Cultural & Human Factors in Identifying and Reducing People Risk

 

Introduction

 

While operational risk, defined as “the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events”, are the key aspects of regulatory compliance in the financial services sector, operational risk does not ultimately give much weighting to how “People Risk” effects compliance.  For those sophisticated banks that are using the Advanced Management Approach (AMA) an enormous amount of effort has been spent identifying risks that lie in the process and systems, including IT systems and domains.  When it comes to looking at People Risk the effort and measurement has been largely centred on areas that can be easily quantified, such as availability of people, performance and reward, staff engagement and competence.  Other staff factors such as attrition, overtime and some synthesis of the output of ‘staff surveys’, again measureable, provide metrics that can be used to inform the ‘people’ aspect of risk.  However, to understand how much people influence a bank’s operational risk, an area much more difficult to measure is the cultural factors of People Risk.

 

What is Organisational Culture?

 

Whilst culture is an important differentiator, the definition of culture is somewhat harder to define.  However, a baseline meaning is a useful starting point.  When asking employees how they would define ‘culture’ within an organisation, they would often reply culture is ‘the way we do things around here’.  Culture, however, covers many elements of human behaviour and interaction driven by the organisation and the people within the organisation, such as a set of commonly shared ideologies, values, assumptions, beliefs, stories and ideas that shape behaviour. An organisation’s culture dictates whether employees will follow the procedures when their manager or supervisor is not around. It dictates whether a new employee will carry out their work from the best practice taught to them in training or induction, or even what the leadership of the company expects to be the norm.  It’s also about the how employees perceive their relationship with the company and whether or not there is a “them versus us” relationship between management and employees.  Culture also determines whether the company cares about and for its employees and whether the employees care about and for the company.

 

The Issues

 

One of the worrying aspects to how culture can affect an organisation is how the “embedded” behaviours and beliefs people have adopted affect the way they adhere to policies or procedures.  When magnified, People Risk issues can be multiplied to such an extend that they become part of the culture within an organisation.  There are many instances of process steps being subverted, sometimes accidently but often for seemingly good reasons by the individuals or teams involved.  Seldom have any of these process breaches been malicious or indeed intended, but they occurred through a process of osmosis from employee to employee, in essence by following the mantra of, “that’s the way we do it around here”.  Occasionally the process itself while appearing sound, to those who created it, has levels of complexity that users just do not understand, hence they ‘break the process’ to get the job done.  However, in the longer term these process breaches can have a significant cost in terms of addressing the risks that stem from these seemingly minor transgressions.  A further challenge to employees is the stepping outside of process boundaries to ensure that targets are met, at seemingly little or no consequential cost.  This takes us into the boundary layer between People Risk and the Credit and Market Risk domains.  Why are credit limits transgressed or larger market positions taken?  Therefore, People Risk (and cultural) has proven to induce significant risk to major banks.

 

When looking at People Risk in any given situation, what your employees do can result in the difference between success and failure. We also see similar People Risks manifesting themselves by staff circumventing IT process steps, inadvertently or in the misplaced belief that the overall process is speeded up due to perceived or actual poor systems.

 

To know how different people will behave in different situations and effectively mitigate operational and therefore People Risk, companies need to understand staff behaviour better.  Systems, processes and related controls are designed to reduce risk but employees do find ways of circumventing them.  There is a need to undertake some robust and repeatable measurement of staff attitude to risk in order to enhance the People Risk reduction.

 

As in recent years within banking, the biggest challenge to the financial sector is reducing People Risk within organisations, which is based on embedded cultural factors.

 

A Solution

 

Combining objective measurement of employee risk and performance measurement assessments, with analysis for targeted enhancements, can deliver a truly complete solution that helps in both evaluation and foresight of People Risk.

 

Cognisco’s assessment solutions help organisations identify People Risk and inefficiency by measuring the levels of employee knowledge, attitude, likely behaviour and confidence in each element of what they think they understand about a specific subject.  Our experience shows that in various sectors 41% of employees have no understanding of at least one aspect of their role, while 44% of employees are confident they know their role, but actually misunderstand what they need to do.  On initially assessing 208,109 people in the banking sector, Cognisco found that only 16% of employees understood their organisations operational practices. While 49% of employees were underperforming, we also found that 35% of employees were putting their organisation at risk by misunderstanding operational best practice.  By identifying the gaps in knowledge, these organisations put targeted interventions put in place from the output of the assessments.  Following the implementation of these interventions, we found that 45% of employees who were previously underperforming or misunderstood their organisation’s operational practices had increased their understanding and increased their efficiency of operational best practice.

 

Solution overview

 

The solution is typically executed as a phased approach. To understand your organisation’s culture, we would conduct a culture survey to determine the key areas that need to be measured.  We can then understand the audience and the requirement, design appropriate situational based questions to measure specific organisational criteria for a specific audience, develop, test and administer an assessment, collect the data from the assessment, analyse the results to identify risks, and design suitable mitigation plans to address those risks. The process requires experts in designing employee assessments working closely with experts in information technology and operational risk. Quickly deployable, our solution seamlessly gives your company access to the information that can ensure security, and mitigate risk – cost effectively. A Cognisco assessment will determine the current levels of each employee’s understanding, attitude, likely behaviour and their confidence in areas of high gain or high risk – particularly where your organisation requires these employees to meet expected levels of individual operational performance or behaviour.

 

Our assessments will enable you to distinguish between employees with the appropriate attitude and know how to apply practical knowledge from those who just have factual knowledge.  The solution will pinpoint exactly where your organisation can mitigate risk, reduce cost and increase operational performance in any area. While the assessments heighten awareness of the critical areas of understanding for employees, the results verify the depth of the cultural challenges to identify the attitude, values and likely behavioural tendencies of employees.  Therefore, the results can target organisational cultural and behavioural change initiatives and shift the current position from a culture of organisational risk to an organisation with positive behavioural and cultural values as part of your overall strategic aims.

 

We can address these risks by accessing the relevant information when and where needed. It will assist employees in making the correct decision while increasing efficiency and reducing costs. By integrating appropriate technology with our solution, we can help clients implement best practices, industry standard processes along with recommending a well-structured governance model ensuring that the benefits are delivered right the first time.

 

Download your PDF version here: Cultural & Human Factors in Identifying and Reducing People Risk

Andrew Davidson

By Andrew Davidson

Andrew Davidson, BA (Hons), MA

Consulting Manager

Andrew Davidson graduated with a BSc (Hons) Sociology and Social Anthropology degree and is a trained psychotherapist with an MA in Relationship Therapy, both from the University of Hull. Andrew is also a member of the British Association of Counsellors and Psychotherapist.

Andrew joined Cognisco in March 2007 as Production Manager where he enhanced the development of assessment content. In August 2008 Andrew was promoted to Consulting Manager where he is now responsible for development, research and management of Cognisco’s global assessment consultancy solutions, while managing a highly skilled team of consultants. He is also a senior consultant to the business providing advice and guidance on potential solutions including the scoping and development of innovative psychological and organisational developmental solutions and has written workshops on the interpretation of assessment data and on how to write effective assessments. Andrew’s interest in relationships has extended to organisational relationships including how assessments, values and policies affect personal and professional performance and the impact this has on revenue and customer relationships.

An example of Andrew’s projects include:

Designing health and safety assessments for QinetiQ, Virgin Media and CSX

Training BT and Network Rail to write and design role-based knowledge test question sets

Designing a research project for Union Pacific on understanding the behavioural decisions managers make in safety critical situations.

Designing a Sales assessment for BT and Lloyd’s Register on their sales force capability.

Designing a customer service assessment with Cognisco’s Partner, Huthwaite, on the service capability of employees managing inbound customer calls.

Designing a behavioural assessment with Cognisco’s Partner, Develop Training, on understanding how to avoid striking underground apparatus for street work operatives.

Connect with Andrew: uk.linkedin.com/in/andrewwilliamdavidson

 

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