The corporate world is littered with examples of how culture and individuals’ behaviour can have an adverse impact on an organisations reputation and success:
- ‘Automobile recall probe to blame cultural failings’
- ‘Phone hacking scandal costs media empire over £350M’
- ‘Enron declared insolvent’
The financial sector has also had more than its fair share of troubles:
- ‘Retail bank fined £2.8M for poor complaints handling’
- ‘Bank fined £7.7M by FSA for investment advice failings and secures as much as £60M in redress for customers’
- ‘Bank fined £218M for Libor rigging scandal’
The potential financial liability has been exacerbated by tough and far reaching regulatory changes, which have been applied across financial services since 2008, leaving staff wondering how these changes affect them.
Furthermore, with an increasing focus on customer experience, how can you ensure that any business change maximises your employees’ ability to serve your customers well?
The solution is your people, right?
People are central to the banking proposition, so understanding and managing risks associated with a company’s workforce means ensuring that an organisation has the right people, in the right job, with the right training and remuneration.
Managing people risk effectively can improve an organisation’s reputation internally and externally, positively influence shareholder value, and increase business advantage. It should be part of an organisation’s measurement and reporting to include the health and reputation of the business.
What can we learn from Formula 1?
Organisations that prove to be effective at managing people risk are those that engender an open culture, specifically acknowledging the existence of risks and understanding their potential impact. These must be assessed in the context of the organisation’s appetite for risk. The key differentiator is being able to foresee changes that are driven from inside or outside an organisation and be agile and on the front foot to quickly adapt to them.
An excellent example of real time risk management is found in Formula 1, where understanding the objective, situation and risk appetite is key to drive decisions and actions in managing risk. Understanding which risks to live with and which to manage often makes a difference between winning and losing. Leaders of the constructors are continually reviewing and seeking answers to questions such as:
- How do we retain the best engineering and driving talent?
- What driving technique should we employ to secure best starting position during qualifying sessions?
- How aggressively should the cars be driven to secure a good finishing position without crashing out?
...and how can you make pole?
So, how does this relate to people risk in the financial services sector?
Analytics can help to quantify people risk that is inherent to any organisation – there are mechanisms and approaches to convert ‘soft’ and ‘hard’ factors into monetary values so you can understand the current and predict the future inherent cost of risk within your organisation.
This cost of risk can be established through a range of measures and metrics, generating insights and helping to predict changes that may have an impact on risk exposure.
Through a set of leading and lagging measures it is possible to forensically assess the effect of change on risk categories that are particularly relevant to the financial services sector, such as leadership, people management and compliance.
The principle of cost of risk then becomes a key component in the strategic and operational management of the workforce; understanding the overall organisational risk exposure and trading-off against the cost mitigation. This technique can be used to evaluate business scenarios and set out clear, quantitative information to help inform decision making, in the same way as the F1 management teams gather a combination of diagnostic data and other metrics to make real time decisions on driving strategy to achieve the desired outcome: winning.
Only when you measure risk, can you start to manage risk. Being on the front foot and adapting your business to deal with continued change will enhance shareholder value.