Although most managers know this, only a small portion of companies have a clear strategy on human capital risk management. A Talentguard webinar on <\/span>Mitigating Human Capital Risks<\/span><\/i> highlights the following three prevalent features of such contradiction:<\/span><\/p>\n\n\n\n Do any of these sound familiar? Then keep reading for tips to help you build a solid human capital risk management strategy.<\/span><\/p>\n\n\n\n The umbrella covering human capital risks is broad. In fact, anything ranging from hiring the wrong people and failing to retain talent to unexpected accidents and inadequate attrition falls under that umbrella. That\u2019s why our understanding of this matter begins with a brief definition of human capital.<\/span><\/p>\n\n\n\n In general terms, human capital<\/a> is “a measure of the economic value of an employee’s skill set.” The term was coined in the 1960s by the economist Theodore Schultz. He believed that human capital was like any other capital. “It could be invested in through education, training, and enhanced benefits that lead to improvement in the quality and level of production.”<\/p>\n <\/div>\n <\/div>\n<\/div>\n\n\n So an employee\u2019s skill set can be treated as a contribution to the total value of a company. Let\u2019s dig into this idea by taking a look at the framework that Angela Baron and Michael Armstrong provide in their book <\/span>Human Capital Management: Achieving Added Value Through People<\/span><\/i>:<\/span><\/p>\n\n\n\n According to Baron and Armstrong, human capital is one of the three elements that make up the intellectual capital of a company. This corresponds to the \u201cstocks and flows of knowledge available to an organization.\u201d The other two ingredients to consider are the social capital and the organizational capital.<\/p>\n\n\n\n In this context, human capital refers to the knowledge, skills and abilities possessed by people in a company<\/strong>. This is enhanced (or diminished) by the structure, networks, and procedures that define the interactions among them (social capital). That combination of human capital with social capital generates the organizational capital, which is the institutionalized knowledge possessed by the company.<\/p>\n\n\n\n Even if treated as an intangible asset, human capital has a very tangible impact on any organization. According to an article published in <\/span>Deloitte’s <\/span>Performance Magazine<\/span><\/i><\/a>, the following are some of the areas where human capital can a have a significant impact on revenues and financial results:<\/span><\/p>\n\n\n\n Along those lines, an article published by the <\/span>Harvard Law School Forum on Corporate Governance<\/span><\/a>, highlights the value of human capital stating that \u201ca company\u2019s intangible assets, which include human capital and culture, are now estimated to comprise on average 52% of a company\u2019s market value.\u201d<\/span><\/p>\n\n\n\n With the disruption and uncertainty that prevails in today’s workplace, human capital management has become an imperative for companies willing to reach a competitive advantage in the market. <\/span><\/p>\n\n\n\n \u201cCompanies need to be able to attract, retain, and develop workers with the skills and expertise necessary to execute their long-term strategy and to deliver value creation,\u201d argues BlackRock on a piece dealing with <\/span>human capital management<\/span><\/a>. <\/span><\/p>\n\n\n\n So, is it good to invest in human capital? Absolutely! Building a solid human capital management strategy is something crucial for any company not only in terms of the value it brings but also in terms of the costs and problems you can avoid. <\/span><\/p>\n\n\n\n \u201cFor leaders today, the act of aligning human capital strategy with business strategy is one of the most important things they can do to prepare strategically for the future of work,\u201d argues Professor James Baron from the Yale School of Management. <\/span> <\/span><\/p>\n\n\n\n Measuring an intangible asset such as human capital may sound complicated. However, there are some practical KPIs you can use to do that. After all, human capital is about people and the investment you make on your workforce. The following are some of the key measures that companies use to value human capital:<\/p>\n\n\n\n According to the Harvard Law School Forum on Corporate Governance article mentioned before, companies can track several things in order to use some of these key measures. The following are some of the most common across the corporate world:<\/p>\n\n\n\n If you’re able to track these things, you can identify critical issues and areas that can affect your organization. Now let\u2019s take a closer look at some of the most significant human capital risks.<\/span><\/p>\n\n\n\n As we mentioned before, human capital can be treated as an investment. That\u2019s why anything that interferes with the health of that investment is a risk. In this sense, <\/span>human capital risks are events and employee behaviors that companies face when their human resources fail to meet operational, business resiliency, and continuity goals<\/b>.<\/span><\/p>\n\n\n\n With this definition in mind, there are many human capital risks and numerous ways of categorizing them. However, some of the most prevalent human capital risks come from the following five critical areas mentioned by Velocity Global in an article dealing with <\/span>human capital risk<\/span><\/a>: <\/span><\/p>\n\n\n\n If they become real problems, some of the risks mentioned above can have devastating effects. For instance, when it comes to high turnover the <\/span>Lowers Risk Group<\/span><\/a> states that \u201ccompanies typically pay between 25% and 250% of an employee\u2019s annual salary to replace that employee.\u201d<\/span><\/p>\n\n\n\n Likewise, poor human capital risk management can increase disengagement, deteriorate morale, affect productivity and hurt corporate reputation. According to an Accenture article on <\/span>Human capital risk management<\/span><\/a>, the following are some of the most serious implications associated with human capital risks:<\/span><\/p>\n\n\n\n There are plenty of reasons to incorporate human capital into your long term business strategy. While the benefits of a solid human capital management strategy are considerable, the drawbacks of a poor one can be fatal.<\/span><\/p>\n\n\n\n When it comes to building a human capital risk management strategy, there is one simple truth to consider: One size doesn\u2019t fit all. All companies are different, and there\u2019s more than one way to deal with human capital risks. Still, there are some basic steps any organization can take when dealing with human capital risks. Let\u2019s take a look at some of them.<\/p>\n\n\n\n If you want to implement a successful human capital risk management strategy, you need to adapt it to your business. For that, you need to do two things:<\/span><\/p>\n\n\n\n \u201cTo mitigate human capital risk, you need to first determine what is the greatest threat you face. Whatever the risk may be, the first step is to understand the sort of risk you are facing in order to formulate solutions,\u201d argues Michael Sturman, Professor of Human Resource Management in the Rutgers School of Management and Labor Relations.<\/span><\/p>\n\n\n\n Once that\u2019s done, you can move into the implementation of potential solutions. \u201cOnce you know the type of risk or risks you are facing, you can begin to think about implementing the sort of best practices to mitigate, or at least manage the risk,\u201d states Professor Sturman. In the following image, we can see some of those risks and the kinds of things companies can do to mitigate them.<\/span><\/p>\n\n\n\n Companies need to incorporate solid data analysis when managing human capital risks. As suggested in <\/span>a Deloitte article published by The Wall Street Journal<\/span><\/a>, HR should take advantage of all the data it collects in order to manage risks more effectively.<\/span><\/p>\n\n\n\n \u201cAdvanced analytics can provide deep insights about current risks and projections about future risks. Turnover data, for example, when combined with other information, may raise a red flag about hidden risks such as incompetent management or fraud,\u201d states Deloitte.<\/span><\/p>\n\n\n\n Fortunately, the technological spectrum of tools that allow companies to track data is enormous nowadays. For instance, just having an <\/span>employee timesheet report<\/span>\n
Human capital: definition, importance, and metrics<\/h2>\n\n\n\n
What is human capital?<\/h2>\n <\/div>\n
![\"human](\"https:\/\/beebole.com\/blog\/wp-content\/uploads\/2017\/10\/total-value-business.png\" "\\"\\"")
<\/figure>\n\n\n\nIs it good to invest in human capital?<\/h3>\n\n\n\n
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How to value human capital<\/h3>\n\n\n\n
![\"How](\"https:\/\/beebole.com\/blog\/wp-content\/uploads\/2017\/10\/key-measures-human-capital.png\" "\\"\\"")
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What are human capital risks<\/h2>\n\n\n\n
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The implications of poor human capital risk management<\/h3>\n\n\n\n
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3 tips for implementing an effective human capital risk management strategy<\/span><\/h2>\n\n\n\n
1. Choose a strategy that fits your business<\/h3>\n\n\n\n
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![\"High](\"https:\/\/beebole.com\/blog\/wp-content\/uploads\/2017\/10\/human-capital-risks-strategies.png\" "\\"\\"")
<\/figure>\n\n\n\n2. Take advantage of your data<\/h3>\n\n\n\n