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Human capital deemed largest risk: Survey


Human capital risk is the biggest threat that organizations worldwide face but is one of the least effectively managed, according to a survey of international risk managers.

Risk managers are more confident about how they manage the other top risks--reputational and regulatory risks, the 218 respondents to the survey reported. The Economist Intelligence Unit, a London-based business research firm, conducted the survey in February. The project was sponsored by the ACE group of companies, IBM Corp. and KPMG International.

About 60% of the survey respondents rated human capital risks--skills shortages, succession issues and loss of key personnel--as a very high or high risk for their organizations. The next most significant threats are reputational risk and regulatory risk, which about 55% and 50%, respectively, of the respondents rated as very high or high.

But the respondents were more confident that they were managing their organizations' reputational and regulatory risk effectively. About 60% said they were managing their reputational risk well, and about 50% felt comfortable with their management of regulatory risk. Less than one-third--32%--said they were managing the human capital risk effectively.

The only threats that risk managers said were less effectively managed are climate risks, with less than 25% reporting they were confident in managing that threat; and terrorism risk, with about 30% reporting that they thought they effectively managed that risk.

"These findings point to the need for closer integration between the risk function and the human resources function, as well as a clearer understanding of the risks that companies face with their location and human capital strategies," the survey's authors noted in their report.

The greatest barriers to an effective risk management program are the lack of adequate time and resources, about 40% of the respondents said. Just a slightly smaller group said the difficulty of assessing emerging risks is a major challenge.

Two other significant challenges are unclear lines of responsibility for managing risk, according to slightly more than 30% of the respondents; and threats from unknown and unforeseeable risks, according to nearly 30% of respondents.

Among the survey's other major findings:

  • The practice of appointing a chief risk officer is reaching maturity, as most companies that favor that approach for developing and implementing a risk management framework already have adopted it.

  • Boards and investors increasingly expect risk managers to demonstrate that, in addition to preventing losses and meeting regulatory requirement, they are earning a measurable return on the investment in their function.