CWS 3.0: January 29, 2014

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How to Mitigate Risk — Smartly

Managing risk is the content area of most interest among those who participate in Staffing Industry Analysts’ certified contingent workforce professional program. The main themes of this content are to understand what risk exists, create a plan to manage/respond to it, and avoid implementing errant program policy burdens that have no effect on mitigating risk challenges and ultimately leave one’s CW program at a distinct competitive disadvantage.

And making a misstep can be costly. Just this month, an independent contractor misclassification case led to a $10 million judgment against the buyer.

The fact is that contingent workforce risk exists, but can be mitigated safely and effectively with strategy, sound policy and judgment.

Risk areas. Staffing Industry Analysts has identified five common areas and one less-commonly discussed categories of risk for CW program management. The main five: strategic, operations, compliance/legal, reporting and safeguarding resources. The sixth: personal risk (for the CW program manager). Even though media headlines might capture and highlight the “compliance/legal” risk component, all risk categories need to be addressed in an effective CW program management strategy.

Approach. The Risk Assessment Framework methodology outlined in the certification program is a straight-forward approach. Its steps: event identification, then risk assessment and prioritization and, finally, risk management response.

After inventorying your program’s risk across the comprehensive risk portfolio categories outlined above, it’s time to develop a strategy and detailed plan on how each of these risk categories/events are going to be managed.

Effective management of risk is not to eliminate all and any risk exposure, because that would be too financially burdensome and operationally restrictive. The most effective approach is to measure your organization’s risk tolerance/priorities and build a risk mitigation plan that meets that guideline in each of the risk categories mentioned above. It’s important to note that each risk category will contain multiple risk event elements.

Once risk events are measured in terms of impact and probability, specific actions can be designed to address them that could range from sharing the risk with capable suppliers to ultimately avoid and reducing the risk through strict mitigating policy guidelines, practices insurance and other methods. Below is a risk assessment matrix that can be used for CW programs. 

Click image to enlarge.

At the very least, one should know what the plan of action is in case a CW program risk event occurs. An organized plan should be pre-designed to address the consequences of a risk event occurring. At a high level, some of those response strategies can be:

  • Acceptance: Accept the risk as a cost of doing business.
  • Avoidance: Take actions to avoid the risk or stop the risk situation completely.
  • Reduction: Find ways to reduce the impact of the risk event.
  • Sharing/Offloading: Mitigate risk through use of insurance, indemnification or other means.

How does one choose an appropriate response to risk? Here is a summary of the key strategies: first, identify your risk events based on your CW program and company objectives; second, assess the trade-off of business benefit and risk; and third, assess and prioritize risks based on probability and impact.

The three-step management framework can help you choose an appropriate risk response strategy. It’s highly recommended that CW program managers complete this assessment sooner than later, update it annually and complete with internal risk experts in your organization and also with key supply chain partners such as VMS and/or MSP partner.

Click here for more information about Certified Contingent Workforce Professional program and the next available in-person class. Online classes are also available.

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