Strategic metrics from HR

Let’s talk numbers: strategic metrics for HR

februari 14th, 2017 Posted by HRM, leadership, management No Comment yet

Having easily accessible and specified information is crucial if you want to make well-founded decisions or develop the overall strategy of the company. While some departments have no trouble defining KPIs and metrics that are relevant to the strategical direction of their company, managers of the departments of marketing, communications and HR often find it more difficult to determine which KPIs and metrics are most valuable to higher management.

Based on this very real struggle, we decided to write several articles on metrics and KPIs that offer the most important management information concerning the effectivity of our work within the domain of marketing and communication. These specific articles can be found here.

This specific article, however, only focusses on the challenges within HR-departments. The subsequent KPIs and metrics are strategic and complement de tactical metrics, that are usually reported by HR.

Please note that: the best result is never absolute but bound to the strategical objectives and the existing strategy.

RPE (Revenue per employee)

Annual turnover / Fulltime employees. For a more balanced perspective, we would recommend adding up your FTE percentage points and to replace the number of full-time employees with the total sum.

The RPE offers insight into the productivity and effectiveness of innovations in the workplace. While it takes years to analyse trends internally in a valid manner, peer evaluation gives you a direct insight by using public information of your competition to estimate their RPE and compare it to your own.
If you want to restrict the use of your RPE to an internal analysis, we would recommend you to divide your profit by your payroll ratio instead.

An even more accurate representation of the value of your employees can be obtained by calculating your HCVA (Human capital value added). This metric differs slightly from your RPE and is a bit more reliable because of that.

HCVA = Operational profit + Staffing costs / FTE

Clearly, you could also calculate the ROI of your human capital by using a similar set-up: Your HCROI is Profit – (Operational costs – Staffing costs) / Staffing costs

PTK (Performance turnover in key positions)

The percentage of employees in key positions that leave each year x (RPE x Weight factor of the average productivity per top performer*) * weigh the contribution of a top performer.

The merits of your top performers usually surpass that of other employees and the PTK will make that transparent. This will help you determine the impact of your top performers and will also help you justify your spend. Your spend can also be substantiated by calculating your SCR (Salary competitiveness ratio), which is fairly simple: Average salary within the company / Average salary within the industry (or amongst peers). Your SCR should be around 1, the higher the deviation, the more negatively a company is generally affected – financially or in terms of recruitment and loyalty-.

A related sub-metric is your PTK-RLVD (Revenue lost due to vacancy days), which underlines the importance of filling vacancies quickly. This metric will show how much money and productivity are lost for each day a position remains unfilled. Your PTK-RLVD also shows the importance of a seamless workflow, making it a metric often used to set objectives for the recruitment department. We would like to add that it can also be used for a more accurate estimate of your RCR and CPH.

DPTK-RLVD = (Average revenue linked to the position / Number of working days) x Days a position remains unfilled.

PINH (Performance Improvement of new hires)

The productivity of a former employee over a certain period of time in percentage terms – Productivity in percentage terms of a new hire over the same period of time.

This metric can only be used when the performance, linked to the position, has already been converted to numbers or monetary units (like we often see within sales). Most organisations use this metric randomly to measure the effectiveness of their talent management programmes. The metric could also be used to produce a forecast for productivity growth.

EPC ( Employee Churn Rate)

Number of employees that leave the organisation per month (or year) / Total number of employees during that period of time x 100

Your EPC shows the relation between your workforce and your staff turnover, meaning it is an important indicator of the effectiveness of the company’s work environment. When the EPC exceeds 12%, companies should realise that this indicates that they fail to connect with their employees (exceptions can be found in tourism where a higher turnover is perceived as normal). A high EPC is often linked to issues creating an unhealthy environment ( bad management, toxic workplace etc. ) If your Bradford factor (Number of days an employee is unexpectedly absent Dt x Number of periods Et x Number of periods Et) exceeds 45 points, then you can almost be certain your corporate culture is quite toxic and requires change.

An even more complete picture can be obtained by calculating the AET (Average employee tenure): The total sum of all working contracts (or per position) / Number of employees. The longer an employee stays on average, the more loyal they generally feel towards the company.

CPH (Cost per hire)

(Internal recruitment costs + External recruitment costs) / Number of closed contracts.

This metric is usually analysed in combination with the RCR (Recruitment cost rate) and offers an insight into the average costs per contract. Because of that, this characteristic if often used to measure the effectiveness of the recruitment process. Before judging your recruiters based on the CPH alone, remember to always take the average TTH per position in account (Average time to hire).

NHFR (New hire failure rate)

Percentage of newly hired employees that leave the company within 6 to 12 months after their arrival.

The NHFR shows how well an organisation has set the expectations for these new hires and how capable the company is of accepting and including these new professionals within their midst. By combining your CPH with your NHFR you will be able to calculate the costs of your new hire failures. In short, the NHFR shows how much money the organisation is losing because of ineffective recruitment processes.

TROI (Training return on investment)

Used to calculate the effectiveness of your training programmes on “five different levels”:

  1. Reaction and planned action
    In this respect, the department can evaluate the reactions of both potential participants of the programme and external target audiences. Analyse the number of participation requests in the face of the total population. When a high percentage of requests is received from (or in the name of) the targeted audience, one could conclude that supply and demand match each other and that the outlines of your programme are well-constructed.
  2. Learning
    After each block, HR needs to evaluate the experiences of the participants. If the perception they had of the programme matches their actual experience, one can assume that goals are met.
  1. Application of theory
    After the completion of a programme, employees and managers should be offered some time to evaluate the output of a participant. Later, HR should interview both the participant and his or her managers about perceived changes that can be linked directly to their training.
  1. Impact
    In order to measure the impact of a programme, a baseline should be determined before the participant commences with it. Possible subjects for measurement could be: how they score on customer satisfaction, productivity, work quality or turnover. Measure these elements well before participation to the programme and repeat the exact process later after the participant completed it.
  1. ROI
    In the end, your CEO will always feel the need to connect a financial value to a training programme. This can be done by calculating its ROI = Nett revenue of a programme (value of the improvement) / costs of the HR programme (work hours missed, materials used etc.).

Additional numbers HR could offer higher management

The diversity within a workforce is quite important to the public and it is also expected that companies will be transparent about how they act on their social responsibility. A responsible and fair policy in which equality is stimulated is expected of most. Being able to show interest groups that you offer just that, is valued.

The number of applicants that are attracted to a company per year, is able to tell higher management how attractive the company is as an employer (also take any economical influences into account)  and therefore says something about how successful HR and communications are in communicating the employer brand to latent and active job seekers.

The contribution made by HR to the strategical objectives of a company are of great value too, is HR capable of functioning as a true business partner for all of the departments and their employees? It is important to show the true impact activities of HR have within the company, HR is still seen as a recruitment department with operational value instead of a strategic partner.

By having these clearly stated metrics and KPIs, higher management is given the opportunity to discover trends early on enabling them to adjust or change the strategy, increasing their odds. Also, these numbers offer the opportunity to determine if there are problems within the organisation and to gain acceptance for changes within the HR domain.

Have you missed any strategic metrics or KPIs, which could be of great value to higher management within the field of HR? Let us know which one so we can add it to our list!

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Marketing and Communication Specialist at TAS - Tells a Story
Maike van Oyen is a mother, friend, sister, daughter and dedicated communications and marketing specialist on the side. She has written many articles for several websites in both Dutch and English about Corporate Communications, Marketing, Change Management and HR.

Maike loves to sink her teeth into complex projects of change and has a good knowledge of communication on a strategical, tactical and an operational level. She is trained to work in hectic environments (she manages to write blogs while also doing the housework, watching 4 misguided missiles and working for TAS at the same time). And is used to finding creative solutions for every challenge.
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