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The State of Enterprise Risk Management in the USA: Part III - Integrating ERM and Human Resources

7/30/2020

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​Phil Renaud concludes this article series with a discussion of the need to build a better bridge between the HR function and risk management.

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Part I of this article provided an overview of the results of the 2019 risk management survey conducted by The Risk Institute at The Ohio State University’s Fisher College of Business. Part II of this article focuses on the role of leadership and the integration of risk management throughout the enterprise, including day-to-day decision-making.  This final section looks the need to build a better bridge between the Human Resources (HR) function and risk management.

A core belief of the OSU Risk Institute is that integration is key throughout any company because no one single department has responsibility for managing risk.   Risk is a dynamic set of exposures to a firm, and the expectation that one single department has responsibility for risk is antiquated.  A better view is that risk is embedded in all sectors of a company and that management of risk-related data should be supported by an integrated risk assessment and analytics that helps frame decisions. When it comes to developing and building this risk culture, we see HR as a vital conduit for connecting risk and other departmental functions throughout an organization.

A key finding of our 2019 survey is that companies need to build a greater connection between risk management and HR.  When survey respondents were asked why risk management is not more integrated into the HR function, over 40% indicated that HR employees "have other priorities."  With regard to HR's involvement in risk management activity, planning, and execution, 47% of respondents indicated that they were “just somewhat and/or not very involved at all.”

Integrating HR and ERM will certainly be a challenge when the risk management team does not reach out and HR is unable to see the benefits of alignment and integration.  About half of the companies responding to the survey indicated that HR is at least “moderately” involved in risk management activity, planning, and execution. This ratio is higher in nonfinancial firms (54%) than in financial firms (43%), and higher in public firms (59%) than in private firms (49%).

How do we change this?  Certainly, risk professionals need to demonstrate their worth and the integral role they play within the organization in order to effectively collaborate with other departments.

The simplest way to do this is to open a dialogue: help us so we can help you. According to the survey, the most important aspects of risk management from an HR perspective are that "ensuring employees are trained," "key roles are filled," and "employees do high-quality work."  These are key challenges that ERM can help address, especially when HR is dependent on other parts of the organization to make sure the potential of the workforce is optimized.

Another way of thinking about optimizing the potential of the workforce is helping the enterprise flourish.  Getting a company to flourish is not the just the responsibility of one department (e.g., HR), it’s everyone’s responsibility.  That takes building a healthy risk culture.

ERM, like HR, is a vehicle for connecting all the organizational functions throughout a company.  Building strong interdepartmental communication is the pathway for these connections.  What successes or failures are occurring and who should this information be shared with?  What key performance indicators (KPIs) and other metrics should be used?  With HR, a helpful KPI might be tracking the cost of work-related injuries and making that a point of discussion between the risk management team, HR, and the department that employs the injured worker.  When all three parties get together, the company is more likely to achieve the enterprise-wide goal of a healthy and safe workforce.
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Our survey has taught us that HR is a natural place to start in building a stronger ERM model.  HR professionals are in a unique position to help the risk management team identify, manage, monitor, and review risk, especially because everything is done by and through people.  This energy can then have a trickle-down effect on other parts of the company so that over time, the whole enterprise is following the same risk management policies and practices.

Today’s risks develop at a much-accelerated pace and require a deeper understanding of complex business disciplines in order to define and develop a proper risk mitigation strategy. Opening a two-way conversation/street between risk management and HR is a good place to build better collaboration and partnership across departments.  In closing, the research is starting to show us that the best risk management professionals of the future will be those that have expertise in communication, collaboration, and teamwork.

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    Authors

    Lori Siwik and Mark Siwik are the founders of SandRun Risk.  They apply the principles of vertical leadership and lean six sigma to the discipline of risk management.  From time to time they share their blog with guest authors who write about important risk management principles.

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