Smarten up to your people strategies, says Aon Risk Solutions
Robyn Perkins
An alarming number of business owners can’t quantify the real dollar cost of not managing people effectively, let alone how much improved productivity actually adds to financial performance.
According to Robyn Perkins, Aon Hewitt’s Managing Director, People Risk, the old-fashioned belief that managing the workforce is the sole territory of the human resources department is preventing businesses from eliciting the hard data, and understanding the true financial return on investment of having the right people management strategies in place.
“The reality is that when we talk about managing “people risk” we are referring to optimising the way an organisation addresses everything from absence management, staff turnover rates, health and safety strategies, management of temporary staff, right through to workers’ compensation. Managed well, each of these can be used as a lever with a direct effect on the bottom line. But the real skill lies in understanding how they work together to improve productivity and financial outcomes, often exponentially,” she said.
Ms Perkins went on to say that employers should know that it is possible to calculate the specific dollar cost of different people risks, and from there identify drivers and strategies to address and reduce risk.
“Putting metrics in place and showing the ROI around happy and healthy employees is absolutely possible. The challenge is to identify factors or measurements which are discernible and contestable. There are many factors such as absence, turnover, leave, overtime, use of contractors, labour hire and so on. The key is to combine these measures with others such as insurance costs and productivity impact to really understand the cost, risk control issues and priorities to drive reductions,” said Ms Perkins.
Ms Perkins noted that while a number of Australian companies were beginning to fully appreciate the benefits of a well-managed workforce, there was still a long way to go. And this is an important gap to fill because, just as there are significant benefits from good people risk management, there are serious downsides when the risks are not effectively addressed.
“Often firms believe they are managing their people risk well but their cost structures keep blowing out. This is usually because they are not addressing the most important factors. For example, a firm which had a $37m cost problem was able to reduce that cost by over $17m by identifying the most important drivers and strategies for addressing and reducing its people risk.”
Ms Perkins concluded by saying that clichés such as “people are our most important asset” are clichés precisely because they are true.
“Every business may well be different, but the net effects of good or poor people management tend to be very much the same. And the fact is that employers are in the driver’s seat. They have a fiduciary responsibility to mitigate against workforce related risks by having a considered people risk management plan that pushes all the levers in the right direction,” said Ms Perkins.
Examples of organisations which have successfully identified and managed people risk:
- One large multi-national saved more than $20 million, including reducing income protection premiums of $2.7 million and a $2 million reduction in workers’ compensation liabilities. Another Australian transport company saved $25 million over four years.
- A medium-sized organisation struggling with increasing workers’ compensation costs, in particular due to psychological illnesses, and the flow-on cost of absences implemented strategies. This resulted in better engagement, reduced work-place related psychological illness, and a $523,000pa saving in worker compensation premiums.
