People risk focus rising

by 26 Jun 2007

Human resources risks are increasingly some of the greatest threats facing Australian organisations, according to research.

While issues such as regulation and reputation have dominated risk concerns over the past two years, in recent weeks a number of independent studies of risk management issues have identified HR risks as critical.

Insurance broker Aon’s annual study of risk management trends found that human capital risk is now the third biggest risk concern, its highest rating since the study began. Fellow broker Marsh, meanwhile, reported recently that loss of key staff is among the top three risks facing its clients. Only competitive pressure was seen as bigger risk.

Marsh’s study also found that occupational health and safety issues and managing workers compensation costs were seen as key risks. The study results reflect an ongoing evolution of risk management from a centralised model to a more holistic approach, known as enterprise risk management (ERM).

According to Aon’s study of 290 organisations, the major HR risks in Australia are staff attraction and retention, absenteeism and employee injuries.

While HR risks are regularly ranked in the top five risks facing organisations, they remain largely unmanaged. A separate study by the Economist Intelligence Unit recently found that just 32 per cent of risk managers believe they are managing HR risk effectively. The only risks being managed with less confidence were terrorism and climate change.

One area where HR and traditional risk management skills have converged is business continuity. While traditional business continuity threats have involved securing buildings and IT equipment, September 11, the London bombings and the threat of a global bird flu pandemic have highlighted the human element of continuity, particularly in the banking community.

“Financial institutions across the board tend to be the leaders in this space,” said Andrew Fry, business unit manager, business resilience and continuity services at IBM. “They’re certainly integrating not only IT but also resilience and continuity culture among their staff. So their staff are aware of their plans and are actually involved in the testing; and we’re talking hundreds of staff, not just a couple of people. So I think from a financial point of view, yes they’re looking at the human capital side.”

International institutions, meanwhile, tend to have the edge on Australian firms due to their exposure of catastrophic events such as September 11 and Hurricane Katrina.

“Beyond the usual backup disaster recovery site for data recovery and office space, we know that locating and recovering our people in the first instance is absolutely vital,” said Peter Mihaly, head of corporate security and life safety for US bank JPMorgan in Australia. “To that end, we’ve also introduced – on the basis of lessons learned in New York– personal evacuation kits for staff which include facemasks, light sticks and wallet cards with key telephone numbers.”

Top five risks: Aon

Corporate governance

Systems

Human resources

Brand and image

Legal

Top five risks: Marsh

Competitive pressure

Loss of key people

Cost overrun

Customer demand shortfall

Occupational health and safety

Top five risks: Economist Intelligence Unit

Human capital risk (succession, loss of key people)

Reputation risk

Information technology risk

Political risk

Regulatory risk

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