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