1. Return on Investment
in Human Capital
Rudra Narayan Pandey
HCM Consulting
Nividh Business Intelligence
919448119930
“Human Capital Measurement offers a great opportunity for the
http://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.”
2. • 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.
3. WHO IS INTERESTED IN HUMAN CAPITAL
MEASUREMENT?
There are different audiences for
Human 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. It
comparative 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
4. What HR Professionals See As Demographic Shifts and Workforce
Immediate 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.
5. Each Generation in the Workplace Has Its Own Set of Experiences
and Expectations – Conflict Can Occur
6. 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?
7.
8. HCM Analytics PUTTING ANALYTICS IN PLACE
To effectively drive an organization’s workforce, A good HR data management
provide accurate and timely guidance on corporate
strategic initiatives in support of business growth and even process, one that gives HR, line
to justify the value of the team’s very existence, HR managers, and senior
must have a solid handle on its knowledge capital (i.e.,
data). It is imperative for HR professionals to think management access to data at
strategically, input the right value–add information and their fingertips, is essential for
use the results as effectively as possible. It may seem
obvious 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, HR
money is tight, sales directors can show how they’ve
boosted the pipeline; the procurement team can professionals must fully
calculate how much they’ve saved by squeezing suppliers acknowledge data, identify key
— what can HR do?
The answer is Human Capital performance indicators and
Management analytics. settle on a technology approach
10. • 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
11. 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 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.
12. 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 services
TYPICAL 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 company's 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
13. A ROADMAP FOR HUMAN LEVEL 1: BASIC WORKFORCE
CAPITAL 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.
14. 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.
15. 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
16. LEVEL 4: WORKFORCE Development of a full workforce
SCORECARDS scorecard is complex
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.
17. Nividh HCM: USING TECHNOLOGY Sample HR Dashboards
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.
18. Profit* – Staff Costs Used for benchmarking
Staff Costs
Profit* – HCM Costs Used for measuring trend within a company
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 .
19. • 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
20. •
• “Talent management of more senior workforce Sales – Vipul Sharma
+91-9483-265110
contributors to ensure organizations organically
grow future workers with similar work ethics, sales@bdisys.com,
values, morals, culture and passionate hr.transformation@bdisys.com
contribution. HR metrics tools must measure vipul.sharma@bdisys.com
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”
