Tag Archives: Selection

Photographs As Items for Assessment – Free Example

Photographs of people in activity is a promising newer area for development of business-relevant assessments that has been in use for years in healthcare.  Originally developed in the Netherlands to help patients suffering from fear of pain when moving the body (kinesiophobia), the University of Maastricht’s website has details on citations and free compressed (zipped file) short version of the main test.

Clearly, this same approach could be used to develop more engaging employee and organizational assessments that may be difficult to fake, have better face validity, and more workplace fidelity than other types of items.  Further, with cheap and even free video sites, video items could also play a bigger role in future assessments.

Consider these possible fruitful examples.

a) Vocational Interest Assessment

Vocational interest tests help people identify career paths for which their interests, values, and aptitudes are particularly suited.  But most all are purely text-based.  What if each career alternative had photographs of the tasks in each job or job family, with video vignettes of major tasks?  Perhaps this could be a fun way to assess what activities and careers would ultimately help the person realize their goals.  Take another look at the picture at the top of this article.  It’s an actual picture from PHODA’s assessment, but couldn’t it represent the task of lifting articles out of a trunk for the job of a taxicab driver?

b) Employee Selection

Cognitive and knowledge-based tests are often used to select new employees, but not nearly as often or instead of the ubiquitous job interview.  What if good instruments could be developed, perhaps with a combination of item types, to include pictures?  People could rate pictures like this one on the degree to which it looks similar to their desk – would you expect highly conscientious people to endorse this picture?

I would guess that highly conscientious and prudent people would be unlikely to indicate that this picture reflects their own office.  Sales Convention pictures would be good for the high-end of extraversion; Police taking down violent offenders for low levels of agreeableness.  The potential for pre-hire selection, especially using to add to Computer-Adaptive Testing item banks is tremendous.

c) Culture & Climate

Static pictures may be difficult to identify that reflect various organizational cultural differences, but videos could certainly be used to assess these. 

As optimistic as I am about the potential for picture-based items to take a larger role in organizational assessment, I recognize there are also downsides.  First, while digital cameras are cheap, actors may not be.  If you can find existing workplaces where you can take these pictures, it may help you avoid hiring actors for static pictures, but perhaps not for videos that could really suffer with amateur actors.

Second, one New Zeland user of the PHODA complains that if the photographs are context-specific, they can loose value in other contexts.  I remember once when I worked for AT&T Microelectronics, we hired Wally Borman to redo his 1970’s era rater training videos because while the content was good, the actors wore sideburns, bell-bottoms and leisure suits.  This was never going to be very persuasive as “cutting edge” to managers in a bleeding-edge semiconductor factory (computer chips).

Do you see the same potential for photograph-based items as The Scientific Leader?

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Madoff Destroys $50 Billion with “Giant Ponzie Scheme”

Bernie Madoff is the latest in the series of senior executives to destroy value, this time with an apparent $50 billion dollar fraud, according to the Financial Times.  Madoff, a former Chairman of the NASDAQ stock market, on thursday admitted to his employees including his two sons that his operations were “all just one big lie” and “basically, a giant Ponzi scheme”.  The alleged fraud is the largest ever investor fraud ever blamed on a single individual.

Previously, I had written about the “Three Stooges of Operational Risk“, where I detailed senior executive destruction from Key Lay of Enron, Bernie Evers of Worldcom and most recently, Dick Fuld‘s follies with Lehman Brothers.  In two of those three I noted the dishonesty and fraud that accounted for their downfall similar to Madoff.  But unlike Madoff, they were less candid about thair fraud.  After Madoff’s brazen alleged admission, is there any uncertainty that leadership due dilligence is a critical part of the selection process of hiring senior executives?  Could it be any more clear that the pre-hire assessment procedure is a non-trivial subset of Enterprise Risk Management?

In fairness, these Industrial Organizational Psychology methods have their limitations.  No forecast could ever be perfect, or and even the best assessment procedures only account for 30-60% of the variance in job performance.  But it’s relatively rare that factors such as conscientiousness are used to screen executives – and conscientiousness highly predicts dishonest, and imprudent behavior in the workplace like that of Madoff.  With new methods from Rasch Measurement, Computer-Adaptive Testing, and an innovation from the Scientific Leader, “Inverted Computer Adaptive Testing” using Virtual Realtity, it’s increasingly difficult for people to fake or misrepresent themselves on these assessments. 

How much risk are you accepting when you use standard interviews to hire your employees?

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American and European Human Capital Options

A derivative is a financial instrument that gets it’s value from something else.  One special type is an “option” that gives the owner a right, but not the obligation, to buy or sell an asset.  Human resource, or personnel, employment is a special case of Real Options applied to people. In our case, though, we own ourselves and our labor, but for the right price we’re willing to lease it out to employers and clients for a period of time. 

In the case of employment, hiring an employee amounts to buying (call option) the right to utilize labor for 8 hours a day.  In some cases, the terms of an employment contract are extremely limited, such as contracts for professional athletes and union members.  These amount to a European option, such as the case where the owner of a baseball team has the right to release an athlete, on but not before a certain date.  The more flexible type of employment arrangement is the American option variety.  With an American option, the owner can exercise their right (e.g. liquidate the asset, or fire the employee) without respect to a specific date.  In option terms, letting a person go, or not hiring a consultant for another project is called a “put option”.

But with human assets, there are numerous other options employers can choose to take – including redeploying people to work on new projects, in new departments and in different jobs.  The more flexible a person in having skills and motivation to work in areas that are profitable to the firm, the more valuable the person. 

When mixed with psychometrics such as The Scientific Leader’s Computer-Adaptive Measurement(TM) approach, human capital can be valued the same way as other uncertain financial assets – using Managerial Real Options.  Have you valued your human capital the same way as professional financiers?  Do you know where your human capital is best deployed in the portfolio of job tasks and projects in your firm?  How flexible and adaptable is your workforce – to be able to redeploy them to new work as customers, markets, and economic crises unfold?  Have you considered the option of investing in growing the skills of your employees to increase their value and reduce your risk, through training and development?

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Full Employment Act for Financial Risk Managers

CFO.com reports that the one small silver lining in the recent financial crisis is that financial professionals, especially the top job, are more important than ever.  Some have called it a “full employment act” for financial risk managers, who seek to mitigate the downside, and exploit the upside, to “get paid” for taking appropriate risks.

The Institute for Financial Analysts provide a certification program for those seeking Financial Risk Management Skills (FRM), and for $2,500 include instruction in the following areas:

Basel II that involve current banking laws and regulations to create international standards.
Quantitative Analysis, including measurement and modeling of risk
Enterprise Risk Management to manage risk (Avoid, Reduce, Share/Insure, Accept).

Recommended books include The Professional Risk Manager’s Handbook and the Financial Risk Manager Handbook

These address the technical knowledge requirements to be an effective Risk Manager, however, according to the Open Source O*Net online job analysis information include other critical job tasks and skills including personality traits such as integrity, and stress tolerance (Low Neuroticism).  I wonder if pre-employment risk management assessments are used to manage Risk Manager risks?

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Bankrupt but still CEO, Fuld’s Follies Expected to Continue

Dick Fuld, CEO of Lehman Brothers presided over the biggest bankruptcy in history by a large margin.  Bloomberg reports that he will address the House Oversight Commitee on Government Reform today, October 6, 2008, to better understand and avoid future Lehman-type collapses.

Fuld offers an interesting case study in executive risk and emotional denial.  He is expected to deny responsibility, claiming that this crisis is unprecedented, with unforeseen circumstances.  If this is true, then either Fuld is dishonest or he is incredibly uneducated about history.

In 1870, European lenders supported the growth of new lending institutions, similar to what the Clinton administration did to encourage lenders to invest in subprime loans (e.g. give below-market loan rates to very high risk borrowers).  This easy credit led to a housing boom throughout europe, creating uncollateralized bubble, just like what happened in the US in 2008.  By 1873, cheap US weat imports into Russia lowered European incomes, and mortgages began failing when they could no longer afford the houses.  When banks began to loose money, just like today, they wouldn’t lend to each other anymore and this caused inter-bank loan costs to sky rocket.  Eventually, this came back to squeeze credit in the USA, and caused a stock market crash in the US – causing hundreds of banks to close, factories to fail and 25% unemployment in New York City.

Fuld appears to have failed in three ways: (1) he lacked skill in managing risk, (2) he may have misrepresented the extent of Lehman’s losses prior to the collapse and if his testimony is as expected, (3) he is apparently in denial about his own accountability.   Each of these three can be addressed with both executive and board talent management methods that I’ve used in prior roles.  First, it appears that he either took on far too much risk exposure to subprime loans or failed to use modern Real Options and Value at Risk (VaR) methods to ensure his firm would survive if a subset of his portfolio failed.  In my next book, “Leading Scientifically” to be published by Pearson Education / Prentice Hall in 2009, introduce the Cue See(TM) model and software such as Johnathan Mun’s Real Options Valuation Toolkit address these.

Second, if Fuld did misrepresent the state of Lehman’s losses and risk exposure, it suggests he’s unconscientious, and Industrial/Organizational psychologists such as those at The Scientific Leader, have good pre-employment assessment tools to screen out this sort of behavior before hiring an employee.  Similarly, periodic culture/climate surveys can also detect a pattern of imprudent behaviors and falsehoods that could have been addressed to Lehman’s board about the “climate” for transparency, one of the key ideas in COSO‘s Enterprise Risk Management framework.

Third, Fuld appears to be absolving himself of responsibility –  resolving his cognitive dissonance between his perception of himself as a very successful CEO, and the reality that he led Lehman to their demise.  To preserve his own view of himself, he’s looking for explanations outside of his own success to account for his failure.  Executive coaching, offered by The Scientific Leader, together with systematic assessments (e.g. 360 degree surveys) can help ensure leaders maintain a sense of humility and humanity about their own limits and need to accept failure appropriately at times.

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Two Roots of Operational Risk Failures

Ken Lay and Dick Fuld

Ken Lay and Dick Fuld

The origin of the Enterprise Risk Management movement began with the failures of Enron, Worldcom, Lucent, Adelphia, and Tyco where unethical executives cooked the books and nurtured a climate of covering up malfeasance. One professional body, COSO, defines ERM as:

a process, effected by an entity’s board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.

This first wave included human resource risks (e.g. leaders who cook the books), and organizational culture and climate around candid transparency about fiduciary concerns.  Industrial Organizational Psychologists studying these sorts of human behaviors in the workplace have a long history of assessing and mitigating these sorts of risks.  For individual differences, these include personality traits such as conscientiousness and integrity, and there are a variety of good instruments to assess these.  Culture and Climate on the other hand have good methods to assess, however, this entire universe of I/O Psychology was historically under leveraged by auditors, and since Enron has gained more attention than ever before.  The Scientific Leader publishes the modern, Rasch-based Computer Adaptive Testing approach (Computer Adaptive Measurement) that is much faster, and deeper than traditional leadership due diligence approaches.

I think we’ve come upon a second era of Enterprise Risk Management where the catastrophic failures of Lehman Brothers, AIG, Merrill Lynch, Fannie Mae and Freddie Mac were not due so much to unethical behavior, but rather poor decision making, inappropriate appetites for risk, and perhaps a healthy dose of arrogance.

If the poster child for the first era was Ken Lay of Enron , then perhaps the second should be Dick Fuld of Lehman Brothers.  In Fuld’s case, did his inappropriate disrespect for uncertainty and his ability to know everything cause him to approve the taking on a fatal level of risk tolerance?   It appears so, and it also appears that Dick and his board were culpable for the same sorts of errors.  Industrial and Cognitive Psychology both have a half-century of applied science to help select leaders who will make better decisions, manage their teams effectively and grow their ability to use sophisticated decision making methods.  This includes addressing biases that creep into individual and group/team decision making and the use of quantitative methods for addressing a portfolio of uncertainty such as Real Options decision making in probabilistic finance.

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Prioritizing Workforce Risk Appropriately?

I read with interest the blogpost by InfoHRM writer, Mick Collins, on “Identifying Workforce Risks…Right Now“.  He notes that a recent survey of employer perceptions of leadership talent availability indicate that the majority felt there is already a shortage of qualified leaders.

I worry about how employers know this.  I’ve worked in many industries, for over 20 years, and it is surprising how little sophistication some employers use to define the leaders job requirements (e.g. job analysis), develop appropriate instrumentation (even Classical Test Theory, let alone Computer-Adaptive Measurement based on the Rasch Model); and use these data in succession planning forecasting models.

I’ll never forget a situation about a year ago, when three of the major HR consulting firms approached my employer with a proposal to sell software and consulting services to help forecast workforce supply and demand, at least for executives.  None had even a basic understanding of uncertainty and risk – the fact that I can predict tomorrow with less error than I can predict the next decade’s forecast.  Instead, I partnered with Paul Squires of Applied Skills and Knowledge to create a Monte Carlo simulation, based on both historical business data, and Bureau of Labor Statistics estimates on the probability of retirement by age.   Today, I recommend using a combination of discrete event and Monte Carlo methods, but the model I created with Paul was still far better than anything the consultants tried to peddle.

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