By Steve Trautman June 29, 2017

How To Calculate the Cost of a Talent Risk Management Mistake

Posted by Steve Trautman on Jun 29, 2017 3:22:28 PM
calculate cost of talent risk management mistake

After years of practicing my profession, I’ve noticed more than a few patterns. For example, I get specific, repeat questions about knowledge transfer and talent risk management from executives and other clients at the companies I work with. One of the most common ones sounds a little like this:


“Steve, I understand that talent risk is real, but how can I prioritize it over the TEN other things competing for our attention and resources? How can I show our leaders the cost of letting talent risk go unmitigated?”

I recently took the time to explain this in detail for an executive who works at a multinational energy corporation. This executive attended her company’s monthly Enterprise Risk Assessment meeting, and wanted to discuss talent related risks that she had identified as an increasing concern.

In her specific case, the problem she identified was a lack of a comprehensive succession plan for top technical talent. In other words, there was no backup for critical and unique technical experts. This posed a huge threat to the continuity of the company, for instance, if one of them was no longer available for work or she needed more capacity in their area.

After going over this talent-related risks, along with the company’s Enterprise Risk Assessment team, she was given an assignment for next month's meeting. She had to show the cost associated with the talent risks, if they were allowed to continue unchecked. So she reached out to me for help.

What she was really asking in this case was “What’s the Cost of a Mistake here?”

Identifying the cost of a mistake that is made by unprepared talent is pivotal is the foundation of a business case for solving the problem.

 

How to Address the Cost of a Talent Risk Management Mistake

One of the keys to calculating unmitigated talent risk costs is finding out the cost of a single mistake. Then, you will be able to quantify losses and address them like any other tangible problem.

I outlined the steps for this executive as follows:

  1. Identify the critical Subject Matter Experts (expert) you need to execute your strategy.
  2. Then identify the areas of expertise or “knowledge silos” for each unique specialist. For example, where are they the go-to person for the specific area of expertise?.
  3. Label the silo, and ask yourself: “What could go wrong in case someone else, like a less experienced trainee did the work in that silo?”
    “What would that kind of mistake cost the company?” Consider time, money, quality, safety, resources, reputation, and customer experience. “How many times can this happen in a day/week/month/year?”

Prioritize the list by trying to identify mistakes that can cost at least $100k and could happen 10 times in a year. I bet that most corporations and large organizations can use this technique to spot “million dollar risks” easily.

I have been working in this field for the last 20 years and have seen a clear pattern. “Million dollar mistakes” are not just at risk of occurring, but more often than not, they have occurred in a company’s recent history. One of my clients once told me “We have a contingency budget for that,” but he may as well have said “we don’t mind spending our profits on fixing mistakes.”

 

The Big Problem

One big problem with talent risk management is that it’s often dubbed an “HR problem” and swept under the carpet. These same companies prefer addressing more familiar risk factors that are affecting the company's bottom line. It’s no secret that executives are much more comfortable dealing with supply chain issues or legal risks, rather than the “people part” of their organization.

By applying the “Cost of Mistakes” approach, the executive I worked with was able to collect all the necessary details she needed. She was able to present them at the company’s next Enterprise Risk Management meeting, and made a clear case for mitigating the business’ critical talent risk.

Talent risk management should be mitigated like every other risk in your organization, by taking a systematic and informed approach. Considering that the Cost of a Mistake increases the effectiveness of your talent risk management because you are making decisions based on facts and hard data, rather than intuition and gut feelings.

Use data such as Cost of Mistake to make the right decisions and mitigate your top talent risk. Your organization will then be able to set the right priorities and allocate the necessary resources to achieve success.

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Steve Trautman

Steve Trautman

Steve Trautman is corporate America’s leading talent risk management and knowledge transfer expert. With two decades of application inside blue chips and Fortune 1000s, his pioneering work in the field of talent risk management and related knowledge transfer tools are now the nationally-recognized gold standard. His clients have included Boeing, Costco, Goodyear, Aetna, Farmers Life Insurance, Bank of America, Microsoft, and Qualcomm, among others.

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