Risk Management in HR
The only sure way to avoid risk in nonprofits would be to lock the doors and put up a closed sign in the window. Risks are inevitable and organizations have a moral and legal obligation to attend to the safety and well-being of those they serve, those who work for them and others who come into contact with their operations. This is known as "Duty of Care."
Organizations need to look at all the risks throughout their entire operation and incorporate risk management into all planning and decision-making. However, the specific focus of this section is risk management as it applies to HR activities.
Applying risk management to HR
When developing a risk management plan for your HR activities, there are a number of areas to focus on. This general list will get you started but it is very important that all organizations identify and evaluate the risks unique to their own organization.
|HR Activity||Potential Risk||Potential considerations|
|Compensation and benefits||
|Occupational Health and Safety||
There is a connection between risk management and liability. Therefore, it is very important to obtain legal advice about your risk management plan.
The risk management process
Risk management is a cycle. That means that it is not something that gets checked off a "to do" list but it is a continuous activity. Having a risk management process means that your organization knows and understands the risks to which you are exposed. It also means that your organization has deliberately evaluated the risks and has strategies in place to remove the risk altogether, reduce the likelihood of the risk happening or minimize harm in the event that something happens.
At a very basic level, risk management focuses you on two fundamental questions:
- What can go wrong?
- What will we do to prevent the harm from occurring in the first place and in response to the harm or loss if it actually happens?
Identify the risks
- The very first step is to identify the risks. Ask yourself what can go wrong. Every activity of an organization poses a risk so brainstorm and document the risks.
- Consider both the general risks (that could happen to any organization) and the risks specific to your organization.
- Risks can be:
- Abuse that is either one-time or ongoing (physical, emotional, psychosocial, sexual, financial)
- Personal injury
Involving staff, volunteers and board members in the risk identification process will give you a comprehensive picture of the risks based on different people's involvement in different areas of the organization. You may also wish to engage the services and opinions of an accountant or a lawyer.
Assess the risks
- If you have done a thorough job of identifying risks, you may end up with a long (and overwhelming) list.
- The next step is to assess each of the risks based on the (1) likelihood or frequency of the risk occurring and (2) the severity of the consequences.
- Using a risk map to plot the likelihood of occurrence and the severity of the consequences will help you prioritize your next steps.
Develop strategies for managing risks
- Consider the most appropriate risk management strategies for each identified risk:
Avoidance - Stop providing the service or doing the activity because it is too risky.
Acceptance - Some risky activities are central to the mission of an organization and an organization will choose to accept the risks.
Modification - Change the activity to reduce the likelihood of the risk occurring or reduce the severity of the consequences. Policies and procedures are an important part of this risk management strategy because they communicate expectations and define boundaries. Learn more about writing policies and procedures.
Transfer or sharing - Purchase insurance or transfer the risk to another organization through signing a contractual agreement with other organizations to share the risk (for example, having a contractual agreement with a bus company to transport clients rather than staff driving clients).
When you have decided which risk management strategies will be the most effective and affordable for your organization, practically outline the steps and who is responsible for each step in the risk management plan.
Communicate the plan and ensure that there is buy-in from all who are involved in the organization (staff, volunteers, clients, other relevant stakeholders).
Provide training for all organizational staff and volunteers so they understand the rationale of the risk management plan as well as the expectations, procedures, forms, etc.
Consider the following questions and document any changes to the plan:
- Is your plan working?
- Have your risks changed?
- Have you expanded or reduced your programs and services?
- Are changes or updates required?
- Are staff and volunteers following the risk management plan?
- Do they need re-training on the details?
- Do we need to better communicate the plan?
Risk management is an evolving field. Therefore, it is a good practice to keep current and re-evaluate your organization's risk management system on an annual basis.
Who is involved in the risk management process?
Risk management is a large and important undertaking. There must be commitment from the board to commit the financial and human resources. In larger organizations, a risk management committee, team or department may be formed to handle the risk management process. In smaller and medium sized organization, the responsibility for developing and implementing a risk management process will likely fall on the executive director. However, paid staff, volunteers - and potentially clients and other stakeholders - will be very helpful partners in identifying risks and developing effective strategies to deal with the risks. Once the risk management process is in place, everyone in the organization has a role to play from identifying risks to following policies and procedures to completing forms and reports.
Next Section: The Board's Role in HR