Human resource metrics

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Human resource metrics are measurements used to determine the value and effectiveness of human resources (HR) initiatives, typically including such areas as turnover, training, return on human capital, costs of labor, and expenses per employee.

Contents

Efficiency

It is often required of human resources departments to show the organizational value of money and time spent on human resources management training and activities. The value of reporting and analysis of HR performance in various areas aims to improve the organization's function and internal temperature. [1] HR's challenge is to provide business leaders with actionable information that helps them make decisions about investments, marketing strategies, and new products. HR metrics are a vital way to quantify the cost and impact of employee programs and HR processes and measure the success (or failure) of HR initiatives. They enable a company to track year-to-year trends and changes in these critical variables. It is how organizations measure the value of the time and money spent on HR activities in their organization.

The following are some of the examples on efficiency of HR functions: [2]

  1. Cost per hire: It is the cost associated with a new hire. It is not only important to know how much it cost in hiring, but it is also important to see if the money spent is used to hire right people. (Boudreau; Lawler & Levenson, 2004) [3]
  2. Time to fill: It is the total days to fill up a job opening per each job. The shorter the time, the more efficient of the HR department in finding the replacement for the job
  3. HR expense factor: It is the ratio between total company expense and HR expense. It shows if the expenses on HR practices are too much in terms of the whole company expense.

Effectiveness

It shows whether the HR practices have a positive effect on the employees or the applicant pool. This is very important for HR because they are regarded as the leader for acquiring, developing and helping to deploy talent. (Boudreau; Lawler & Levenson, 2004) [3]

The following are some of the examples on effectiveness of the HR functions: (Kavanagh & Thite, 2009) [2]

  1. Training ROI: It is the total financial gain an organization have from a particular training. It shows the effectiveness of the training program and how much it can benefit to the company after the training.
  2. Absent rate: It determines the company is having an absent problem from the employees. It also reflects the effectiveness of the HR policies as well as the company's own policies. It always goes along with employee satisfaction.
  3. Employee retention and Employee turnover

Developing core competency

Metrics help develop core competency by demonstrating the connection between HR practices and the tangible effects on an organization's ability to gain and sustain competitive advantage. This approach often treats employees as human capital instead of expense. (Boudreau; Lawler & Levenson, 2004)

The following are some of the examples on effectiveness of the HR functions: [2]

1. Revenue factor: It indicates the effectiveness of company operation with the use of the employees as their human capital.

2. Defects rate: It indicates the number of defective products in the operation. The lower the defect rate, the more effective the HR practices in developing companies' core competency in terms of reducing cost.

HR metric & human capital

Some HR groups no longer only assess their effectiveness and efficiency and the contribution to the company, but also how those practices can positively affect the human capital (employees) in the organization. "Based on corporate culture, organizational values and strategic business goals and objectives, human capital measures indicate the health of the organization." [4] (Lockwood, 2006)

Key Performance Indicators (KPIs) are used to measure human capital outcomes, such as talent management, employee engagement and high performance, illustrates the firm's business, financial and strategic goals, and promotes partnership with senior management for organizational success. [4] Nowadays, HR people integrated the traditional metrics to KPI which aligned with corporate objectives. The best KPIs should be able to reflect the human capital performance, such as financial outcomes, performance drivers. At the same time, when determining strategic KPIs, it is essential to consider who designs human capital measures and how they are created. [4]

Nancy Lockwood suggests the following 5 assists that can help HR to create a better KPI. It includes involving HR in overall business strategy; Enlisting leaders outside of HR to help develop the KPIs; Collaborating with business managers to ensure KPIs link to business unit strategic goals; Focusing more attention on links between people measures and intermediate performance drivers (e.g., customer satisfaction, engagement etc.); Increasing manager acceptance through training programs and concrete action plans; Working with HR to simplify metric and automate data collection. [4]

Human resources & metrics

Human capital is important to organization because they are the people who are actually working for the organization. They build the company's core competencies and competitive advantages to the organization. With effective management of the human capital, a company can achieve the maximum outputs from its own human capital and be superior to other competitors.

Some organizations are unaware even of how many people they have in their organization. The problem with HR is that they have been held unaccountable in the initiatives and programs they promote across the organization. Typically, nobody in the organization, let alone top business leaders of the organization are aware of the impact of these programs whether, positive or negative. This is because HR leaders have not been delivering metrics that show the value of their programs or investments. HR metrics is important because it allows organizations to make the connection between the value of what HR is doing and the outcomes of the business. If HR professionals don't measure their function's effectiveness and providing decision-making leaders the data they need, HR will continue to be undermined and eventually sidelined when it comes to having a seat at the table. Therefore, many experts urge HR professionals to use the data they have in front of them and understanding how metrics and analysis could give HR an advantage as an overall better strategic partner. This will allow them to help business leaders solve the people problems that matter to the organization.

Before HR metrics, many of the HR activities and processes were difficult to quantify, making it hard to fully understand the real employee costs associated with each HR functions. For example, “a decade ago, if someone looked for turnover rate by performance category, it could be a two-week project.” With HR metrics, more specifically Retention metrics, HR leaders are able to quantify variables such as turnover rate, average tenure, the rate of veteran worker, or the financial impact of employee turnover. These results can indicate how much separating employees is costing the company and help the company to create proactive plans to prevent future loss of top talent.

More importantly, metrics enable leaders and decision makers in organizations towards more efficient and better delivery of HR services [5]

HR metrics and data

Executives tend to make consistently better decisions when they use facts gathered from their organizations in objective ways. Many of the important decisions made by executives affect the business and the bottom line; therefore, in order to convince executive leaders that organizations are benefiting from their people or on the contrary, losing money and wasting resources, HR will need to provide palpable evidence. This evidence can be found in HR Metrics. The key to finding the right metrics for your organization needs is to identify the overall business needs as organizations may differ in terms of the metrics they use. Metrics used by the organization need to show data on how human capital strategy is effective and that organizations are acquiring, developing and deploying the proper talent. Organizations that have trouble deciding what metrics to use for their organizations can always enlist the help of a specialist or consultant to do a company-wide assessment on their organization.

Measuring key data with HR metrics

As long as you have employees, you will have turnover, both voluntary and involuntary and any turnover experienced by the organization is money and resources being lost. Most companies have no idea the impact turnover has on the organization but when the cost of turnover is 15%, 25% or 35% of an organization's profits, it has a big impact on organizations as a whole. By having your organization use metrics, organizations will be surprised by how much their HR functions can save on hiring, staffing, and separation costs.

Below are some suggestions for organizations interested in tracking talent through metrics should consider the following:

Having HR metrics is first part and a critical one and obtaining the data is another but being able make meaning and provide a compelling story as to what the data means in relation to the business strategy is just as crucial.

Software and outsourcing HR metrics

For the most part, HR professionals in many companies probably don't need to purchase additional software to create valid metrics. The trick is knowing where to look and how to extract data.[ citation needed ] If using the correct HR information systems, most information systems should include reporting tools that can provide data on learning and performance management or financial systems. However, organizations have to ensure that the data they have uphold integrity and are quality data.

While HR systems is one way of obtaining metrics, many organizations because of lack of resources or time, or simply because they don't know where to begin can enlist the help of a retention specialist or purchase metric systems designed solely for HR Metrics.

The HRIS systems (Workday, Successfactors, Oracle HR, etc.) provide often strong reporting tools within the systems to reflect cost of people. While talent acquisition systems (like Taleo, etc.) Provide insight in recruitment costs. If the HR department wants to create data around organizational insight, engagement, culture and in general the opinions of the employees, software like FieldRate (business intelligence) or Beekeeper (more focused on communications) can be used, especially if there is a need to reach the employees who do not have a corporate email addresses.

Related Research Articles

Human resources (HR) is the set of people who make up the workforce of an organization, business sector, industry, or economy. A narrower concept is human capital, the knowledge and skills which the individuals command. Similar terms include manpower, labor, labor-power, or personnel.

Staffing is the process of finding the right worker with appropriate qualifications or experience and recruiting them to fill a job position or role. Through this process, organizations acquire, deploy, and retain a workforce of sufficient quantity and quality to create positive impacts on the organization's effectiveness. In management, staffing is an operation of recruiting the employees by evaluating their skills and knowledge before offering them specific job roles accordingly.

Human resource management (HRM) is the strategic and coherent approach to the effective and efficient management of people in a company or organization such that they help their business gain a competitive advantage. It is designed to maximize employee performance in service of an employer's strategic objectives. Human resource management is primarily concerned with the management of people within organizations, focusing on policies and systems. HR departments are responsible for overseeing employee-benefits design, employee recruitment, training and development, performance appraisal, and reward management, such as managing pay and employee benefits systems. HR also concerns itself with organizational change and industrial relations, or the balancing of organizational practices with requirements arising from collective bargaining and governmental laws.

<span class="mw-page-title-main">Performance indicator</span> Measurement that evaluates the success of an organization

A performance indicator or key performance indicator (KPI) is a type of performance measurement. KPIs evaluate the success of an organization or of a particular activity in which it engages. KPIs provide a focus for strategic and operational improvement, create an analytical basis for decision making and help focus attention on what matters most.

Workforce management (WFM) is an institutional process that maximizes performance levels and competency for an organization. The process includes all the activities needed to maintain a productive workforce, such as field service management, human resource management, performance and training management, data collection, recruiting, budgeting, forecasting, scheduling and analytics.

<span class="mw-page-title-main">Workforce productivity</span> Concept in economics

Workforce productivity is the amount of goods and services that a group of workers produce in a given amount of time. It is one of several types of productivity that economists measure. Workforce productivity, often referred to as labor productivity, is a measure for an organisation or company, a process, an industry, or a country.

In human resources, turnover refers to employees who leave an organization. The turnover rate is the percentage of the total workforce who leave over a certain period. Organizations and wider industries may measure their turnover rate during a fiscal or calendar year.

Organizational ethics is the ethics of an organization, and it is how an organization responds to an internal or external stimulus. Organizational ethics is interdependent with the organizational culture. Although it is to both organizational behavior and industrial and organizational psychology as well as business ethics on the micro and macro levels, organizational ethics is neither organizational behavior nor industrial and organizational psychology, nor is it solely business ethics. Organizational ethics express the values of an organization to its employees and/or other entities irrespective of governmental and/or regulatory laws.

Talent management (TM) is the anticipation of required human capital for an organization and the planning to meet those needs. The field has been growing in significance and gaining interest among practitioners as well as in the scholarly debate over the past 10 years, particularly after McKinsey's 1997 research and the 2001 book on The War for Talent. Although much of the previous research focused on private companies and organizations, TM is now also found in public organizations.

An exit interview is a survey conducted with an individual who is separating from an organization or relationship. Most commonly, this occurs between an employee and an organization, a student and an educational institution, or a member and an association. An organization can use the information gained from an exit interview to assess what should be improved, changed, or remain intact. More so, an organization can use the results from exit interviews to reduce employee, student, or member turnover and increase productivity and engagement, thus reducing the high costs associated with turnover. Some examples of the value of conducting exit interviews include shortening the recruiting and hiring process, reducing absenteeism, improving innovation, sustaining performance, and reducing possible litigation if issues mentioned in the exit interview are addressed.

<span class="mw-page-title-main">Sustainability accounting</span> A term of financial accounting

Sustainability accounting originated in the 1970s and is considered a subcategory of financial accounting that focuses on the disclosure of non-financial information about a firm's performance to external stakeholders, such as capital holders, creditors, and other authorities. Sustainability accounting represents the activities that have a direct impact on society, environment, and economic performance of an organisation. Sustainability accounting in managerial accounting contrasts with financial accounting in that managerial accounting is used for internal decision making and the creation of new policies that will have an effect on the organisation's performance at economic, ecological, and social level. Sustainability accounting is often used to generate value creation within an organisation.

Financial intelligence is a type of business intelligence constituted of the knowledge and skills gained from understanding finance and accounting principles in the business world and understanding how money is being used. Although a fairly new term, financial intelligence has its roots in organizational development research, mostly in the field of employee participation. Financial intelligence has emerged as a best practice and core competency in many organizations leading to improved financial results, increased employee morale, and reduced employee turnover. Many organizations include financial intelligence programs in their leadership development curriculum. Financial intelligence is not an innate skill, rather it is a learned set of skills that can be developed at all levels.

E-HRM is the planning, implementation and application of information technology for both networking and supporting at least two individual or collective actors in their shared performing of HR activities.

Return on investment (ROI) or return on costs (ROC) is the ratio between net income and investment. A high ROI means the investment's gains compare favourably to its cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments. In economic terms, it is one way of relating profits to capital invested.

Enterprise engagement is a sub-discipline of marketing and management that focuses on achieving long-term financial results by strategically fostering the proactive involvement and alignment of customers, distribution partners, salespeople, and all human capital outside and inside of an organization. Enterprise engagement is distinct from the traditional sub-disciplines of financial management, marketing, sales, operations, and human resources in that it seeks to achieve long-term success by integrating these various traditional business disciplines to consistently focus the organization on identifying and meeting target audience needs. Enterprise Engagement is related to brand engagement, a term developed in Great Britain in the 2000s to describe an integrated external and internal marketing approach to achieving long-term success for a brand. Enterprise Engagement applies similar principals to the achievement of an organization's overall financial objectives.

Employee retention is the ability of an organization to retain its employees and ensure sustainability. Employee retention can be represented by a simple statistic. Employee retention is also the strategies employers use to try to retain the employees in their workforce.

Performance rating is the step in the work measurement in which the analyst observes the worker's performance and records a value representing that performance relative to the analyst's concept of standard performance.

In a business context, operational efficiency is a measurement of resource allocation and can be defined as the ratio between an output gained from the business and an input to run a business operation. When improving operational efficiency, the output to input ratio improves.

A human resources management system (HRMS), also human resources information system (HRIS) or human capital management (HCM) system, is a form of human resources (HR) software that combines a number of systems and processes to ensure the easy management of human resources, business processes and data. Human resources software is used by businesses to combine a number of necessary HR functions, such as storing employee data, managing payroll, recruitment, benefits administration, time and attendance, employee performance management, and tracking competency and training records.

Top-line growth is the increase in revenue or gross sales by a company over a defined period and is used to indicate the financial strength of a business and its potential for growth in the future. It is usually measured over periods of one-half or full years and is often reported as a percentage growth compared to the previous year or period. Top-line growth does not accrue across periods, instead it is recalculated based on the performance of the business in a specified reporting period. It is a gross figure that represents economic inflows to the company, prior to the deduction of expenses or changes in equity contributed by the business owners or the investors. Top-line growth is often used as a metric for business growth potential and overall operating performance. In most businesses, it forms an integral part of their strategic planning and a means of assessments for such strategies.

References

  1. ↑ Fitz, Jac. How to Measure Human Resource Management. McGraw Hill. 3rd ed. 2002.
  2. 1 2 3 Kavanagh, M.J. & Thite, M. (2009). Human Resource Information Systems: Basics, Applications, and Future Directions. Thousand Oaks: Saga Publications, Inc.
  3. 1 2 Lawler III, E.E., Levenson, A., & Boudreau, J.W. (2004). HR Metrics and Analytics: Use and Impact. Human Resource Planning, 27(3): 27-35.
  4. 1 2 3 4 Lockwood, N. (2006). Maximizing Human Capital: Demonstrating HR Value With Key Performance Indicator . HR Magazine, 51(9): 1-10.
  5. ↑ Mukherjee.J. (2012). Designing Human Resource Management Systems: A Leader's Guide. Response Books, SAGE Publications

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