Workforce Metrics Dictionary:

Transcription

1 Workforce Metrics Dictionary: Six Steps for Measuring HR Initiatives

2 Measuring HR Initiatives What is the value of your workforce to your organization s bottom line? This is a question that HR professionals face on a daily basis. It s also the reason why workforce metrics have become critical tools for businesses. Developed by the workforce planning and analytics division of Peoplefluent, a leader in talent management solutions, this guide provides definitions of key metrics, as well as a step-by-step process and examples for identifying the net benefits gained from a specific HR initiative. Section 1 identifies nine core HR practice areas, along with the key metrics associated with each. From absenteeism to recruiting and work-life balance initiatives, HR professionals look closely at these to determine how to track and measure performance. Section 2 delivers a six-step process that focuses on a specific business problem, such as absenteeism, and calculates the cost to the organization s bottom line as well as the net benefit of the HR initiative that addresses this problem. Through this simple process, HR professionals, workforce planners and other key stakeholders in the organization can use data to clearly represent the value of HR initiatives to the organization s bottom line. Key Workforce Metrics and the Impact on the Bottom Line Key HR Practice Area / Initiative Absenteeism Benefits / Educational Reimbursement Development / Management Training Program related metrics/kpis Absence Rate Absence Days per Employee Unscheduled Absence Rate Unscheduled/Sick Days per Employee Overtime Expense Overtime as a % of Total Labor Costs Tuition Reimbursement Request Ratio Promotion Rates Performance Differential Rate Retention Rates Benefit Costs per Employee Training Expense per Employee Training Hours per FTE Training Effectiveness Index Retention Rate bottom-line impact Payment of salary/benefits during absence Insurance/health care costs Overtime costs Cost of replacement workers Productivity impact on employees/ team/department Total benefit costs vs. value (sales/revenue/ productivity) employee will generate over course of employment Correlation between benefit participation & business results Correlation between benefit and turnover intentions Turnover/Replacement costs (see employee separation) Cost of development/training program Correlation between participation & business results (such as retention, sales, customer service) Impact on performance/productivity/ profitability before & after training program (or split sample differential) 2 Key Workforce Metrics and the Impact to Your Bottom Line

3 Key HR Practice Area / Initiative Employee Attitudes Overall HR Recruiting Hiring Selection Retention Employee Separation Safety Program Work-Life Balance Initiatives related metrics/kpis Employee Satisfaction Rate Employee Engagement Index/Score Manager Quality Index/Satisfaction Rate Voluntary/Preventable Turnover Revenue per Employee/FTE Sales per Employee Profit per Employee/FTE Labor Costs as % of Revenues Units Produced per Employee Workforce Productivity External/Internal Hire Rate New Hire Performance Rate Performance Differential Rate Quality of Hire Index Source of Hire Average Time-to-Fill Average Cost per Hire Time-to-Productivity New Hire Turnover Turnover Rate Voluntary/Involuntary Turnover Rate Good/Bad Attrition Rate High/Low Performer Retention Differential Staffing Rate Approaching Retirement Eligibility Retirement Rate Average Workforce Age Average Tenure at Termination Number of documented safety violations Number of defects/accidents Incidence Rates Safety Training Expense per Employee Workers Comp Cost per Employee Performance Differential Rate Unscheduled Absence Rate Voluntary/Preventable Turnover Rate bottom-line impact Correlation between employee attitudes and turnover intentions Turnover/Replacement costs as result of preventable attrition Correlation between employee attitudes and Productivity impact on employees/ team/department Total Revenues Total Cost of Workforce Labor Costs HR Costs Total compensation & hiring costs vs. value (sales/ revenue/productivity) employee will generate over course of employment Performance differential Recruitment costs Cost of vacant position (lost sales/ revenues/productivity) Savings from unfilled job Correlation between turnover and profitability Separation, replacement/hiring and training costs Overtime costs Cost of replacement workers Productivity impact on employees/ team/department Correlation between safety program participation & incidence rates Cost of safety program Workers compensation costs Cost of safety violations/penalties Cost of work-life balance initiative Health care/insurance costs Turnover/Replacement costs (see employee separation) Correlation between benefit participation & business results Productivity Impact 3 Key Workforce Metrics and the Impact to Your Bottom Line

4 Determining the Bottom Line Impact of an HR Initiative 1. Start with the Business Problem Clearly state the business problem. Be as specific as possible. 2. Calculate the Cost of the Problem Calculate the cost of the business problem specified above. Examine both direct and indirect cost implications and use conservative estimates or industry guidelines if exact figures are not available. 3. Identify the Solution to the Problem Identify a solution based on specific company data/analysis or industry research. (When using research findings, keep in mind that the most effective solution may be different for each organization.) 4. Calculate the Cost of the Solution Calculate how much implementing the solution will cost the organization today and in the future. Account for indirect and internal costs as well using conservative estimates. 5. Identify Expected or Actual Result For a new initiative, identify the results you expect to see after 3/6 months, 1/2 years, etc. For an existing initiative, track the impact of the solution on the business problem over the course of the past months/years. 6. Perform Cost/Benefit Analysis As a final step, perform a cost/benefit analysis to analyze the net benefits gained from your initiative. This can use several methodologies, including (but not limited to): Benefit/Cost Ratio Return on Investment Net Present Value Payback Period Example #1: Absenteeism/Employee Wellness Program Example 1. Start with the Business Problem Our organization has an unscheduled absenteeism rate of 5% among our 100-person employee population. This means that five employees are absent, unscheduled, on any given day. 2. Calculate the Cost of the Problem The cost of sick day can be conservatively estimated as the employee s salary plus 30% benefit costs divided by 260 (# of workdays). Using the actual average salary of $40,000, this is $52,000/260 or $200/day/person. With 5 people out every single day, this costs the organization $1,000/day or $260,000/year. (This is a conservative estimate. Unplanned absences like sick days result not only in these direct costs but also in higher insurance costs and lost productivity. Indirectly, they can negatively impact coworkers productivity and morale, which can affect customer service and other business objectives.) 3. Identify the Solution to the Problem As a solution, the organization has decided to implement a workplace wellness program after researching all available options. 4. Calculate the Cost of the Solution The cost of implementing a workplace wellness program is $30,000/year. 5. Identify Expected or Actual Result Based on industry studies and historical results of this particular wellness program, the organization expects to see a 20% decrease in absenteeism, going from 5% to 4% a year or from 5 absent employees to 4 absent employees on any given workday (i.e., net benefit of 1 non-absent employee). 4 Key Workforce Metrics and the Impact to Your Bottom Line

5 6. Perform Cost/Benefit Analysis Calculate the Return on Investment using the following formula: ROI = (Program Benefits Costs) / Costs [($200 * 260) $30,000] / $30,000 = $22,000 / $30,000 = 73% As a benefit, you ll save $200/day or $52,000/year vs. the cost of the program at $30,000 or a net benefit of $22,000/year for the organization. This translates to a positive ROI of 73%. Example #2: Turnover/Management Training Initiative 1. Start with the Business Problem Our organization has an annual voluntary turnover rate of 20% for its computer programmers. This means that one in every five programmers, or 10 out of our 50-employee department, leave voluntarily each year. 2. Calculate the Cost of the Problem Industry studies show that the total cost of replacing an employee (including separation, replacement, training and indirect costs) can be as much as 150% of a person s salary. Using an actual average salary of $80,000, this translates to $120,000/programmer or $1.2 million per year ($120,000 * 10 programmers). 3. Identify the Solution to the Problem Based on the past three years employee engagement survey results, you decide to implement a 3-year management training initiative. Study results showed that ineffective managers have the most impact on employee engagement and they are the main cause of voluntary attrition within your organization. So a combination of management training and one-on-one coaching is the solution you re implementing. 4. Calculate the Cost of the Solution A series of management training workshops and internal coaching lessons with individual supervisors will cost the organization $100,000/year. 5. Identify Expected or Actual Result After you implement the solution and monitor the results, you find that voluntary turnover decreases from 20% to 18% (Year 1) to 16% (Years 2 and 3). This means that the program saved 1 (Year 1) and 2 (Years 2 and 3) people from leaving voluntarily. 6. Perform Cost/Benefit Analysis Cost/Benefit Analysis: After calculating the improvement benefit (150% of the salary of 1 or 2 additional people who did not leave), you calculate the net improvement benefit. Dividing the Total Net Improvement Benefit ($200,000) by the Total Cost of the Training ($400,000) over the course of three years results in a ROI of 50%. The Net Present Value of these improvements is calculated at $115,300 using a 15% discount rate. The payback period of 1.6 years tells us that this program breaks even in about a year and a half. 5 Key Workforce Metrics and the Impact to Your Bottom Line

6 Example #3: HR Initiative 1. Start with the Business Problem 2. Calculate the Cost of the Problem 3. Identify the Solution to the Problem 4. Calculate the Cost of the Solution 5. Identify Expected or Actual Result 6. Perform Cost/Benefit Analysis 6 Key Workforce Metrics and the Impact to Your Bottom Line

7 Peoplefluent s workforce analytics solutions give you the wisdom to strategically address critical business issues. Learn more at About Peoplefluent Peoplefluent is the leading provider of talent management solutions designed to support the entire workforce. We provide the mobile enablement, social collaboration, information visualization and the domain expertise required to empower strategic decision making and Learn more at true employee engagement. Our talent management software enables organizations to unlock each individual s potential by removing the boundaries that limit the performance and productivity of your workforce. With the most comprehensive talent suite in the industry including solutions for talent management, workforce compliance and diversity, contingent workforce management, analytics and workforce planning, Peoplefluent offers a solution to optimize every step of the talent lifecycle. Our solutions have helped over 5,100 organizations in 214 countries and territories successfully achieve their talent aspirations. Today, 80% of the Fortune 100 relies on Peoplefluent solutions as part of their talent management delivery strategy. 7 Key Workforce Metrics and the Impact to Your Bottom Line Raleigh, North Carolina 434 Fayetteville Street, 9th Floor Raleigh, NC USA Toll-Free: (877) Tel: Waltham, Massachusetts 300 Fifth Avenue Waltham, MA USA Toll-Free: (877) Tel: London, United Kingdom 15 Fetter Lane London EC4A 1BW United Kingdom Tel: +44 (0)