Return on Investment in Human CapitalRudra Narayan PandeyHCM ConsultingNividh Business Intelligence919448119930 “Human Capital Measurement offers a great opportunity for thehttp://www.nividh.com/bi/ondemand/hrm-bi.jsp HR function to take a lead in developing indicators that demonstrate the value that people contribute. Over time, this will form a measurement tool which maps the impact of people management in the organization. The first step for anyone looking to introduce HCM-linked Key Performance Indicators (HCKPIs) is to identify those metrics which are linked to wider business objectives.”
• About Us Nividh is a simple, fast, affordable enterprise data visualization software solution that provides an alternative to complex and expensive business intelligence software. Nividh delivers Analytics on Web and helps companies drive their business by providing insight and access into critical data, KPIs, and metrics . Nividh has been concepted, designed, developed, tested and maintained by a team of best of the breed software professionals who has more than 7+ yrs of BI R&D Experience and 4 years of BI Implementation. IITans form the core of Nividh’s engineering team. Team has skills on all cutting edge technologies, mobile platforms and latest frameworks. While serving BI customers in last 10 years (some of them are Fortune 500 companies), our core team have served across following Industries:Banking and Financial Services.• Life Sciences and Health Care industry.• Insurance, Risk and Compliance• Manufacturing• Retail• Education• Logistics and Shipping• Yoga, Spirituality and Fitness• Media & Entertainment• Real Estate• Having worked in some of the most popular Dashboarding technologies, we are confident that we are providing the best Data Visualization and Dashboarding expertise in a simple, fast & affordable manner through www.nividh.com. Nividh aims to make Dashboarding affordable for all members in an organization just not only for top management.
WHO IS INTERESTED IN HUMAN CAPITALMEASUREMENT?There are different audiences forHuman Capital measures:External stakeholders (investors, journalists, T competitors, governments) are interested To succeed, all your departments have to be connected and collaborating with integrated access to the vast amounts of continually-burgeoning in confidence, benchmarking and corporate information. And every department must be able to quickly sift and analyze that data … to discover nuggets of opportunity and insights. compliance There’s a new way to achieve this organizational agility, connecting everyone in your organization with the insight, analytics and information they need to make better, faster, smarter decisions at every level, at every Internal stakeholders (senior management moment! Business Intelligence brings together everything you need to maximize your Competitive advantage , ROI, Reduce Cost. It enables an and managers) are interested in enterprise-wide integration and delivers a revolutionary new user experience with reporting, plus analysis, score carding and dashboards. Itcomparative performance and performance enables everyone in your organization to think, connect with others to share insights, then simply do. The next winning strategy that will catapult improvement. To be useful you beyond the competition can now come from anywhere in your organization or from collaboration among a variety of departments.internally, people measures must be linked to Link to see some sample HR dashboards performance and be relevant HR analytics can be generated to support an integrated view of the workforce. Various analyses include staff movement and performance,to specific groups workforce attrition by department, workforce performance by department, compensation and attrition and absenteeism. The HR data can be integrated with benchmark figures for the telecommunications industry and compared to help identify areas for improving profitability http://www.nividh.com/bi/ondemand/hrm-bi.jsp
What HR Professionals See As Demographic Shifts and WorkforceImmediate Challanges Globalization Have Created a War for Talent• The second generation of measures (such as Aging Workforce + Less Skilled performance metrics, employee productivity, Workforce = Talent Crisis benefits awareness and training effectiveness) has become more established in the last five years, delivering HR business value as opposed to control and compliance, cost per hire, health care costs and workers’ comThird-generation metrics like training ROI, revenue factor and yield ratio will gain importance in the coming years compensation costs per employee.. HR professionals can help their organizations remain competitive by aligning their processes and skills in such a way that all HR services and human capital metrics are working toward the overall business goals of the enterprise; this is, after all, the stated goal of CEOs.
Each Generation in the Workplace Has Its Own Set of Experiencesand Expectations – Conflict Can Occur
Executives Are Demanding Answers to Key QuestionsCEOs (Chancellors) are asking:• What workforce segments create most value?• How will business (institutions) be impacted by impending retirement and are we prepared?• Where is talent demand outpacing supply?• What skills will we need in next 5 years that we don’t have today?• Turnover? How much is it costing in lost enrollment? In productivity? In innovation? In quality?• Do we have a workforce plan to communicate financial consequences of talent decisions on our business?
HCM Analytics PUTTING ANALYTICS IN PLACETo effectively drive an organization’s workforce, A good HR data managementprovide accurate and timely guidance on corporatestrategic initiatives in support of business growth and even process, one that gives HR, lineto justify the value of the team’s very existence, HR managers, and seniormust have a solid handle on its knowledge capital (i.e.,data). It is imperative for HR professionals to think management access to data atstrategically, input the right value–add information and their fingertips, is essential foruse the results as effectively as possible. It may seemobvious to HR professionals, but they can still have a fight these very factors.on their hands for recognition at the board level. When In order to be effective, HRmoney is tight, sales directors can show how they’veboosted the pipeline; the procurement team can professionals must fullycalculate how much they’ve saved by squeezing suppliers acknowledge data, identify key— what can HR do?The answer is Human Capital performance indicators andManagement analytics. settle on a technology approach
• Drivers and challenges to the business are transitioning HR’s core efforts toward providing a competitive advantage.• Organizations are transforming HR to effectively manage human capital. Costs Value-Added Phase III • Strategy & Consultation 10% 60% • HR Analytics Optimisation Focus on • Talent Management continuous improvement Phase II 30% Effectiveness 30% • HR Service Delivery Focus on positioning HR • HR Reporting to impact organizational • Quality/ Cost Tradeoffs effectiveness and drive profit Phase I 60% Efficiency 10% • Benchmarking Focus on reducing HR costs • Baseline Metrics and improving HR processes • Streamline Processes
Talent Management A set of business practices that manage the planning, acquisition, development, retention and advancement of talent in order to achieve business goals and optimize performance. Compensation reports how Attrition Retention reports provide the compensation impacts information on the drivers of performance, ensures employee turnover, compensation is equitable proactively identifies top performers who are likely and consistent across roles, being recruited by and aligns incentive competitors, and reduces compensation with recruiting and involuntary objectives and company termination costs. goals. Workforce profile and HR performance reports HR compliance reports describe performance against the reduced time and cost recruitment and retention of compliance reporting, goals, monitors and increases in employee improves employee productivity, and assesses satisfaction and retention, compensation and manages overall profiles and backgrounds of competitiveness to attract the workforce. top talent.People are the ultimate source of competitive advantage and only people can drive exceptional organizational performanceand create sustainable value. Many HR departments have made good progress in automating business processes andhave introduced methods of measuring the efficiency of these processes.
SAMPLE PROCESS: Exit Process Manage administration of voluntary termination Conduct Manage administration of retirement Design exit exit cases plans interviews Resource Offer out- Manage redundancy process requirement placement and re- analysis skilling servicesTYPICAL INDICATORS (Examples) Indicator Unit of measurement Why it is important/ what it measures 1 Rate of voluntary terminations per year % of population Indicates percentage of staff leaving voluntarily during the period - indicator in assessing effectiveness of retention policies 2 Rate of early retirements per year % of population Assessing effectiveness of retention policies 3 Rate of personnel made redundant % of population Assessing companys effectiveness at manpower planning 4 Rate of outgoing personnel successfully out-placed % of outgoing personnel Assessing effectiveness of outplacement services 5 Average length of time for successful outplacement Average elapsed days oer successful Assessing efficiency of outplacement services placement 6 Average cost of up-skilling outgoing employees $ per person Financial cost of "no return" investment 7 Average time on administration related to retirement Hours per retirement case Assessing financial (time and expense) costs 8 Average time spent related to exit interviews per year Hours per interviewer Assessing financial (time and expense) costs 9 Effectiveness of exit interview information % satisfaction with qualitative turnover Assessing ability to capture pertinent information to reports improve retention policies 10 Costs of redundancy pay-outs per year $ per person or % of overall personnel costs Assessing financial impact of involuntary resignations
A ROADMAP FOR HUMAN LEVEL 1: BASIC WORKFORCECAPITAL MEASUREMENT COMPOSITION Most organizations now have a basic Human Resources Information System that should be able to produce workforce composition reports using the following types of data: Personal data: remuneration, gender, nationality, length of service, time in post, ethnic group, age, qualifications, career history Job Data: job title, job family, location, grade, terms and conditions Organization data: managers and subordinates This core data is the first building block towards a Human Capital measurement strategy. It may be produced either as physical paper-based reports or exported into spreadsheets for further analysis.
LEVEL 2: RATIO ANALYSISOnce basic data is established, more complex analysis can be performed, which usually involves relating one type of data to another in the form of ratios. This data can be from within the HR system or perhaps even linked to data from other organizational systems such as finance.• This type of data is often used to assess the performance and efficiency of the HR function but is also invaluable for supporting the development and implementation of HR strategy. Some organizations have begun to issue a Human Capital report alongside their statutory accounts for use by external investors as a means of demonstrating their commitment to employees. Looks at retention and motivation,• size and composition of the workforce, skills, competencies and training,• remuneration, leadership and succession planning.
True Human Capital measures emphasise people data in the context of business results, so focus on measures such as the following:LEVEL 3: HUMAN CAPITAL DATA • Revenue per fulltime • equivalent head (FTE) • Fully loaded costs per FTE • Average profit per FTE • Wealth created per FTE • (added value) • Human capital ROI = • (Revenue – Paycost)/Paycost • Remuneration/Revenue • Average remuneration per FTE • Recruitment acceptance rate • Training investment per FTE • Proportion of employees • covered by the performance • management system • Number of employees covered by employee engagement survey • Employee stability index • Key employee retention rate
LEVEL 4: WORKFORCE Development of a full workforceSCORECARDS scorecard is complexThe idea of the balanced scorecard has been around for some time and is basedon the original work of Kaplan and Norton in the 1990s.(1996).Basically, it suggests that measures of organizational performance should be based not just on financial outcomes, but also take into account customer, learning and growth and internal measures.This idea has been adapted for people management and essentially requires thedevelopment of a series of Key Performance Indicators that can be combined andweighted to provide an overall assessment of the performance of the organization.
Nividh HCM: USING TECHNOLOGY Sample HR DashboardsA company with a strategic focus oninnovation might measure time spenton new ideas, number of ideasgenerated, number of new productsreaching the market, etc.Using absence as an example, it’s not enough to simply measure absence rates – it’s also important to measure what actions are being taken to assess what are themost successful strategies. These data can then form the basis for trainingmanagers in the best ways to handle absence cases.
Profit* – Staff Costs Used for benchmarking Staff CostsProfit* – HCM Costs Used for measuring trend within a company HCM CostsHC ROI (%) measures the return on investment for funds a company spends on its employees...Profit* - level depends on the particular industry and the accounting principlesStaff Costs = salaries incl. social and health insurance, employee benefitsHuman Capital Management (HCM) Costs= Staff Costs+ HCM Direct Costs (HR department overhead i.e. equipment, HRIS maintenance...)+ HCM Indirect Costs (HR related costs not under full control of HR department i.e. recruitment agencies and advertisements, training costs, health & safety costs, ...)The most advances companies include other HCM related costse.g. costs related to conducting performance appraisal process .
• Lessons learned from measuring Human Capital Increased Need for measuring HC ROI• Measure the right things• it‘s easy to measure the wrong things; just because we can count Through Nividh something, doesn‘t mean that it counts• companies frequently measure time and cost because it is easy • Competitive pressures on costs and to get these data; it‘s harder to develop measures for such meaningful criteria as quality, results and value productivity are increasing•• Choose fewer things to measure but do a better job the tendency is: if it moves, measure it, because someone, • Top executives are requiring ROI somewhere, someday might want to know the number; the result is data paralysis and confusion information•• the art of metrics is to focus on a core set of meaningful things Move beyond summary data • HR budgets are under increasing review• a statistic like „our turnover rate is 9%“ is useful to compare with competitors, but it could be more useful if, e.g. it looks at turnover • Accountability in all functions is by talent level, department, or by manager increasing• averages can mask significant variations; segment data to look• for more specific things It‘s about what you do with the data • Technology makes acquiring information• metrics are only valuable if they result in better decisions easier• gathering data that isn‘t used is a waste of everyone‘s time and patience
•• “Talent management of more senior workforce Sales – Vipul Sharma +91-9483-265110 contributors to ensure organizations organically grow future workers with similar work ethics, firstname.lastname@example.org, values, morals, culture and passionate email@example.com contribution. HR metrics tools must measure firstname.lastname@example.org employee value and contribution towards the businesses success so future workers can be • COST SAVINGS: measured against such a standard of success.” – Moving to a service center approach shows the strongest streamlining and cost savings• “I believe that as HR metrics become standardized, business intelligence models – Evaluate the potential for hosted services currently applied primarily in marketing, • FUTURE: customer service and finance will begin to find – Specifically focus on talent management their way into the HR department and the – Educate yourselves on analytics HRMS data repository. That information will – Focus on improving the user experience then be pushed out to line managers in the form of dashboards and scorecards, which will assist in the overall health and development of the Organisation”