Monday, October 6, 2008

HR Audit as a Risk Mitigation Opportunity

With Dow Jones YTD returns plunging to -25.00% this week, we all witnessed how the debacle of financial institutions is paralyzing the whole economy. Clearly, poor risk management and short-sight of financial institutions are some causes at the roots of this abysmal. As a backbone of organizations human capital strategy, HR has unique opportunity to proactively identify and mitigate these risks with HR Audit. Here are some thoughts.
1. Organization structure and reporting relationships: Inconsistent job functions and reporting relationships are the evidences of poor risk management, oversight and control. A systematic and disciplined review can pin-point the reporting relationships, authorizations, roles and responsibilities that are not conducive to effective risk management. For example, the audit may reveal a missing portfolio level risk assessment function for new investments and induce the need for additional reporting relationships to enforce managerial approvals for transactions involving high risk.
2. Objective and goal management process: Establishing realistic and achievable goals is critical to ensure that the managers are not tempted to signup for the risks that can put the whole organization in danger. The audit is an excellent opportunity to identify and improve situations where the unrealistic goals are contributing to the organization abysmal.
3. Talent alignment to organizational objectives: The goals and pay practices should be established so that everyone is imminently working on things that are most important to the organization as a whole instead of the individual interests that artificially inflate performance numbers. Audit should reveal situations where the goals and pay practices of divisions/departments/interests are not congruent with the true interests of organization to create long term stakeholder wealth.
4. Training: Training should clearly communicate to employees about their roles, responsibilities, expected performance and conduct. The expected performance here needs to be clearly defined in the context of organizational performance and success instead of individual performance. Audit should uncover training gaps in this area to deploy additional training courses to fill these gaps.
5. Hiring practices and Talent Management: Employees that are competent and know what to do in a given situation are critical to drive organizational success. The audit may reveal knowledge and experience gaps, for example missing knowledge of risk assessment, for critical job roles. These finds can then feed into required competency definitions for job functions and related hiring/development processes.

A systematic and disciplined HR audit can uncover serious risk exposures to organizational performance and enable organizational leadership to proactively mitigate these risks at the foundation level with the innovative HR strategies.

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