Scores of organizations fail to meet their targets every year, and many of the reasons have to do with hidden costs. These costs eat away at your budget and cause both your organization and your tribe to struggle more than it needs to. When you’re aware of these challenges through tribal budgeting, you can manage your risk and set your organization up for success.
How Scarcity of Resources Affects Organizations
There are many resources that are scarce in the world today. In fact, water ranks number one, followed by oil, natural gas, phosphorus, coal, and rare minerals. Managing these resources requires strategic planning and a look towards the future.
The same process happens in organizations. The scarcity of resources is one of the most fundamental drivers of economy – and a strategic focus of Tribal Governments and their organizations.
One of the scarcest resources in organizations is human capital. Finding qualified, capable workers that stay with the company long-term is hard. Employee turnover, low productivity, and unemployment are all hidden costs that pose a significant hindrance to your organization. Tribal budgeting must address these concerns as part of a strategy to reduce risk.
The Impact of Human Capital Risk on Tribal Budgeting
The likelihood that your staff will have an adverse impact on your organization in some way is called human capital risk. This risk is the 4th greatest risk out of 11 categories in a report from The Conference Board. It is one of the top two or three threats to organizations in Indian Country.
Organizations struggle to measure and manage their human capital risks. However, only 31% of companies said they effectively assess human capital risk. Handling these concerns is not usually a line item on the budget, but ignoring them has a devastating effect on profitability.
Who’s Managing Your Risk?
Despite the impact on profitability, research shows that finance and human resource departments don’t actively assess and prioritize the management of human capital risk. These concerns are not part of the top five priorities for either department.
The reason no one wants to face the great white elephant in the room isn’t that they think it’s harmless. It’s because leadership doesn’t know how to approach and quantify the issue. They don’t know how to measure human capital concerns or what steps to take to prevent financial loss.
Unfortunately, if you don’t manage this risk, precious tribal resources are lost and are setting your organization up for disappointing results. The good news is there are strategies you can use to measure and manage your human capital.
How to Manage Resource Scarcity
There are three ways to handle the scarcity of any resource. You can increase supply, decrease consumption, and minimize unnecessary waste.
Often, increasing supply involves finding ways to bring in more revenue. Decreasing consumption means cutting expenses and finding ways to do more with less. Minimizing waste is the process of identifying and minimizing risks.
Of the three, you get the biggest impact from minimizing your resource risk. It’s much cheaper to develop your employees than it is to replace them. Understanding the ways that employees deplete your resources beyond a paycheck and benefits is the key to finding a solution that’s both measurable and effective.
In the next three articles, we’ll share strategies that you can put in place today to reduce human capital risk in your organization. We will also take a deeper dive into the top 20% of those risks, based on the principle that 80% of your costs come from 20% of the causes.
Your employees can set your organization up for success or failure. How you manage your human capital risk has a lot to do with which path you go down. With the right strategies in place, you can partner with your staff to increase both growth and profit. If you’d like help building these strategies into your organization don’t wait for the next three articles, contact us today!