“ Human Capital Measurement offers a great opportunity for the 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.”
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WHO IS INTERESTED IN HUMAN CAPITAL
There are different audiences for
Human Capital measures:
External stakeholders (investors, journalists, competitors, governments) are interested in confidence, benchmarking and compliance
Internal stakeholders (senior management and managers) are interested in
comparative performance and performance improvement. To be useful
internally, people measures must be linked to performance and be relevant
to specific groups
TO SUCCEED, ALL YOUR DEPARTMENTS HAVE TO BE CONNECTED AND COLLABORATING WITH INTEGRATED ACCESS TO THE VAST AMOUNTS OF CONTINUALLY-BURGEONING CORPORATE INFORMATION. AND EVERY DEPARTMENT MUST BE ABLE TO QUICKLY SIFT AND ANALYZE THAT DATA … TO DISCOVER NUGGETS OF OPPORTUNITY AND INSIGHTS. 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 MOMENT! BUSINESS INTELLIGENCE BRINGS TOGETHER EVERYTHING YOU NEED TO MAXIMIZE YOUR COMPETITIVE ADVANTAGE , ROI, REDUCE COST. IT ENABLES AN ENTERPRISE-WIDE INTEGRATION AND DELIVERS A REVOLUTIONARY NEW USER EXPERIENCE WITH REPORTING, PLUS ANALYSIS, SCORE CARDING AND DASHBOARDS. IT ENABLES EVERYONE IN YOUR ORGANIZATION TO THINK, CONNECT WITH OTHERS TO SHARE INSIGHTS, THEN SIMPLY DO. THE NEXT WINNING STRATEGY THAT WILL CATAPULT YOU BEYOND THE COMPETITION CAN NOW COME FROM ANYWHERE IN YOUR ORGANIZATION OR FROM COLLABORATION AMONG A VARIETY OF DEPARTMENTS.
LINK TO SEE SOME SAMPLE HR DASHBOARDS
HR ANALYTICS CAN BE GENERATED TO SUPPORT AN INTEGRATED VIEW OF THE WORKFORCE. VARIOUS ANALYSES INCLUDE STAFF MOVEMENT AND PERFORMANCE, 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
WHAT HR PROFESSIONALS SEE AS IMMEDIATE CHALLENGES
The second generation of measures (such as performance metrics, employee productivity, 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’ com Third-generation metrics like training ROI, revenue factor and yield ratio will gain importance in the coming years com pensation 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.
DEMOGRAPHIC SHIFTS AND WORKFORCE GLOBALIZATION HAVE CREATED A WAR FOR TALENT
Aging Workforce + Less Skilled Workforce = Talent Crisis
Each Generation in the Workplace Has Its Own Set of Experiences and Expectations – Conflict Can Occur
Executives Are Demanding Answers to Key Questions
CEOs (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?
To effectively drive an organization’s workforce,
provide accurate and timely guidance on corporate
strategic initiatives in support of business growth and even
to justify the value of the team’s very existence, HR
must have a solid handle on its knowledge capital (i.e.,
data). It is imperative for HR professionals to think
strategically, input the right value–add information and
use the results as effectively as possible. It may seem
obvious to HR professionals, but they can still have a fight
on their hands for recognition at the board level. When
money is tight, sales directors can show how they’ve
boosted the pipeline; the procurement team can
calculate how much they’ve saved by squeezing suppliers
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.
Value Maintenance Value Adding Optimisation Focus on continuous improvement Effectiveness Efficiency Costs 10% 30% 60% Focus on positioning HR to impact organizational effectiveness and drive profit Focus on reducing HR costs and improving HR 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.
PEOPLE ARE THE ULTIMATE SOURCE OF COMPETITIVE ADVANTAGE AND ONLY PEOPLE CAN DRIVE EXCEPTIONAL ORGANIZATIONAL PERFORMANCE AND CREATE SUSTAINABLE VALUE. MANY HR DEPARTMENTS HAVE MADE GOOD PROGRESS IN AUTOMATING BUSINESS PROCESSES AND
HAVE INTRODUCED METHODS OF MEASURING THE EFFICIENCY OF THESE PROCESSES.
External Internal Ability to Pay
Time to hire
Benefits as a % of payroll
Cost of turnover
Salary distribution by division, dept, mgr, location
Variable costs vs. fixed
Awards tied to organization results
Compliance: salary differences by gender, age or minority status
Revenue / Operating Budget per employee
External Equity Internal Equity Ability to Pay Market rates & trends, economic factors Workforce, organization & industry factors Budget, balance sheet & organization success Where Your organization Is Where the Market Is
MEASURES MONITOR PLAN OUTCOMES Completion, attendance ratios Program, certification expenses Activity profitability Performance outcome ratios Satisfaction ratings ... ROI per employee Headcount cost Headcount variance Requisition fulfillment cycle time Termination cost per employee Termination cost Turnover rate Absence rate Accident rate Exposure hours Accept ratio Agency effectiveness Cost to hire Vacation days balance Vacation days entitlement Performance review result Contribution factor Maintained qualification count Review result Scarcity level Succession percentage Training % of revenue … . Annual compensation Benefit plan enrollment Compensation % increase Increase Variance ]Customer service award variance Dependant count Employee, Employer contribution Employee opt out ratio Incentive award Hourly pay rate … . Absence days count Accident Severity Rate Accident Lost time Rate High Performance ratio Low Performance ratio Employee Development cost Development cost per employee High Performance turnover rate Incentive Pool variance Benefit cost per employee Merit Pool Variance increase variance count termination rate FTE count Human capital ROI Time to hire Turnover rate .... Headcount, Planning Compensation & Salary Planning Improve Growth and Profitability Headcount & Turnover Compensation, Incentive Performance, Succession Recruiting , Absence & Accident Analysis Learning Management Benefits Planning Restructuring planning Payroll & Reconciliation Analysis Payroll Liability Planning Recruitment Planning Trained, certified headcount Investment factors Training cost factors Revenue/expense ratios
A ROADMAP FOR HUMAN CAPITAL MEASUREMENT
LEVEL 1: BASIC WORKFORCE COMPOSITION
Most organizations now have a basic Human Resources Information System that
should be able to produce workforce composition reports using the following types
Personal data: remuneration, gender, nationality, length of service, time in
post, ethnic group, age, qualifications, career history
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 ANALYSIS
Once 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.
LEVEL 3: HUMAN CAPITAL DATA
TRUE HUMAN CAPITAL MEASURES EMPHASISE PEOPLE DATA IN THE CONTEXT OF BUSINESS RESULTS, SO FOCUS ON MEASURES SUCH AS THE FOLLOWING:
Revenue per fulltime
equivalent head (FTE)
Fully loaded costs per FTE
Average profit per FTE
Wealth created per FTE
Human capital ROI =
(Revenue – Paycost)/Paycost
Average remuneration per
Recruitment acceptance rate
Training investment per FTE
Proportion of employees
covered by the performance
Number of employees covered
by employee engagement survey
Employee stability index
Key employee retention rate
LEVEL 4: WORKFORCE SCORECARDS
The idea of the balanced scorecard has been around for some time and is based
on 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 the
development of a series of Key Performance Indicators that can be combined and
weighted to provide an overall assessment of the performance of the organization.
DEVELOPMENT OF A FULL WORKFORCE SCORECARD IS COMPLEX
NIVIDH HCM: USING TECHNOLOGY
A company with a strategic focus on
innovation might measure time spent
on new ideas, number of ideas
generated, number of new products
reaching 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 the
most successful strategies. These data can then form the basis for training
managers in the best ways to handle absence cases.
SAMPLE HR DASHBOARDS
Profit* – Staff Costs Staff Costs Profit* – HCM Costs HCM Costs HC ROI (%) measures the return on investment for funds a company spends on its employees... Profit* - level depends on the particular industry and the accounting principles Staff Costs = salaries incl. social and health insurance, employee benefits Human 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 costs e.g. costs related to conducting performance appraisal process . Used for benchmarking Used for measuring trend within a company
Lessons learned from measuring Human Capital
Measure the right things
it‘s easy to measure the wrong things ; just because we can count something, doesn‘t mean that it counts
companies frequently measure time and cost because it is easy to get these data; it‘s harder to develop measures for such meaningful criteria as quality, results and value
Choose fewer things to measure but do a better job
the tendency is: if it moves, measure it, because someone, somewhere, someday might want to know the number; the result is data paralysis and confusion
the art of metrics is to focus on a core set of meaningful things
Move beyond summary data
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 by talent level, department, or by manager
averages can mask significant variations; segment data to look for more specific things
It‘s about what you do with the data
metrics are only valuable if they result in better decisions
gathering data that isn‘t used is a waste of everyone‘s time and patience
Increased Need for measuring HC ROI Through Nividh
Competitive pressures on costs and productivity are increasing
Top executives are requiring ROI information
HR budgets are under increasing review
Accountability in all functions is increasing
Technology makes acquiring information easier
“ Talent management of more senior workforce contributors to ensure organizations organically grow future workers with similar work ethics, values, morals, culture and passionate contribution. HR metrics tools must measure employee value and contribution towards the businesses success so future workers can be measured against such a standard of success.”
“ I believe that as HR metrics become standardized, business intelligence models currently applied primarily in marketing, customer service and finance will begin to find their way into the HR department and the HRMS data repository. That information will 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”