Risk planning and the human factor

04 July 2006 Mimi Pienaar

When examining Risk Planning it is useful to look at some definitions - Risk can be defined as the potential future harm that may arise from some present action

Risk planning is seen as creating a plan for the business and including the estimated risks. Risk planning is one of the essential parts of strategic planning the ability to see all possible consequences of your activities.

Risk management is defined in The King Report on Corporate Governance for South Africa 2002 (King II) as a process that utilizes internal controls as a measure to mitigate and control risk. This report highlights that risk management goes beyond the control of financial risks only and that the reputation and the companys future survival are also at stake .

A human is defined as a person, individual, someone, somebody, mortal

The human is central to any risk planning (and management) because human actions and attitudes affect every part of any business.

The risks attached to the human factor are countless as they can include the most basic actions or lack thereof -

* Involvement in setting up systems; one slip of the finger; or one step in the process that is missed out
* Financial side; cheque is not banked or forgotten in a drawer or file, invoices for fees are not sent out;
* Telephonic communication with clients, forgetting to write down a message, or correct telephone number, the person has a bad day and is perceived to be rude or distant;
* Face-to-face client contact; is the documentation filled in correctly? - the Ombud will scrutinize all forms for evidence in case of a complaint;
* General operational issues; key personnel are out of the office, the client demands advice, it is given by an unauthorized, well meaning employee;
* Administration; the information is given to the key individual too late to assess it before seeing the client and the wrong information is on the schedule that is used to plan an entire portfolio;
* Data input, or e-mails; something is left out because it was not received in time; an e-mail with sensitive information is forwarded to a client;
* General poor performance, lack of structures, guidelines, scattered work, sick too often or continually late.

Is the human factor the only risk factor?

Absolutely not, it is only one of them. Indeed, King II mentions that a company should address exposure in the following areas:

Physical and operational risks
Human resource risks
Technical risks
Business continuity and disaster recovery
Credit and market risks
Compliance risks

The Financial Planning Institute (FPI) has identified the following areas as the main risk areas for members :

Operational risks, which include the human factor
Compliance risks
Financial risks
Reputational risks
The human factor has an affect on all these areas.

Why are risk planning and the human factor important to the financial planner?

King II is very clear about it:

1. Human capital indicates the latent or potential value that employees at all levels represent for a company. Development of human capital serves not only the economic interest of the company, it also serves the requirements of the society within which the company operates
2. Criteria for measurement of development and performance

Our own industry regulations address these issues as well in The General Code of Conduct for Authorised Financial Services Providers and Representatives and highlight the following areas as important Part IX on Risk Management:

Control measures

11. A provider must at all times have and effectively employ the resources, procedures and appropriate technological systems that can reasonably be expected to eliminate as far as reasonably possible, the risk that clients, product suppliers and other providers or representatives will suffer financial loss through theft, fraud, other dishonest acts, poor administration, negligence, professional misconduct or culpable omissions.

Specific control objectives

12. A provider, excluding a representative, must without limiting the generality of section 11, structure the internal control procedures concerned so as to provide reasonable assurance that-
a) The relevant business can be carried on in an orderly and efficient manner;
b) Financial and other information used or provided by the provider will be reliable; and
c) All applicable laws are complied with


13. A provider, excluding a representative, must, if, and to the extent, required by the registrar maintain in force suitable guarantees or professional indemnity or fidelity insurance cover.

As a financial planner, your expertise is to assist your clients to plan and manage risks relating to financial planning.

In your practice, have you taken steps to reduce the risks relating to -

Necessary insurance
Necessary resources, procedures and IT systems
Effective control procedures
King II recommends that all companies give due consideration to the application of the report, not only those who fall into the prescribed category.

According to a recent global research, 90% of financial organizations lose more than R70 million a year each because of poor risk management .

Do you want to put yourself, your business and your reputation at risk?

Write to us at [email protected]with any questions relating to risk planning and the human factor.

Mimi Pienaar is the ISG representative for the FPI Western Cape Chapter

Contact information:

Mimi Pienaar,082 9017661, [email protected]
Bette Kun - Stone Soup PR, 011 447 7241, [email protected]

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