Risk can be group-wide – the failure to be gender/ethnically diverse – or it can be the result of an organisation’s culture of complacency or carelessness. You could be forgiven for wondering where to begin when establishing analytics for risk. Internal audit and risk committees can be a good place to start, setting the tone for the rest of the organisation. Arguably when gender pay gap reporting becomes mandatory for employers with more than 250 employees in 2017, organisations will already be identifying gaps that could expose them to risk or reputational damage.
Be owners of risk
Things needn’t be like this. Risk might be omnipresent, but we believe risk is predictive and organisations that understand this – and take action – will be the ones that prosper. Ultimately, HR cannot exist on intuition.
Those in the HR function must evolve to take ownership. Compliance-level risk is HR’s traditional heartland but ensuring organisations have the right recruitment practices and best cultures are all elements that HRDs need to redefine from a risk point of view.
Every time HR sets executive pay there should be a requirement to predict risk (stakeholder response, media criticism and brand impact). Proper analytics don’t just evidence risks associated with particular outcomes; they can even test the predictive nature of decisions around tackling attrition, diversity, reward, and recruitment. Measuring risk can evolve to testing hypotheses and developing risk dashboards.
Being able to predict – and potentially avert – service delivery failure could help organisations to avoid major reputational damage. Data insights from workforce analytics could identify areas where, for example, there is a high correlation between mistakes and a high level of attrition. Address the reasons behind the attrition, and it’s possible to mitigate some of that risk. There are numerous high-profile examples of service failures that made the headlines; could these mistakes have been avoided by predicting they might happen?
Crucially, this isn’t the stuff of science fiction, it’s happening now. The financial services sector is already predicting the risk of investing their pension funds into certain organisations – and it’s exactly the reputational, diversity, and compliance assessments of organisations that drive this. But the clear role for HR is not just embracing risk analytics, but acting as the authority on it – making it real and demonstrating that risk analysis can be trusted by highlighting its potential to impact the bottom line.
Placing a value, rather than an index, on risk might still be the Holy Grail in risk analysis, but the best HRDs are beginning to form baselines around which risks to predict.
Remember, organisations can never totally eliminate risk, but building in predictive risk analysis is about building in organisational safety valves. It’s about understanding what happened in the past, learning what’s happening now, predicting what will happen going forward and then intervening. And ultimately it’s about understanding that predicting risk shouldn’t be an alien concept. It’s very much the art of the possible. The solution exists, and we should use it.
Risk really ought to be about managing what needs to be done. It might be hard to do at first, requiring skills which build on an evidence based approach to HR, but that doesn't mean it shouldn’t be attempted, especially when it can add valuable business insight.
Making every person count