HR metrics all about context

Anything can be measured, but what should HR focus on when crunching numbers?
By Ian Turnbull
|Canadian HR Reporter|Last Updated: 09/18/2009

Everything can be measured through some combination of quality, quantity, cost, value and time. All functions in an organization, from operations to back-room administrative functions, can be measured in this fashion.

The process of measuring activities or results and then generating a report is known as metrics. But while anything can be measured, not all metrics are of interest to the CEO.

What to measure

For example, the manager of a staffing group measures the actual and average time it takes each recruiter to fill a position, which includes the following seven steps:

• requisition received by HR

• requisition approved, posted and advertised

• recruiting

• screening

• interviewing

• references and background check

• offer sent.

The staffing manager collects the time it takes each staffing officer to complete these steps to create a “time to staff” metric. Once the manager has the results, she can analyze them to determine why one officer has shorter (or longer) times than the others.

While this metric is very useful for individual recruiters, the staffing manager and possibly the vice-president of HR, this metric is likely not of interest to the CEO.

The CEO is interested in the efficiency and effectiveness of staffing — but with a different measure. The CEO wants to know how long it takes to have a person identified, hired, trained and up to speed as a fully functioning employee. While that process includes the above steps, there are several additional tasks:

• employee resigns

• supervisor triggers staffing requisition

• requisition received by HR

• requisition approved, posted and advertised

• recruiting

• screening

• interviewing

• references and background check

• offer sent

• acceptance received

• new employee set up on system

• orientation

• probation

• first performance assessment.

‘Human value added’ calculation

Another example of a very high-level metric based on human resources is “human value added.” This metric calculates the leverage employees have with profitability — it shows how much money an organization would make without any people cost at all. The human value-added calculation is:

Total corporate revenue – (operating expense + compensation costs + benefit costs + payments for time not worked) divided by total full-time equivalents (FTEs).

The resulting number, in dollars, varies widely by industry. The higher the number, the more efficiently an organization uses human resources.

Some more widely accepted higher-level metrics include:

Revenue factor: Revenue divided by total FTEs.

Expense factor: Total operating expense divided by total FTEs.

Income factor: (Revenue – operating expense) divided by total FTEs.

Each of these is a high-level indicator of how well an organization is using the human resources at its command and each gives an executive team a clear picture of how well the HR department is functioning.

How to measure

Organizations can do their own metrics or subscribe to services that collect and report on metrics, allowing them to compare metrics to industry or geographic benchmarks. But the HR department must first decide what it wants to measure and why.

For example, turnover is something many organizations want to analyze. But what exactly does the organization consider turnover?

Does the HR department count voluntary (individuals who quit or retire) or involuntary (terminations or layoffs) turnover, or both?

“Annual turnover” is a common phrase. But is it a calendar year or a fiscal year? Is it measured quarterly or monthly?

Turnover data can be collected for an organization as a whole, but does HR also want to break it down by section, department, geographic location or supervisor?

There are no hard and fast answers to these questions. What is right for one organization may not be for another.

The best method is to develop a metric, apply it and assess the results. Is the metric useful? Is it most instructive when comparing the organization as a whole on a quarterly basis or unit by unit on an annual basis?

Communicating metrics

Instead of presenting the raw data, HR needs to present the analysis of the data. What does it mean if turnover is 12 per cent annually for unionized positions and 8.6 per cent for non-unionized positions. Are these numbers good or bad? Do they lie within an acceptable range and what is that range?

One organization, with 3,800 workers who are mostly unskilled, earning minimum wage and scattered in a number of smaller communities, has an average monthly turnover rate of 63 per cent.

Horrifying? Perhaps, but it’s a significant improvement from the 74.3 per cent the quarter before and it’s better than most of the competitors in the same market.

Metrics need to be presented in context — within the organization and within the industry — to have any meaning.

Ian Turnbull is managing partner of Laird & Greer HR Management Consultants, specializing in HR, payroll and time system selection and management. He can be reached at iturnbull@lairdandgreer.com or
(877) 653-0422.

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