People Risk Management: A Practical Approach to Managing the Human Factors That Could Harm Your Business

What Is People Risk?

Each day, there are countless mistakes, acts of thoughtlessness or even illegal actions made by people in organizations around the world, the vast majority of which have negligible consequences other than to increase the cost of doing business. However, some of these misdeeds and mistakes do cause damage and result in considerable financial loss to a firm.

Every now and then, the misdemeanours and blunders add up to create a major disaster, which can result in many millions of dollars of losses to the firm involved, and even harm or loss of life. This is what is called People Risk or the risk that people, inside and outside of the firm, will make bad decisions that cause losses to the firm.

People make bad decisions for a host of reasons, but mainly because they are human. Emotions get in the way of our ability to think rationally and objectively. People make some decisions even though they do not have enough information to make them but they rely on their experience and ability to dig them out of a hole if something goes wrong. But sometimes the hole is too deep. People make some decisions even though they think the decisions may be wrong, but they decide to go along with the group for an easier life, choosing the battles they want to fight. People sometimes make bad decisions because they desperately want a particular decision to be the right course of action, often as a vindication of previous decisions they have made- this is called a confirmation bias.

How Can People Risk Be Managed?

People are not machines that can be programmed to do the same thing every time, and even the most trustworthy individuals sometimes get tired, sloppy, overconfident, over-trusting, suspicious, worried, frightened, angry, resentful, vindictive and a myriad of emotions in between. Some people make decisions that are illegal, causing losses to the firms in the form of theft and fraud; others may indulge in unethical acts which can cause loss to the reputation of their firms and fines by regulators. These are all potential causes and examples of People Risk.

If we know that People Risks can cause losses, including even the failure of the firm, how should such risks be managed? The authors of People Risk Management recognize that attempting to develop practical suggestions for managing People Risk across a wide spectrum of organizations would be fruitless, at least until some of the groundwork is done by large organizations. The types of people-related risks faced, for example, by a sole trader (such a shopkeeper or lawyer) are very different to those faced by a large firm (such as a bank or oil company).

People Risk Management therefore focuses on the people-related risks faced by large commercial firms. This book is about expanding the concept of People Risk into risks that are traditionally not considered part of business operations, such as, for example, the psychology of strategic decision-making, where directors make decisions that not only turn out to be bad in their outcomes but were bad decisions to start with.