The trade-off between risk and reward is the beating heart of business. Business leaders must objectively evaluate the inherent risks of an activity in the context of the organization, and then determine how much you are willing to lose if one of the risk factors occurs.
The same approach should be applied to employment decisions.
To assess the risk-reward balance in hiring, you can rely on detailed information from a properly designed background check. Taking a risk management approach to background screening can help you to minimize the costs of hiring mistakes consistent with the risk tolerance of your organization.
The process looks like this:
The result of this three-step approach is to help you determine exactly what background factors you need to research for each position and applicant.
In this process, you will evaluate the position to determine the specific risks it entails, estimate the value of those risks against your organization’s tolerance for loss, and choose the background screening tactics appropriate for that particular risk-reward tradeoff.
Let’s look at each step in turn:
1. Organizational Risk Tolerance
The risk management approach to hiring is ultimately job-specific, but you will begin with defining the risk tolerance of your organization in a more general sense. Begin by identifying assets that can be affected by human risk factors, including intangibles like brand value, public image, and trust in your organization.
Obviously, the asset list will also include financial flows, relationships with suppliers and customers, investments in your supply chain, and any other key operations with value.
With these assets in view, you have to estimate how much is at stake for each asset when exposed to human risk factors. The risk factors may vary somewhat depending on the specific assets of the organization, but could include criminal background, history of character flaws (e.g., other deviant behavior, like lying on a resume), drug or alcohol abuse, moving vehicle violations, appropriate training or licensing, and so forth.
In practice, some assets will be more exposed to certain kinds of risks than others. The key is to estimate in advance what the risks would cost the organization. It is impossible to eliminate all risk—and it would be disproportionately costly and self-defeating to do so—but you need to know where your exposure would be too costly to permit.
The outcome of this step is a risk tolerance profile for your organization. In practice, risk tolerance will vary with the specific job in question.
2. Role-Related Risks
Every role in your organization carries some degree of risk. The aim of this step in the risk-reward analysis is to determine what specific risks are embedded in each job or role within the organization. Some questions to assess your company’s role-based risk factors include:
- Does the role include access to property or financial assets?
- Does the role require unsupervised responsibility for vulnerable people, e.g., elderly, young, or disabled people?
- Would a person in this role have to drive on the job? How much?
- Does this role give the occupant management control over significant assets?
- Would the role occupant have to have specific credentials or experience?
- Will the person in this role have management authority over others?
- What degree of supervision will the employee have?
Your job-related risk analysis should describe every role in the organization with respect to these risk factors (and other factors as appropriate for your organization’s assets). The matrix this produces gives you the final piece of information you need to move on to designing the correct background screening protocols for every job.
In general terms, the more risk associated with a certain job or role, the more you should invest in background screening to manage the risk.
3. Background Screening Methodology
The level of role-related risk will determine the extent of the background check needed. You may choose to do a more in-depth background check if the applicant is applying for a position that could pose a more significant risk to your organization
For example, if you are hiring a CEO whose impact on your brand, finances, stock price, workplace morale, and profit can be decisive, you will want a comprehensive, in-depth background screening. You will want to invest significantly to ensure that this choice is a good one!
On the other hand, if you are hiring for a driving role, you will be very concerned about licensing, history of driving violations, and drug or alcohol use. You may in fact be willing to accept some level of criminal history if the individual applicant shows evidence of rehabilitation.
The range of background screening checks is wide and may include:
- Criminal database search
- Local criminal records search
- Federal criminal records search
- Sex offenders record search
- Drug testing
- Motor vehicle records search
- Employment credit report
- Education verification
- Employment verification
- Professional license verification
- Media and civil records search
- SSN locator
Employment screening aids in hiring decisions and reduces human capital risk. Following the three-step approach outlined above will help yield better hiring decisions and lead to fewer losses overall.
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