After an unprecedented 18 months, it’s understandable that anyone in business is thinking about risk as they move forward. Even a year later, many businesses are still reeling because they were unable to adjust or anticipate the situation lasting this long.
People will remain cautious, even as the pandemic begins to abate. That includes business owners, who may be thinking about hiring, growth, and ensuring they’re prepared for whatever the market can throw at them.
Given all this, risk assessment is more important than ever.
What Is Risk Assessment?
A risk assessment is an exercise that gives you a panoramic view of potential or real risks facing the business. An example of a risk might be the labour force.
If you don’t have enough people on staff, you may not be able to meet demand. If, by contrast, you hire too many people, you may find that you can’t keep up with payroll. You need to anticipate your demand and growth, then plan your workforce and hiring to meet current and projected demands.
Another risk might be entering a new market. If your product or service doesn’t sell, you could lose your initial investment and need to close up shop. However, staying out of a new market could mean you lose out on market share, growth, and profits.
Other risks include your financial liabilities, legal compliance, and more. In the HR department specifically, injuries, lawsuits, and benefits are all sources of risk. A pertinent example might be sick days or vacation days right now. Organizations that let employees bank sick days for years may find themselves suddenly on the hook for paying them out.
A comprehensive assessment shows you the risks facing the business. In turn, you can plan to reduce these risks. You can also create a strategic plan for dealing with risks that come to fruition.
Different Strokes for Different Businesses: Risk Profiles
You might be familiar with the idea of a risk profile if you’ve ever invested in stocks or mutual funds. The same idea applies to your business. Its profile suggests how much risk it will tolerate, as well as your strategy around risk.
An aggressive risk profile suggests the business is willing to take lots of risks. You’re going to hire lots of people ahead of expected growth. You’ll enter new markets when you think there’s an opportunity. You may take financial or legal risks as well, with the hope that the gamble will pay off for the organization. In the technological realm, you’re often an early adopter, in hopes of being on the cutting edge.
At the other end of the spectrum is a business with a conservative profile. This organization likes to “play it safe.” It prefers more incremental change, with means-tested technology and policies. It tends to keep doing things the way it has always done them. It may not be on the lookout for new markets to tap into.
An organization that falls directly between the two extremes has a “moderate” risk profile. Some organizations are “moderately conservative,” while others are “moderately aggressive.” A moderately conservative organization shows more conservative tendencies. A moderately aggressive organization still takes on more risk than other profiles, but not as much as an aggressive organization.
The ERM Approach: Is It Time to Update?
Knowing which kind of organization you are is important, especially if you’re going to use the enterprise risk management approach. ERM is a plan-based approach that tries to anticipate risks and create protocols for reducing or mitigating them.
As a result of the last 18 months, many organizations are revisiting both their risk profiles and their ERM plans. Many are showing more conservative tendencies, given the unpredictability of the pandemic. Many business leaders are also more aware of potential risks and the benefits of having disaster plans in place.
Some organizations are cautiously optimistic, though. Many are actually sitting firmly in “moderate” territory, where they’re ready to take well-calculated risks with a good chance of paying off big-time.
Risk assessment for your labour force is strategic, and data insights from the right technology can help. Discover what an HRIS could do to inform your risk-management strategy!