On Managing Life Event Risk

As human beings, we all live lives beyond what we do at work. And even though we make commitments at work to perform certain tasks by certain dates, life events do sometimes intervene. Llife events are "important occasions throughout the lifespan." [APA 2023.1] A critical life event is "an event in life that requires major adjustment and adaptive behavior." Critical life events include "the death of a loved one, divorce, and unemployment." [APA 2023.2] And, certainly, much more. When critical life events occur, we might not be able to honor our commitments in the ways and by the dates we originally promised.

That's how and why critical life events of team members can affect plans for workplace projects and operations. Critical life events are thus a source of risks for workplace plans. And those risks are difficult to manage using conventional risk management tools.

Limitations of conventional risk management approaches

Conventional risk management approaches tend to focus on actions organizations can take to mitigate risks of activities they undertake and understand well. For example, Organization A, offering a new product, might develop a plan to manage the risk of a competitor fielding a similar product within a year of A's offering. The risk manager applies resources to control the expected value of the impact, where expected value is the product of two factors: the probability of a risk event and the cost of that event if it should occur.

Risk management thus emphasizes two activities: (a) monitoring risk event probabilities and suppressing them where possible; and (b) altering plans so as to limit the cost of risk events when/if they do occur.

Both of these Conventional approaches to risk management,
when applied to managing critical life event
risk, can require intrusive investigations
into employees' private livesapproaches to risk management, when applied to managing critical life event risk, can require intrusive investigations into employees' private lives. In some instances, the risk managing organization is legally barred from seeking the information that would be most pertinent to planning for managing the risks of critical life events associated with individual employees.

For example, to estimate the probability of the death of a spouse, knowledge of the medical history of that spouse would be most useful. But asking the employee for such information — or even seeking it by any other means — might be prohibited in the relevant jurisdiction. If so, that prohibition can limit the effectiveness of plans for managing the risk of death of a spouse.

An alternative approach to managing life event risk

An alternative approach for managing the risk of critical life events relies on diversifying the risk portfolio, which is a well-established risk management technique. Applied to the problem of managing critical life event risk, the strategy involves adopting an employee recruiting approach designed to achieve a demographically diverse workforce. For example, by arranging for a wide distribution of ages in the workforce, we can dilute the effects associated with parenting small children, which include distractions, loss of sleep, limited availability for travel, and so on. That same recruitment strategy dilutes the effects of unexpected demands associated with caregiving for aged parents.

This example illustrates the power of demographic diversity relative to age. But the same approach applies for any demographic factor associated with critical life events — marriage, divorce, remarriage, arrests, motor vehicle accidents, surgeries, restraining orders, retirement, deaths of pets, home-buying, relocation, promotions, and so on. Diversity of the employee population dilutes the effects of critical life events.

Last words

The approach based on demographic diversity can be difficult to accept at first. Conventional wisdom dictates that we always seek the best-qualified candidates for positions we fill. Normally, we ignore the effect of such hiring on demographic diversity. The result is that many organizations are carrying unmitigated critical life event risks. They might have highly qualified employees, but their overall performance might be compromised by critical life events.  Top    Next Issue

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