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People Risk / Risk Appetite / Tolerance

2018-07-24

People Risk / Risk Appetite / Tolerance

Based on the latest thinking in corporate governance, behavioural economics, human resources and operational risk, people risk can be defined as the risk that people do not follow the organization's procedures, practices and/or rules, thus deviating from expected behaviour in a way that could damage the business's performance and reputation. From fraud to bad business decisions, illegal activity to lax corporate governance, people risk - often called conduct risk - presents a growing challenge in today's complex, dispersed business organizations—excerpts from People Risk Management by Keith Blacker and Patrick McConnell.The risk that people do not follow the organization's procedures, practices and/or rules, as stated in the definition above clearly manifested severally in the just concluded World Cup.

For instance, a Croatian player, Nikola Kalinic, one of the only two strikers who came to the World Cup 2018 with Croatia, was ‘benched’ in their Match against Nigeria for reasons best known to the coach (team manager) who is the Chief Risk Officer as well as the Chief Responsibility Officer of the team. Obviously he didn’t want to ‘exhaust’ the two strikers at the same time, so he must have decided to play a striker and leave one on the bench as a reserve for the next match or as a substitute in the current match, should the need arise. However, in the game (Croatia vs Nigeria) when Croatia was leading 2-0 and the coach was feeling very comfortable that the match was almost over in the 85th minute, he beckoned on Nikola Kalinic to come in as a substitute, but the player blatantly refused. According to Coach Dalic, this was not the first time that Kalinic would behave this way, having done the same in a friendly match against Brazil before the World Cup.

So a decision had to be taken by the coach, on how to handle this recalcitrant attitude of the player. Two things were probably considered by the coach as follows:

 1. Only 23 team members (players / coaches) were approved by FIFA, the world football regulator, and if the player was asked to leave, it will deplete the number to 22

2. But if the guy was allowed to stay, it would tantamount to an endorsement of indiscipline in the team which would

be equally toxic for the team at the world cup. The final decision depended on the next topic – Risk Appetite &

Tolerance.

 

Risk Appetite & Tolerance

Risk appetite can be defined as ‘the amount and type of risk that an organisation is willing to take in order to meet their strategic objectives. Organisations will have different risk appetites depending on their sector, culture and objectives. A range of appetites exist for different risks and these may change over time.

While risk appetite is about the pursuit of risk, risk tolerance is about what an organisation can actually cope with- IRM, UK

So as a manager, what amount of risk(s) are you willing to take on behalf of your organization, in the pursuit of your targets or objectives? And what risks eventually can you cope with?

Coach Dalic weighed the options in the light of Risk Appetite and Tolerance limit of his country’s football team and sent the disobedient player back home so as to demonstrate that there was Zero tolerance for indiscipline or misdemeanours in the team.

The implication is that the number of the team members was now reduced to 22 from 23. Despite this and without Kalinic, however, Croatia reached the World Cup final.

Kalinic flew from the World cup base in Russia for holidays, and even posted pictures of himself enjoying elsewhere. Afterall, he seemed to imagine that Croatia won't go anywhere in the tournament without him. But he was wrong, the team managed to win their matches and has made their greatest football achievement in history, reaching the World Cup final. The remaining 22 players became national heroes and their names forever inscribed in the hearts of generations.

 

LESSONS

Are you sure you don't have a Kalinic in your team? If you do, give him a Dalic (Coach) solution because as the manager, you are the CRO (Chief Risk Officer) of your department or unit or team and will be held responsible for the management of whatever risks emanate from your area.

No staff at any level should be allowed to hold the organization to ransom, because NO STAFF is bigger than the organization.

People risk is very real. People can do and undo, and can spring surprises anytime. As a leader you must prepare for eventualities that can result from people management.

 Kalinic flew from the World cup base in Russia for holidays, and even posted pictures of himself enjoying elsewhere. Afterall, he seemed to imagine that Croatia won't go anywhere in the tournament without him. But he was wrong, the team managed to win their matches and has made their greatest football achievement in history, reaching the World Cup final. The remaining 22 players became national heroes and their names forever inscribed in the hearts of generations.

LESSONS 1. Are you sure you don't have a Kalinic in your team? If you do, give consider giving him / her a Dalic (Coach) solution because as the manager, you are the CRO (Chief Risk Officer) of your department or unit or team and will be held responsible for the management of whatever risks that emanate from your area.

2. No staff at any level should be allowed to hold the organization to ransom, because NO STAFF is bigger than the organization. People risk is very real. People can do and undo, and can spring surprises anytime. As a leader you must prepare for eventualities that can result from people risk management.

 STILL on Human Capital Risk

RISK IN MOTIVATION & REWARD

Yes there are risks in rewarding performance and these risks should be carefully managed in order to encourage all team members and not cause divisions in the team. Credits for team performance should go to ALL instead of just a few. If not, the outcome could bring more risks than anticipated.

For instance, still on the world cup RUSSIA 2018 tournament under review, some of the football stars were over- celebrated to the detriment of the team. This affected Argentina Messi, Portugal Ronaldo etc. In the case of Lionel Messi, his name was inscribed on several banners and carried by most of the Argentina fans. Same with Ronaldo of Portugal and few other stars like Neymar (Brazil) etc, what about the feelings /emotions of other members of the team, including those who struggle hard to win balls in order to be  able to pass to Messi  & Co?

Some of these footballers work more than the celebrated stars but they are unsung - these have effects on team’s performance.

 

How does this scenario play out in your organization?

Profit Sharing – In some organizations, It is almost a curse to be in ‘unsung departments’ eg Audit, Inspection, Internal Control, Risk Management or any other control function at the time of profit sharing. An Assistant Manager in Treasury or Public Sector could get more that a Deputy General Manager in Audit, IT or Risk Management in a bank. Ditto for manufacturing organizations etc where the marketers or sales personnel are more favoured than the accountants, IT, Audit, Risk or other control functions - Is it a ‘sin’ to be in the back office or Control function? Are all working as a team? Are some outputs more valuable than the others and if so, must the gap be as wide as that?

All these practices have effects on motivation and hence, human capital risk management in organizations.

On a flip side, two friends joined the same organization as fresh graduates on the same day and were also living in the same area. One was posted to Internal Audit, and another, to Business Development (Marketing) department. Within a very short time, the guy in Business Development bought a new car but the auditor found it difficult to buy a 14 year old CAMRY that someone in his office wanted to dispose. Since they are friends and are living in the same area, the disparity, over time, was so much noticed that one day the wife of the auditor had to call her husband to ask him in confidence whether he was still working in the same organization or that he had probably been sacked but had refused to tell her…

Is the job of an auditor (defence) less important than business development (attack) in your organization?

If so, who will defend you if the attacker misses the ball and the goal is about to be scored against your team?

Think on these things








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