LESSON 15: CULTURE AND PEOPLE RISK

Video Activity Text Additional reading and references

15.1 PURPOSE

Review people risk as a firm’s most significant potential risk comprising several underlying risks.

15.2 KEY CONCEPTS

People risk Risk culture Embedding culture

Reward Selection Strategy and objectives
Appraisal Training and development Values and behaviours
Key risk indicators Succession planning Performance management

15.3 LEARNING OUTCOMES

On completion of this lesson, you should be able to

 identify people risk as a firm’s most significant potential risk

 explain the concept of embedding a risk culture in an organisation

 argue the importance of risk culture within an organisation

 discuss the principles of mitigating people risk

 discuss succession planning as critical to future success

 explain the role of the human resources department in an organisation

 discuss key people risk indicators

15.4 LEARNING MATERIAL

Chapter 15 of the prescribed book: Culture and people risk.

15.4.1 Introduction

Most operational risks are ultimately the result of the failure of people, whether at strategic, managerial or operational level.
People risk is often caused by poor management and organisation within the workplace.

Study “Why it’s all about people” in chapter 15.

15.4.2 Operational risk culture

Creating the right environment is fundamentally about creating the right culture. The values and behaviours that enable the
achievement of a firm’s strategy and business objectives define a firm’s culture. Embedding a risk culture requires a
commitment to embrace the values and behaviours agreed on and ethical conduct from the board and senior management.
There should be an environment of trust in an organisation, where people share common values, including a common
approach to risk, and work together in a culture of acceptable ethics and behaviours.

Study “How to embed a healthy operational risk culture” in chapter 15.

15.4.3 Mitigating people risks

Creating the right environment reduces people risks, and effective controls will mitigate the remaining risks.

Selection - people risk often starts at the beginning with the selection and appointment of people. Poor selection leads to
cost and wasted management resources, whereas rigorous selection adds opportunities and benefit to the firm.

Appraisals and performance management - appraisals are a critical part of performance management, presenting an
opportunity to reinforce the right behaviours that will increase the chances of sustained success and reduce risks by
confronting poor behaviours.

Training and development - objectives help to frame a firm’s learning and development needs and those of individual
employees. Appraisals and the development needs identified from them should be linked to objectives and the behaviours
needed to support them.

Reward – remuneration, closely linked to appraisal, should reinforce performance and discourage unwanted behaviour.

Study “Mitigating people risks” in chapter 15.

15.4.4 Succession planning

Staff retention - the purest form of succession planning is not to lose staff in the first place. Retaining trained and experienced
staff is the key to excellent risk management. A firm cannot afford to lose both the commitment and the intellectual capital
of its best employees.

Succession planning beyond the crisis – a suitable person should be earmarked to replace a member of staff who resigns or
retires. An actual succession plan should be a plan for the longer term and not just an immediate crisis, and planning involves
drawing up a skills matrix, performing a gap analysis and taking action.

Study “Succession planning” in chapter 15.

15.4.5 The human resources department

A human resources department is the driver of good people management within a firm, promoting good behaviours and
assisting the board by providing guidance and minimising reputational risk. The human resources department is one of the
critical risk management functions.

Study “The human resources department” in chapter 15.

15.4.6 Key people risk indicators

People are a firm’s most significant potential risk, and there should be indicators to monitor that risk – that is, monitor the
risks comprising people risk. Looking at the chain of cause and effect, many indicators relating to process and systems risks
and controls, in the end, come back to some form of people risk. These indicators reveal a great deal about levels of
competence in the firm, as well as vulnerabilities, which may point to the need to strengthen controls in the form of training
or better people management.

Study “Key people risk indicators” in chapter 15.

15.5 ACTIVITY

Self-assessment questions: Go to the Online assessment tool to do activity 15.5.

15.6 REFLECTION

Before you continue to the next lesson, reflect on the following personal questions:

a. Where, in your professional life, do you think you will be able to use the skills you have learnt in
this lesson?
b. What did you find difficult? Why do you think you found it difficult? Do you understand it now, or
do you need more help? What are you going to do about it?
c. What did you find interesting in this lesson? Why?
d. How long did it take you to work through chapter 15 for this lesson? Are you still on schedule, or
do you need to adjust your study programme?
e. How do you feel now?

Blunden, T & Thirlwell, J. 2013. Mastering operational risk: a practical guide to understanding operational risk and how to
manage it. 2nd ed. London: Pearson.