Friday, 8 January 2016

HUMAN CAPITAL RISK MANAGEMENT II

SUMMARY FROM INTRODUCTION TO HUMAN CAPITAL RISK

Human Capital is simply defined as the skill, experience, quality of attitude, resourcefulness, and other intangible assets or qualities of individuals that can be used to create economic value for other individuals, their employers or their community.
It is pertinent to invest in Human Capital as it increases the wage of the employees, bottom line of organisations and wealth of a nation.

Human Capital Risk Management
So what is risk management?
It is simply the process of identifying, evaluating and controlling risks which threatens an organisation’s earning capability using the least costly approach.
·         You cannot manage a risk you have not identified.
·         After identification of a risk the next logical step would be to evaluate or to quantify the risk. That is how much damage is it likely to cause? Most times risks can be quantifiable in monetary terms. 
·         After measuring the risk, the next thing would be to reduce it using the most cost effective approach possible. It does not make sense to utilize all of your resources in trying to manage one risk. Doing so will create exposure to other risks.

So what are the risks particular to Human capital?
Trust me they are numerous. However for the sake of this piece, I will talk about five critical human capital risks and how specifically they can be managed

Usually risks attaching to human capital are not accorded the same measure of importance as others until the damage is out of control or almost out of control.
Some of the effects of human capital risks can be very costly. Some of the most critical ones are:

1.    Risk of Complacency
Complacency simply means having a false sense of accomplishment or satisfaction especially when the individual or population is unaware of the actual dangers or deficiencies attaching to the responsibility delegated to them.
Some factors that lead to complacency are:
·         Foregoing a moment of insight
·         Excessive sense of confidence
·         Tendency to make excuse
·         False sense of reality 
How to deal with this:
A.   Create a culture that embraces excellence.
B.   Create a culture that embraces Enterprise Risk management

2.    Risks Relating to Staff Turnover
Staff turnover is the ratio of the number of workers that had to be replaced in a given period  of time to the average number of workers. In order words, it is how often people leave an establishment and needs to be replaced in a given period of time.

The Costs of Turnover
This can be categorized into direct and indirect costs

Direct Costs
1.    Separation costs
2.    Temporary staffing
3.    Replacement costs
4.    Training costs
Indirect Costs
1.    Lost productivity: characterized by,

  • Coping with vacancy
  • Learning curve of new employee
3.    Lost clients
4.    Lost knowledge
Many companies typically pay between 25% and 250% of an employee’s annual salary to replace that employee.

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