Create Value With Human Resources Measures
Human Resource Metrics Are the Foundation of Your HR Department Business Plan
Are you interested in how to measure the impact of Human Resources leadership, management, actions, policies, and assistance in your organization? A significant component of your Human Resource business planning is identifying what Human Resources metrics to collect.
The Goal of Human Resource Measures
When you consider measuring the performance of your Human Resource department, developing the appropriate set of metrics forms the cornerstone. Your selection of metrics should be driven by two factors.
You want to contribute to the overall success of your organization and the attainment of your organization’s most important goals. You want to provide the Human Resources department with measures that you can use for continuous improvement.
Once upon a time, four vice presidents called their consultant to ask about measurements for the training programs they had purchased. They were meeting to assess the effectiveness of the provided training and consulting activities and they made the age-old mistake of measuring actions, not results.
They proposed that the consultant's accountability would be the number of training sessions presented, the number of employees who attended the training sessions, and the number of improvements employees made in their work areas. The consultant told them she could begin to work with them on the third metric, but the first two had nothing to do with the results they wanted to achieve.
What Impacts Human Resource Measures?
This story has played out in workplaces perpetually it seems. And, part of the problem is that HR staff members get so busy just providing services, that collecting data and measuring success and contribution, in addition, is a stretch. At least in small and mid-sized companies, this is true.
Larger companies and organizations such as universities or state departments collect more data but often have less of a need to prove contribution. Many of the smaller companies and organizations are so grateful to have a group that deals with the employees that they fail to ask for Human Resource measures.
One of the metrics that HR has collected data on, with a track record, is cost-per-hire. SHRM has spearheaded an effort to develop a new human resources standard for measuring cost-per-hire, the first of its kind in the United States. You’ll want to see what such a standard entails for measurement in your organization.
Another metric that organizations should consider is time-to-hire. Yes, you don’t control all of the factors that go into creating the timeline. But, measuring the length of your hiring process gives you a baseline for improvement in which you can enlist the help of others.
In general, you don't want to start a training and continuous improvement process without determining the desired outcomes or deliverables. And, sometimes, you’re just honest and decide that providing management development is about ideas and progress—not necessarily, easily numerically measurable—is charted in each manager’s performance development plan.
Other HR processes organizations have been known to measure include the impact of a continuous improvement process on cost savings and the improvement of work processes in the time taken or steps involved. In one example, a department of eight HR employees charted out the steps they took in their hiring process. They found that they took 248 steps to hire an employee. Analyzing the steps, they determined that many of them could be discarded or consolidated.
Weeks later, they had eliminated half the steps but the process still took the same amount of time. They discovered that they had an empowerment problem. The HR director added ten days to the company time-to-hire because he required his signature at certain milestones in the process.
The paperwork was buried on his desk for days, and the staff did not have permission to proceed without his signature. His priority was the executive team on which he served. Once he truly empowered his staff, hiring managers company-wide were thrilled with the improvement in time-to-hire.
Measure the Contributions of HR to the Business
You definitely want to measure HR not just for the efficiency and quality of the department and its services but for the impact of the department's work on the business as a whole. These are the measurables that will gain the attention of the CEO and the senior team.
According to Dr. John Sullivan, a respected HR thought leader, "Unfortunately, most of those who create metrics in HR and recruiting don’t really understand the strategic mindset of CEOs. And, as a result, the metrics that are reported to CEOs and the executive committee result in no positive action being taken. That is because CEOs are laser-focused on the strategic goals of the organization.
So, if your metrics don’t directly and unambiguously cover strategic goals like increasing revenue, productivity, or innovation, they simply won’t drive executives to act."
Sullivan recommends that HR departments measure and share factors such as these.
- Revenue per employee: Widely accepted by CFOs as a standard workforce productivity measurement. It focuses on the value of the output of an organization's workforce.
- The improvement in the quality of new hires (quality of hire improvement): He says "focus on those jobs that are already measured in dollars or quantified with numbers, like sales, collections, and call centers reps."
- Loss of top performers in your key and hard to replace jobs
- Use an employee survey to identify which HR programs helped to increase your organization's productivity, quality, or another key identified factor.
- The percentage of the HR strategic plan's goals that were accomplished.
How to Decide What Measurements to Use in HR
Because of the number of functions that the average HR department serves, it is not possible to measure everything that you do. In choosing what to measure, a business needs assessment in your organization will inform you about what your employees, colleagues, and executives believe are your most important Human Resource measures.
A second option is to look at what processes are critical to your organization’s success. A third consideration is to determine which HR processes cost your organization the most money. A fourth is to determine which human resources measures will help you most successfully develop the skills and contribution of your employees.
From these factors, develop a doable HR scorecard, or key performance indicators (KPI) and begin to establish base measures for each process you decide to measure. Start with just a few and don’t overwhelm your time and staff with more than you can do. It is better to consistently measure one or two operations than to poorly use Human Resource metrics in many.
Examples of What HR Departments Measure
Here are specific examples of factors that Human Resource departments can measure. These are just a few of the areas that you can consider for the development of your Human Resource metrics.
- Cost per hire
- Time per hire
- New hire failure rate
- Diversity hires in customer-facing positions
- Employee turnover rate
- Employee turnover cost
- Preventable employee turnover
- Applications received per current employees per week
- Percentage of performance development plans or appraisals current
- Cost of training and development activities with respect to company goal attainment
- Employee satisfaction
- Length of employment
- Components of the compensation system such as the cost of benefits per employee
The more specifically your HR measures fit your company goals, the better your measurements will serve you and your organization.