Why You Should Handle Your Talent Management Budget Like a Retirement Fund
April 18, 2017
Ah, yes, my favorite time of the year, tax season (NOT). During this season, all of us are thinking about our finances with a big picture view. Part of that picture is thinking about our retirement plans. There's nothing as ubiquitous as planning for retirement. Whether you're just starting in the corporate world or have a very short horizon to exit it, retirement is one of those goals that we all have embedded in our minds. The specifics of your retirement plan will change as you get older and your appetite for risks will change, but you'll still be thinking about retirement.
So, what does this have to do with talent management?
A week doesn't go by that I don't discuss funding a new talent management system, whether it's about "creating a business case" or "proposing an ROI." These items demonstrate a lot about an organization's appetite for risk. While "risk" rarely appears explicitly in any of these documents, it is one of the major factors in talking about talent management funding (similar to your retirement funding). If there were no risk involved in acquiring anything, even a talent management system, then there would be no reason to create a business case or an ROI to obtain funding.
There are two dimensions that dictate your tolerance for risk: time horizon and bankroll. While these are normally used to talk about 401ks or investing for your future retirement, I would argue that they're just as applicable to your talent management budget planning.
When you enter the workforce, your tolerance for risk is much higher than someone who has a 10-year horizon to his retirement date. The time horizon is the great equalizer when it comes to managing risk. In retirement setting, at any given time, we know that the market fluctuates. But over a considerable period, we know that the market will eventually go up. Therefore, one of the dimensions of mitigating risk is that of your time horizon.
Specifically discussing talent management systems, time horizon relates to how long it will take for a talent management system to create the impact needed by the organization. If your need is immediate, then your level of risk increases. Conversely, if your time horizon is longer, you have a better opportunity to take on greater risk in this implementation than you would with a shorter time horizon to impact.
Another dimension would be whether you are bankrolled, or whether you have a significant amount of savings already built up in your retirement plan. For example, take two 30-year-olds, one that happens to have $1 million already saved in their retirement account and one that has $50,000 saved. If they each have $10,000 to invest, you can see that the 30-year-old that has $1 million already collected can certainly be riskier on their investment since it only represents 1 percent of their total portfolio. On the other hand, $10,000 represents 20 percent of a portfolio for the person that has $50,000 saved.
For talent management professionals, bankroll represents the levels of resources, both financial and non-financial, at the disposal of the organization to overcome any talent management challenges. The greater the bankroll, the greater level of opportunity and risk an organization can take with their talent management system.
So why take risks?
The reason that we take risks in retirement investments is that we have greater opportunity for rapid growth. We invest in stocks, the riskiest investment available to retirement plans, so that we can see the highest level of return—quickly. Or so we hope. We know that investing in bonds is safer as it will maintain its value. However, there is little potential for rapid growth. As I mentioned earlier, the best time to take risks is when you have a long time horizon and a large bankroll. However, this is usually not what we do. We become riskier when we have a short time horizon because were trying to make up the gap. We also take risks when we don't have a large bankroll because we are fearful of outliving our money. These are the two biggest mistakes in retirement investment that most people make.
In my experience, most organizations initiate their quest for a talent management system when they have a short time horizon and limited bankroll. And they will often do so because they're trying to close a significant gap between their management of talent and the productivity of the organization. Continue with our metaphor; this is the same as someone facing retirement next week and having $5,000 in their retirement account. The only way they can close the gap is to become risky in their investment and hope for the best.
What Do We Do Next?
As they say in the investment world, the best time to invest in your retirement would've been 20 years ago, the second-best time to invest in your retirement is right now.
- First, know that you will always need a way to manage talent in your organization. If you have people in your company, you will need to have a robust talent management system.
- Second, do not wait for a talent management crisis before you engage in procuring and implementing a talent management system. Create a longer time horizon.
- Lastly, understanding that investing in your people is a long-term strategy. Create a bigger bankroll towards that investment.
Looking to invest in a talent management system? What is your appetite for risk? Are you prepared? Let me know via Twitter @Brettcwilson and the hashtag #TMRetirement.
Photo: Creative Commons