Samiksha Jaiswal

HR Metric

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

Contents

Efficiency of HR functions

It is often required of human resource 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 organizations function and internal temperature. 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 the 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 the HR functions: (Kavanagh & Thite, 2009)

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)

2. Time to fill up the open position: 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 of HR functions

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)

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

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.

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: (Kavanagh & Thite, 2009)

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

Human Capital is another big topic in nowadays HR practices. HR no longer only assess their effectiveness and efficiency and the contribution to the company, but also they are starting to measure 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.” (Lockwood, 2006)

There is a special tool for HR to measure the human capital and it is called Key Performance Indicators (KPIs). It helps 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.(Lockwood, 2006) Nowadays, HR people integrated the traditional metrics to KPI which aligned with the cooperate 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. (Lockwood, 2006) The best way to design a good KPI is to communicate with the company business managers who know the jobs the best in their own divisions.

To conclude, 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.(Lockwood, 2006)

Human Capital is very 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.

HR Metrics and Data

Senior executives make decisions based on facts, not feelings or opinions. 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:

• Percentage of performance goals met or exceeded, showing if the organization is meeting the performance goal aligned with its mission

• Percentage of employees' rate at the top performance appraisal level who are paid above average salary

• Percentage of top performing employees who resign for compensation related reasons

• Turnover percentages of low-performing managers

• Percentage of employees in performance management programs that show improvement within a year

• Percentage and rate of involuntary turnover in key positions

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’s 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. 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.

References

HR Metric Wikipedia


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