Risk Management
People Risk Uncovered: Protecting Your Business From The Inside Out
By Reuben Kisigwa
Overview of People Risk
" People-related exposures, such as health and safety, governance, and digitization, have been rapidly rising up risk registers and are gaining increased board attention. In part, this trend has been accelerated as the Pandemic clearly showed that threats to the health and well-being of the workforce threaten the overall resilience and success of a business "( Mercer Marsh Benefits, Managing the People Side of Risk Survey Report, 2021).
Employees are often seen as the heart of an organization, driving its success, yet they also present some of the biggest risks. People risk encompasses a wide array of challenges, from decisions made by individuals that could harm the business, to larger concerns like the loss of expertise due to retirements or the presence of skills gaps in critical areas. While employees and other stakeholders play a crucial role in achieving the organization’ s goals, they also bring risks that can obstruct progress toward those objectives. In today’ s fastpaced business landscape, it’ s crucial to manage these risks effectively to maintain trust both internally and externally.
What is people risk?
Within the context of enterprise risk management, people risk is often also known as human capital risk, workforce risk, talent risk, or conduct risk.
People risk refers to the potential issues that can arise from the actions or decisions of individuals within an organization, which can negatively impact the business. This type of risk includes challenges such as employee misconduct, high turnover, poor leadership, and safety concerns.
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In addition to other operational risks, human risk can also create vulnerabilities that jeopardize sensitive information, often unintentionally. This can result from failures in following procedures or non-compliance with regulations, potentially leading to security breaches or other significant losses. Some common challenges in managing people risk include difficulties arising from employee skill gaps, failure to comply with laws or regulations, unethical behavior, and the loss of key personnel. Essentially, people risk encompasses any potential challenges an organization may face related to how it manages, utilizes, and refers to its workforce in its processes and day-to-day operations.
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People risk can take many forms. It might arise from efforts to build a highperforming workforce to meet strategic targets, or from HR ' s responsibility to ensure employees are trained, data is protected, and regulatory standards are met. Furthermore, people risk is also tied to the systems in place to support, safeguard, and manage staff members.
Each type of people risk presents unique challenges that, when properly understood, can be managed effectively with a strategy tailored to the specific risk and the organizational context.
Operational risks stem from issues that arise in the course of everyday activities, such as inadequate knowledge or lack of supervision, which can disrupt key business processes. Compliance risks occur when employees fail to adhere to laws, regulations, or company
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Financial risks are associated with poor management of funds, whether due to dishonesty or errors in reporting, which can have severe implications for the organization’ s financial health. Reputational risks involve behaviors by employees that could damage the company ' s public image, particularly when ethical standards or customer care are compromised. Health and safety risks arise from failures to ensure workplace safety, which can lead to accidents or health issues, impacting not just individuals but the broader business environment. Finally, talent risks include high turnover of key personnel or difficulties in attracting qualified staff, both of which can threaten the organization’ s sustainability and longterm growth.
The Impact of People-Related Risk
People-related risks have a broad and profound impact on organizations. These risks, stemming from human behavior and interactions, manifest in various components of risk- specifically risk causes, risk events, and risk impacts. As one of the four primary root causes of risk, alongside systems, processes, and external events, people play a pivotal role in shaping the risk landscape. The causes of people-related risks often include factors such as a poor organizational culture, greed, inadequate capabilities, and cognitive biases. These