Risk Management In The Human Resources Department Of A Romanian Electricity Company

Abstract

The present paper presents the risk management process conducted in the biggest Romanian electricity company, Enel Distribution Muntenia S.A. Following a thorough analysis, eleven main risks were identified in the Human Resources (HR) Management Department. For the evaluation of the identified risks, the risk index method was employed, and the experts from the HR department of the company assessed their probability and impact. The evaluated risks were then plotted on the risk matrix in order to determine their generic mitigating strategies. The findings show that most of the risks that the company is facing have both a low probability and low impact, making them tolerable for the company. Still, there are some risks that are critical, asking for urgent and efficient mitigation methods. In addition to the generic risk mitigation strategies, the paper advanced specific mitigation solutions for each assessed risk.

Keywords: Risk managementrisk assessmentrisk indexrisk matrixrisk strategy

Introduction

The risk generally refers to conditions or circumstances that affect all organizations and which, if

they materialize, have an unfavourable impact on the company’s activity. At present, there is no generally

accepted definition for risk (Kaplan, R. S. & Mikes, A., 2012). From the literature, we find that the

concept of risk is used as an expected value, a probabilistic distribution, an uncertainty or event with

potential negative effects (McNeil, Frey, Embrechts, 2015). According to ISO Standard 31000, risk can

be defined as the effect of uncertainty on objectives (International Organization for Standardization,

2017). The effect may be positive, negative, or a deviation from the expected. The Institute of Risk

Management defines the risk as the combination of the probability of an event and its consequence

(Institute for Risk Management, 2015). Consequences can range from positive to negative. The Institute

of Internal Auditors defines risk as the uncertainty of an event occurring that could have an impact on the

achievement of the objectives (IIA, 2016). The risk is measured in terms of consequences and likelihood.

Risk is inherent for almost all activities of every company, with direct and strong effects on the

company’s results (Colson, 1995). Therefore, risk management is of major importance for companies

operating on global markets (David, 2011). Taking into account that nowadays the companies have to

perform more and more varied activities, thus involving more or less controllable risks, the risk

management has to take multidimensional valences and responsibilities, becoming increasingly complex

(Becker, & Smidt, 2016).

Risk identification and assessment is a current significant problem any company, an important step

toward its stable development by critically evaluating its environment, its development strategy, and

choosing the best solutions to manage its resources, opportunities and threats (Ivascu, Cioca, 2014). The

risk is not just an academic subject that has attracted increasing interest (Aven, & Renn, 2010); it has a

direct economic impact (Deselnicu, 2005, 2014). Companies are experiencing significant losses or even

go bankrupt because they ignore or misjudge risks (Moraru, Babut, G. B., Cioca, L. I., 2014), calculate

uncertainties incorrectly (Deselnicu, Swiger, Albu, Doman, 2010) or put too much confidence in their

ability to master risky situations (Deselnicu, Matveev, 2014).

Risk management is the process of identifying, analysing and reporting risk factors, in order to

treat/ mitigate/ avoid them (Deselnicu, 2014). This process focuses on all possible scenarios of risk

management, i.e. on "maximizing the probability and consequences of positive events and minimizing the

probability and consequences of adverse events that may occur" (Project Management Institute, 2016).

The present paper is aiming at conducting a risk management assessment process in one of the most

important Romanian electricity companies.

Company description

Enel is Italy's largest energy company and Europe's second-largest utility company, and has been

listed since 1999 at the Milan Stock Exchange. Enel produces and distributes electricity in Europe, North

America and Latin America. After the acquisition of Endesa, together with Acciona, Enel is present in 22

countries, having about 52 million consumers of electricity and natural gas.

Enel is the Italian company with the largest number of shareholders (1.7 million) and the second

natural gas distributor in Italy, with over 2.5 million consumers and a market share of 10%. The company

has 76,760 employees worldwide and owns hydropower, thermoelectric, nuclear, geothermal, wind and

photovoltaic power plants.

S.C. Enel Distribution Muntenia S.A. is the distribution company that supplies over 1194000

users. In Romania, at present, the distribution license is granted for three administrative areas: Bucharest,

Ilfov County and Giurgiu County (Enel Energie Muntenia S.A., 2017). All three companies have the

same leadership, the same organization, and the same processes and activities.

Problem Statement

In order to conduct the risk management process within the Human Resources Department of S.C.

Enel Distribution Muntenia S.A., it is necessary to establish structures and designate the responsible

persons to ensure the carrying out of the specific activities. For this, each head of an organizational

technical structure has to designate a person within the structure that he / she is in charge of, namely the

Risk Officer.

All those responsible for the risks at the level of the technical organizational structures are

assembled at the level of S.C. Enel Distribution Muntenia S.A. in a risk management team (EGR) that

analyses and monitors the major risks of the company. Identifying risks is a responsibility of all staff

within the HR Department; every employee who identifies a potential risk has to fill in a Risk alert form,

and handle it to the Risk Officer, who further analyses the form together with the head of the

organizational structure the risks reported, identifies the preventive activities which are necessary in order

to mitigate the risk, decides which actions will be taken and appoints the responsible persons for the

implementation. At the same time, the deployment of the proposed preventive actions is monitored and

recorded in the Risk monitoring form.

Through this process, the following eleven main risks were identified in the Human Resources

Department of Enel Distribution Muntenia S.A.:

R1. Insufficient knowledge of HR legislation: insufficient documentation, ignorance of

legislative changes.

R2. Lack of staff and salary documents: inappropriate archiving of personnel files, inoperative

back-up procedure, heavy search process.

R3. Delays in reporting deadlines, or reporting errors: There are some errors in the HR reports,

or the reports are submitted after the deadlines have passed. Some of the causes include separated HR

databases, non-centralization of all information, cumbersome processing of information.

R4. Slow updating of system data regarding personnel: The personnel information is not

regularly updated in the HR system and the copies of documents are not submitted to the human resources

inspector (new employees, new positions after promotion / appointment, salary indexing, change of

grades/ professional steps, passage in another seniority trance)

R5. Misrepresentation of presence and leaves: The presence and leaves of employees are not

monitored accurately. Causes include: deficiencies in completing the attendance sheets; not submitting

the attendance sheets in time; incomplete filling in of the presence lists; missing information about the

periods of absenteeism; incorrect recording of periods of rest or holiday leave; the documents for the

holiday leave is incomplete or wrongly filled in.

R6. Misrepresentation of suspension periods or individual labour contracts: The suspension

periods and the labour contracts are not registered and monitored accurately. The causes include: the

documents on the suspensions or individual labour contracts are incomplete or are submitted late; the

suspension of the individual labour contract documents (decisions, additional acts) are prepared

incorrectly or late by the human resources inspector.

R7. Incorrect filling and recording of the social contributions / income taxes / insurance

statements: Such official tax statements and forms are sometimes incorrectly processed and submitted.

The causes include changes in labour legislation which are not timely known by HR employees.

R8. Lack of documents in the personnel file: The personal documents of the employees are

missing from their file. Possible causes include the absence of table of contents for each file, and the

inefficient filing system.

R9. Failure to establish the responsible persons for different errors: The HR manager cannot

always identify the persons responsible for work errors. Causes include deficiencies in the work

descriptions for different positions and the defective work division in the HR department.

R10. Employees’ failure to properly fulfil the attributions: The employees of the HR

department sometimes do not fulfil their work attribution properly. The possible causes include

deficiencies in the recruitment and selection processes and the lack of a professional training program.

R11. The job title list (staff establishment) is not regularly updated: The HR department does

not have an up-to-date staff establishment according to the latest changes (based on the outcomes of the

recruitment/ promotion/ organizational change processes) in the organization. One of the causes is the

lack of an IT system for correlating the job title list (staff establishment) with the changes in the payroll

system, as well as changes regarding the personal data, function, salary, bonuses etc.

Research Questions

The paper aims to answer the following research questions: what are the risks that affect the

Human Resources Department of Enel Distribution Muntenia S.A., how can they be quantified, what are

the most critical ones, and how can they be addressed in order to be mitigated?

Purpose of the Study

The present paper intends to conduct a thorough risk management process in the Human

Resources Department of the electricity company Enel Distribution Muntenia S.A. operating in Romania

in order to advance appropriate mitigation actions for each of the identified risks.

Research Methods

For the evaluation of the identified risks, the risk index method (McNeil, Frey, & Embrechts,

2015) was chosen. The risk index provides a clear illustration of the severity of any risk based on its

probability of materialization, and on its impact in case the risk materializes. The risk index was

calculated as:

$$Ri=PxI$$

where: Ri = Risk index;

P = Probability that the risk materializes;

I = Impact (consequence) if the risk materializes

with P, I taking integer values between [1…10].

In order to conduct this evaluation, six experts from the HR department, including the manager of

the department were asked to assess the probability and impact of the previously identified risks. The

results of their evaluation are presented in Table 01 :

As it can be observed, the calculated Risk index for the identified risks ranges between 8 to 36,

showing that the Human Department is generally facing low to medium risks.

In order to be able to assess more precisely the identified and previously quantified risks (Doherty,

2000), they can be plotted to the risk matrix (Figure 1 ):

See Full Size >

Most of the identified risks (R2, R3, R5, R6, R7, R10) fall into the fourth quadrant of the matrix,

while the other risks fall into the third quadrant (R1, R4, R8), the second quadrant (R9) and the first

quadrant (R11). This shows that most of the risks that the company is facing have both a low to medium

probability and impact, making them easy tolerable for the company.

Findings

The analysis of the risk index indicate that the most threatening risks are the failure to establish the

responsible persons for different errors, the slow updating of the job title list (staff establishment) and of

the system data regarding personnel. These risks would severely affect the company’s operations and

cannot be tolerated. The least significant risks that the company faces are the misrepresentation of

suspension periods and individual labour contracts, and the employees’ failure to properly fulfil the

attributions.

The risk management literature recommends four risk mitigation strategies for the management of

all types of risks (Hopkin, 2010), in close connection with their position on the risk matrix (Figure 1 ): the

transfer of risks to a third party (quadrant I), the termination (elimination) of risks (quadrant II), the

treatment of risks (quadrant III) and the toleration of risks (quadrant IV). According to these

recommendations, the management of the identified risks in the HR department of Enel Muntenia

Distribution S.A. should encompass the following generic risk strategies (Table 02 ):

The critical risk (R9), namely the failure to establish the responsible persons for different errors in

the HR department should be addressed first, and the activities generating it should be terminated to the

extent possible, because it poses a significant threat to the company.

In addition to the generic risk mitigation strategies discussed above, the company must take

specific actions, adjusted to each risk situation, in order to contain and manage the identified risks (Table 03 ):

It can be observed that the company has a lot of risk mitigation actions that can decrease the

probability, the impact or both these criteria of risks, in order to contain and reduce them.

Conclusion

The paper presented the risk management assessment conducted in the most important Romanian

electricity company. S.C. Enel Distribution Muntenia S.A. is the largest energy distribution company in

Romania. Following a thorough analysis, eleven main risks were identified in its Human Resources

Department. For the evaluation of the identified risks, the risk index method was employed, and the

experts of the department assessed their probability and impact. The evaluated risks were then figured on

the risk matrix in order to determine their generic mitigating strategies.

Most of the risks that the company is facing have both a low probability and impact, making them

tolerable for the operations of the company. The most threatening risk are the failure to establish the

responsible persons for different errors, the slow updating of the job title list (staff establishment) and of

the system data regarding personnel. These risks would severely affect the company’s operations and

cannot be tolerated, making it imperative to be addressed with effective counteracting measures.

In addition to the generic risk mitigation strategies, specific mitigation solutions were proposed for

each assessed risk. By implementing the risk management strategies proposed in the paper, S.C. Enel

Distribution Muntenia S.A. will be able to perform the ongoing supervision of its Human Resources

department risks, in order to maintain them at an acceptable level that does not threaten its operational

performance, its employees and shareholders.

Acknowledgments

This work has been funded by University Politehnica of Bucharest, through the “Excellence Research Grants” Program, UPB – GEX. Identifier: UPB–EXCELENTA–2016; research project title: Improving the performance of small and medium – size enterprises in Romania by implementing the integrated risk management (Acronym: PERFORM), contract no. 55/2016..

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