Employee Risk Management - What Is It, Why It Matters, and How to Implement It!

Key Takeaways

While some organizations aren’t aware of it, employee risk management is crucial for organizational success.
Employee management risks include ethics, safety laws, data security, workforce management, and employee benefits.
To handle potential problems, you must develop a risk management program and update it proactively to adapt to new risks.
To minimize workplace risks, you need to train your employees on the matter regularly.
Using the latest tools, like Atlas UP, can help you monitor and address potential employee problems before they occur.

Introduction

Today, businesses face many risks, from employees unknowingly breaking company rules to accidental data leaks. A recent Forrester report discovered that in 2022, four out of 10 businesses had at least three major risk events. [1] Managing these risks is important to keep a company safe, efficient, and, most importantly, profitable.

How can businesses protect themselves?

Let’s discuss employee risk management, why it matters, and how to implement it properly in your organization.

What Is Employee Risk Management?

In simple terms, employee risk management is a process used by organizations to detect and prepare for potential problems caused by their employees' activities. These include problems like lawsuits, data leaks, and breaking company policies. By identifying these risks early, organizations can create plans to prevent them and ensure a safe working environment.

Organizations need to train employees regularly, promote ethical behavior, and use new technologies to predict problems to achieve this. According to Chris Carter, the head of Leadership in Project Management at Georgia Tech, risk management is “100% proactive. [2] It requires you to look for possible issues and create plans to address them in advance.

For instance, let’s say your company is starting a new project. You must consider potential risks like budget overruns, delays, or safety concerns. Identifying risks like these early on allows you to create plans to minimize their impact or prevent them altogether.

Importance of Employee Risk Management

Why is employee risk management so important? No matter its size or industry, any company must know how to handle risks before they become serious problems. That way, the company can protect its assets, reputation, and financial stability.

After years of studying some of the biggest companies in the world, Peter Drucker, “The Father of Management,” concluded that only 10% to 20% of all efforts account for 90% of results. [3]

OK, just think about that for a second: Up to 90% of an organization’s efforts are unproductive. Let’s say your organization has a budget of $100,000. According to Drucker, up to $90,000 of that money will be wasted on activities that might end up hurting the organization. Why?

It’s because many organizations don’t know how to identify—and subsequently address—various risks and opportunities presented to them. As Deloitte research shows, only a third of organizations are prepared to handle employee risks over the next three years. [4]

Key Areas of Employee Risk

About one in four businesses fail within the first 12 months of their operation. [5] Because of this, organizations often focus too much on maximizing profits and cutting costs, neglecting their values, culture, and ethics. That environment creates fertile ground for potential risks that could become huge problems.

Addressing these risks helps avoid financial losses, legal penalties, and operational inefficiencies while maintaining organizational stability and compliance.

Development

Happy employees are productive employees. If you want your employees to be happy, you must give them chances to grow and develop in their careers. You can accomplish that by examining your employees' strengths and helping further develop them. Gallup research indicates that companies that focus on strengths-based development are 17% more productive and 21% more profitable than the ones that don’t. [6]

Ethics

Discriminating people based on factors like religion, gender, or race can harm an organization’s reputation. By promoting equal opportunities for everyone, organizations embrace a non-discriminatory work environment, reducing risks associated with human resources management. Additionally, around 80% of employees prefer to earn less while working for a company with good ethics than to earn more at a company with questionable ones. [7]

Safety Laws

While work risks in some industries, like construction and manufacturing, are almost strictly physical, in other sectors, employees’ mental health is a concern. About a quarter of employees report feeling somewhat dissatisfied with their workplace culture. [8] Cultivating a positive work environment can significantly boost productivity. Effective risk management will keep employees feeling safe, productive, and, most importantly, fully satisfied.

Security and Privacy

In 2024, nearly 2,400 data breaches will occur every month. [9] Protecting data from cyber threats is crucial. Data breaches can happen suddenly, so strong security measures are essential. Effective employee risk management also relies on safeguarding employee data to prevent unauthorized access and potential breaches. Safely storing both employee and client information is vital. Those handling data must meet high standards to prevent misuse and its consequences.

Workforce

Workforce risks involve threats on an organizational level, like talent shortages or changing workforce expectations. The latest data from ManpowerGroup shows that 75% of employers worldwide report difficulties filling important roles. [10] Workforce risk management identifies and minimizes these risks to effectively meet the organization’s goals. It includes talent acquisition, engagement, retention, and regulation.

Structural Changes

Changes in a company structure, like reorganizations or mergers, can impact authority and resource flow. Although 74% of business leaders say they’ve involved their workers in creating a change strategy, only 42% of the actual workers felt included. [11] By looking for ways to manage these risks, businesses can maintain productivity and stability, no matter how large the structural changes are.

Employee Benefits

Employee benefits risk management is important for reducing employee-related risks and managing rising healthcare costs. Around four out of 10 businesses think they handle their employee benefits well. [12] That’s why you need an EBRM plan to help reduce health, pension, and legal risks.

Creating an Effective Employee Risk Management Strategy

“Most of the people doing strategy don’t understand risk. Most of the people at risk don’t understand strategy…” – Anette Mikes, Management Accounting Research, Vol. 20. [13]

Every member of your team – from the managers to frontline workers – needs to work like a cog in a well-oiled machine if you want your risk management strategy to do its job. That’s because every team member can provide valuable insights and ideas for executing the strategy.

Here are a couple of steps you need to take to create an employee risk management strategy:

Step #1: Try to identify as many risks your organization faces as possible.
Step #2: Assess the risks and try to figure out their impact on your business.
Step #3: Develop a plan that will allow you to mitigate employee risks.
Step #4: Establish a monitoring process for continuously evaluating risks.

Let’s look at each component of the employee risk management process:

Identifying Employee Risks

Employee risks are unavoidable. However, with more awareness and understanding of these risks, you can identify, resolve, reduce, and prevent risks before they affect your business goals.

You can start by listing risks that could impact their safety, productivity, and performance. Look at your work environment, business policies, and training programs. When it comes to employee risks, most fall into these categories:

External: Factors like economic downturns, which affect employee morale.
Internal: Employee misconduct that affects the collective.
Policies: Unclear policies about workplace behavior.
Training: Insufficient workplace safety programs.
Wellbeing: A lack of health programs can lead to low satisfaction and high absenteeism.

Using these categories, you’ll be able to easily recognize employee-based risks. For a comprehensive understanding of how these risks intersect with human resource systems, read more about what is HRIS and its impact on organizational risk management.

Assessing Employee Risks

Once you’ve managed to identify risks, you need to examine the potential likelihood of each one of them happening. The impact of employee risks isn’t always monetary. For instance, it can impact your company's reputation and stain your customer relationships.

When assessing risks, here are the two questions you need to answer:

What’s the likelihood of a risk? Try to figure out what are the chances of a risk happening. You can do this by looking at historical data. If the company has experienced multiple cyberattacks, chances are, it will happen again.
What’s the potential damage of a risk? Consider how much money you will lose due to the damage caused by the risk. If they outweigh the costs of preventing a risk, you should probably handle it.

During this step, you also need to do a “risk tolerance” check. [14] Risk tolerance refers to the level of risk your organization is willing to accept after measures to prevent it have been taken.

Here’s an example: Let’s say you have an IT firm with a 40% risk of employee-related data breaches. After implementing security training, the risk falls to 10%. You accept this risk due to pretty high costs of data breaches.

Managing Employee Risks

No matter how large your organization is, you don’t have access to unlimited resources. That’s why you need to decide what risks are worth spending money and time on and what’s the accepted risk level you’re willing to handle.

You also need to come up with a written risk treatment plan so your team members know how to respond to the risks you deem worthy of your attention. Here are a couple of employee risk treatment methods you should consider:

Avoid risks completely: Formulating a plan that will stop the circumstances, which lead to employee risks.
Accepting certain risks: When the costs of handling risks are greater than the potential damage of risks, you can just accept them happening.
Sharing risks: Happens when the company shares the risk with all of the employees who have insurance benefits.
Transferring risks: Sharing the risks with a third party, for example, purchasing insurance or outsourcing security to a contractor.
Preventing some risks: Handling risks with security methods that will prevent them from happening.

Monitoring Employee Risks

Once you handle the risks, you need to start monitoring risks so you can assess and address them in time. Using a solution like Atlas UP, you can set up an employee risk management process and:

Have an overview of risks: As you expand your business, you’ll be able to maintain an up-to-date risk database.
Monitor risks at all times: By actively observing employee data from a single platform, you can keep a register of potential threats and work on risk management plans.
Assign responsibilities: Get responsible team members to watch out for and update your risk management plans regularly.

Best Practices for Employee Risk Management

Identifying potential risks, regular training, proactive monitoring, and open communication are only a part of effective employee risk management. By following these practices, businesses can manage risks and create a much safer and more efficient workplace environment.

Proactive Risk Management

We can’t stress enough how important a forward-thinking approach to risk management is to your organization. It will keep you safe from unexpected losses and empower stakeholders to make informed decisions. Solutions like Atlas UP serve a huge role in building a proactive approach to risk management by connecting different data sources, giving employees access to important company information, and reducing inconsistencies across the organization.

Employee Training

To address risks quickly and effectively, you must teach your staff members to identify and handle them first. Provide Key Risk Indicators (KRIs) that warn employees before risks escalate. [15] You should also consider having a knowledge base where new employees can read about potential risks and ways to mitigate them.

Comprehensive Insurance Policies

Providing healthcare services is one of the more important aspects of employee risk management strategies, which is why insurance plans are crucial. They help manage financial risks linked to healthcare expenses, making sure that employees have access to necessary care without large financial burdens. Aligning these plans with individual needs to optimize outcomes is essential. That involves understanding and covering diverse medical conditions and preferences.

Avoiding Assumptions

Business people make assumptions all the time – assumptions about the market, products, industry trends, and so on. However, you should avoid making assumptions at all costs when it comes to risk management.

Acting on uneducated assumptions can only lead to errors, missteps, and arguments. Risk management requires anticipating, evaluating, and taking action through informed decisions.

Regularly Reviewing Risk Management Programs

You want your risk management program to remain effective, right? Then, you need to put effort into reviewing and updating it every few months. External factors that can impact your businesses are always changing and developing, leading to new risks.

By staying up to date, businesses can adapt to these changes and improve their stability. Considering certain factors like the external environment, emerging risks, the effectiveness of risk mitigation strategies, and stakeholder feedback. Most importantly, to manage your business's risks, you need the right tools in your arsenal.

Employee Benefits Risk Management

Employee benefits come in many packages - some are required by law, and others are completely optional. However, in today’s labor market, compensation packages are becoming more and more sought after by employees of all experience and skill levels.

Managing employee benefits has become increasingly more complicated and even expensive throughout the years. That’s why employee benefits risk management has become a high-priority task for hundreds of organizations.

Importance of Managing Employee Benefits

Why is benefits risk management so important to your employees? For starters, it can help you attract and retain top talent. A 2024 People Keep survey revealed that for eight out of 10 employees, the benefits package is the most important factor when choosing a job. [16]

Of course, offering a good benefits package is a good start, but you have to manage the benefits correctly to keep your employees content. Here are a couple of financial risks employee benefits risk management can help you with, according to Mercer research: [17]

Increasing benefit costs: With benefits risk management, you can address the costs that have increased because of medical inflation, higher usage, and longer claims that have impacted premiums and other expenses.
Pension risks: Inflation, investments, and even longer life spans have affected both retirement plans and individual savings.
Administration risks: Administrative mistakes and poor benefits management can lead to unmet financial obligations.
Legal risks: Misaligned benefits with laws can result in penalties, financial fines, and, in a worst-case scenario, costly lawsuits that can drag on for years.
Benefit decision-making: Little experience in plan designing, vendor management, and financing usually leads to liabilities and high costs.

Strategy for Employee Benefits Risk Management

When managing employee benefits, you must have the right strategy. Here’s what you need to keep in mind when coming up with one:

Design for value: First, you need to know and focus on what your employees need the most. For instance, if a solid number of your employees feel stressed, you may offer counseling as a part of the benefits package.
Keep health costs low: Use company data to discover what health issues cost your company the most and try to address them. Encourage healthy habits like fitness and regular doctor visits to prevent big health problems.
Smart financing: Optimize how you manage and deliver benefits to save time and money. Find new and effective ways to finance benefits. For example, you can look into high-deductible plans combined with Health Savings Accounts (HSAs).

How Atlas UP Makes Risk Management Easier

Without a proper employee risk management plan, businesses can and probably will fail to spot organizational weaknesses and quickly take steps to handle them. You need the right tools for the job to discover weak points in your organization in a timely manner.

That’s where Atlas UP can help you.

Are you now wondering, what can Atlas UP do for me?

As an AI-driven SaaS solution, Atlas UP allows you to access, assess, and use company data quicker than ever before. You can connect Atlas UP directly to your internal HR system and monitor your business information in real-time.

If you’re interested in Atlas UP, schedule a demo call, talk to one of our agents, and see what our solution can do for you.

Conclusion

Without the right strategy for minimizing and, more importantly, preventing risks, companies are doing their employees a disservice. If the employees are always thinking about potential risks that can happen in the workplace, they often won’t focus on what makes the company money – doing their actual job.

Yes, considering how volatile everything is nowadays, employee risk management isn’t easy. In fact, it can be rather hard at times. But with new risks always come new and improved means of addressing them. Keeping an eye on potential risks, keeping up with new solutions, and learning from other organizations will help you avoid major problems down the line.

Frequently Asked Questions

What is employment risk management?

Employment risk management is the process of identifying, evaluating, and addressing risks related to employees to minimize potential financial and reputational damage while ensuring a safe and productive workplace. This involves managing various aspects such as workplace safety, legal compliance, and benefits administration. The primary goal is to mitigate risks associated with accidents, non-compliance with regulations, and issues related to employee benefits, thereby fostering a secure and efficient work environment. By proactively handling these risks, organizations can maintain a positive work culture and protect their assets and reputation.

What are the five types of risk management?

Here are five common employee risk management methods:

Avoidance: Trying to steer your employees away from risky activities completely.
Retention: Accepting certain employee risks and planning for them.
Sharing: Hiring third-party organizations to handle employee risks.
Transferring: Using insurance plans to shift financial risks to the insurer.
Prevention: Focusing on minimizing employee risks through preventive tactics.

What is the employee risk management plan?

Your employee risk management plan is a strategic process of identifying, assessing, managing, and monitoring risks that arise from worker activities. An effective employee risk management plan allows organizations to control future outcomes by taking a proactive rather than a reactionary approach to handling risks.

How do you identify a high-risk employee?

Identifying high-risk employees involves looking for signs such as reduced participation in company activities, frequent absenteeism, and negative feedback in performance reviews. These indicators can suggest potential issues like disengagement, dissatisfaction, or personal problems that could impact the organization negatively.

Employee Risk Management – Strategies and Why It Matters