Manage Risk

Which potential outcome is the best example of a downside risk?

A downside risk predicts a negative effect on attaining objectives. In a situation in which an organization accelerates its work schedule on a project, a downside risk would be errors caused by employees working more hours and producing deliverables faster. The other examples are upside risks, which point to opportunities for gain or furthering objectives as long as they are managed well. For example, solid data should lead to implementing measures to realign skills with strategy. It will become a downside risk only if the organization does not act on the data.

Residual Risk

Amount of uncertainty that remains after all risk management efforts have been exhausted.

Environmental Health Hazards Biological

Bacteria, fungi, insects

What proactive step should an HR manager take to effectively and efficiently prepare her organization for continuity of operations?

By working with stakeholders to identify the organization's critical functions and minimally acceptable level of operations, the HR manager can better prepare, practice, and prioritize responses for different emergency situations.

Environmental Health Hazards Chemical

Dust, fumes, gases, toxic materials, toxic chemicals, carcinogens, smoke

Training

Employees must receive training in policies, their roles in the event of a crisis, and the use of special equipment

Policies

HR can help define and communicate employee policies aimed at avoiding or mitigating risks

Continuity

HR can identify essential HR processes that will be necessary to continue or return quickly to an operational level, such as paying employees and vendors or reimbursing expenses

Evacuation and relocation

HR can maintain current and detailed employee rosters so employees' locations can be confirmed after an evacuation

Communication

HR can use employee contact information (as allowed by privacy laws) to program automated outgoing and incoming communication systems. These systems can send status messages and instructions to employees during crises and log employee responses

Optimize

HR is developing a global assignment policy. To make the assignment program as attractive as possible and attract the greatest number of qualified candidates, HR includes a guaranteed income provision.

Avoid

HR is screening applications and pauses over a problematic one. The individual has the required skills and is immediately available. However, employment history shows periods of brief employment and unexplained gaps in employment. The early departures and gaps could have legitimate reasons, but they could also signify difficulty in adapting to work environments. HR decides to demote the application to secondary consideration after other "group A" applicants are screened.

Environmental Health Hazards Physical

Heat, noise, vibration, air conditioning, radiation, ventilation, smoking, sanitary conditions, drinking water, workplace design

Combine lagging and leading metrics

Lagging metrics look backward at what has been accomplished, while leading metrics measure performance that will affect results in the future

Be strategically focused

Measurement should focus on performance that directly affects achieving the strategic goal

Combine activities and results

Metrics related to activities show efficiency, while metrics related to results show effectiveness

Which upside risk management tactic is implemented to eliminate uncertainty?

Optimization is an upside risk management tactic to eliminate uncertainty.

An organization has entered the market as a new player and has decided to be a pay leader. With limited time to prepare, this may prove to be risky if the market demand for the company's services doesn't reach expectations. What may have led to the company's decision to choose this pay approach? Answers

Paying a premium to attract high-quality employees optimizes the risk and eliminates uncertainty.

A company wants to ensure that it is able to react quickly and effectively in the event of a crisis. The vice president of HR is in charge of developing a crisis management plan. What is the first step the vice president should take?

Planning requires a coordinated effort of many "experts." The first step is to establish a planning team that includes the best expertise available.

Which example demonstrates transferring risk to another party?

Professional liability insurance

A global consulting organization with employees in 23 countries is concerned about the ability to communicate with employees during a crisis. The CEO asks the HR director to develop a written communication plan. What should be the HR director's first step?

Senior management will know the organization's operations best and where inability to communicate would have the greatest impact. Obtaining information from senior management regarding the most valuable assets and their vulnerabilities will help the director prioritize his or her focus.

A retailer is expecting a very brisk holiday season, and HR has hired temporary workers to increase staff levels. If the season proves to be even more successful than management anticipated, insufficient staffing could mean empty shelves, angry customers, and lost sales. So HR arranges with a staffing agency for contingent workers who will be available as needed, although at a higher rate than the temporary workers are being paid.

Share

Sharing

Sharing with another party the burden of loss or benefit of gain for a risk. Risk sharing can be done through insurance or other agreements. It can create new risks or modify existing risks. Relocation of the source of risk is not risk sharing. In some situations, legal, mandatory, or statutory rights can limit, prohibit, or mandate the sharing of certain risks

An HR department is evaluating an online training tool to use with new hires for its effectiveness. The HR director believes that the tool should be used by other functions as well for job-specific training. The director invites those functions to attend a demonstration and possibly participate in funding the purchase of the tool. Which type of risk management strategy is the director using?

The HR director seeks to redefine or share ownership of the strategy (the tool) to increase the chances for success of this purchase.

Retention

The acceptance of the burden of loss or benefit of gain for a risk

Reduction

The actions taken to lessen the probability, negative consequence, or both associated with a risk

Avoidance

The decision not to become involved in or action to withdraw from a risk situation

A firm that regularly assigns employees to areas in which kidnapping is more probable will obtain kidnapping and ransom insurance coverage. This insurance usually includes the services of experts who assume responsibility for negotiations for the employee's release.

Transfer

Risk management is not a one-time event but rather an interactive and dynamic process. As an organization's risk awareness culture matures, how will its risk management processes change?

When risk management is introduced in an organization, typically downside risks are discussed. There will be more emphasis on upside risks, or opportunies, as the organization's risk awareness culture matures.

taking no action

an organization decides to ignore or pass up possible opportunities or to accept the occurrence of a threat

Crisis Management Planning and Readiness Process

applies the traditional plan, do, check, adjust cycle to managing crises. It emphasizes the need to test plans and to learn from tests and actual crises. Let's focus on the role HR can play in each phase.

risk management tactics

avoidance, reduction, sharing, and retention

Prevention

form of mitigation

Physical security risk

includes workplace violence, which, according to the Occupational Safety and Health Administration, affects approximately two million American workers annually. Workplace violence might result from conflict between employees, between employees and customers, and between employees and non-customers

Enhancing

involves increasing the probability that an opportunity will materialize

contingency plan

is a protocol that an organization implements when an identified risk event occurs

A common form of transferring risk for HR professionals

professional liability or errors and omissions (E&O) insurance

Mitigating aims at

reducing the probability that a risk will occur or decreasing the negative impact it will have

Ownership in this case refers to

responsibility for financial costs and operations

crisis management

seeks to identify risks that can result in sudden and extensive harm to facilities and/or the workforce and therefore in significant interruption and risk to the business

Cyber threats

seen as an issue that concerns only IT departments. However, HR should work with IT to develop policies and procedures to both prevent and respond to attacks

Transferring means

that a third party, frequently an insurer, will bear financial losses, obligations, or, possibly, liabilities in exchange for a fee

Sharing means

that another party will be brought in to help maximize the upside potential of an uncertain event

In choosing a specific risk management approach

the organization must weigh the costs of doing nothing against the costs of the response and the level of confidence that the response will attain risk management goals

By eliminating uncertainty

the organization or function takes steps to guarantee that positive risk events will happen and negative ones will not happen

As the response is developed

the risk register should be updated to include the response mechanism that has been selected and the individual or group with ownership of implementation.

Loss of productivity

which can have an effect on other employees, is a major risk associated with drug use