Scorecard Metrics for HR

What is the role of human resource metrics? They are the best indicators that are used to provide measurements of the efficiency and value of human resource strategies in the company. Large organizations try to get the most out of these metrics in order to define the amount of financial investments that should be made into the improvement of HR functions, personnel compensation and other related benefits. In this article we will talk about such human resource metrics as cost per hire, employee management, diversity and workforce productivity.

Why go for low cost per hire

Experts underline that cost per hire is one of the most typical human resource metrics, which is important for any company. Employers use this indicator to determine the cost of recruiting, retention and training their personnel. There are a number of factors, which are involved in these metrics, such as the amount of time both employers and human resource specialists spend interviewing and sourcing the applicants for this or that vacant position. Other factors that belong to cost per hire HR metrics are pre-employment evaluation costs, processing information about them, expenses related to providing professional orientation for newcomers etc.

Main hr tasks

Employee engagement is another human resource metric worth consideration. It is associated with the level of enthusiasm and encouragement employees show when it comes to their job positions and tasks they have to perform daily. The best way to get reliable information here is to ask personnel to answer the same sets of questions twice a year. These results may help measure the approximate percentage of employees who are satisfied with their positions and people they work with and draw corresponding conclusions that may improve the situation.

Such HR metric as diversity among the company’s employees and upper managements is generally measured by socially responsible companies. To define this indicator, HR departments generate personnel survey reports and then sort out the obtained information with regard to gender, race, veteran status, age of their employees etc.

Finally, we should proceed to workforce productivity, which is one of the most valuable HR metrics. This indicator does not only measure current personnel efficiency, but also helps predict workforce capabilities and needs in case of attrition and turnover. This is mainly done by means of using data from the previous years, which state the number of employees who have resigned voluntary or not. These HR metrics help develop a good staffing strategy for the upcoming period of time.

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How important is it to reveal the impact of the HR department upon the company’s performance? This question is a major concern of lots of business owners nowadays. Meanwhile, recent research has proven that it is possible to increase the company’s productivity up to thirty percent by means of putting HR metrics in place. That is why it proves to be vital to link the human resource strategy to the company’s objectives and business goals. Some experts even underline that human resource department should be ideally run as an individual business to present better performance results.

Consequences of low new hire retention rate

Generally, all human resource metrics are subdivided into three major categories for the upcoming comparison, analysis and forecasting. These categories involve past expectations, current condition and future prospects. In case it is impossible to get past information, the company should make use of data that belong to a similar organization.

Measurement of hr ratios

All categories of metrics mentioned above should be linked directly to the company’s business objective, which is individual for each organization. Nonetheless, the most typical human resource metrics that may help measure the ability of the HR department to maintain proper personnel functions, which correspond to the general business strategy, involve employee productivity, attendance and engagement, turnover rates and costs, recruiting effectiveness, communications, personnel retention and the system of rewards that exists in the company.

So, what needs to be thoroughly measured in each organization? When it comes to employee productivity, it is important to measure personnel attitudes, skillfulness and the amount of reached objectives. Thus, it is easy to measure productivity if you manage to compare current results and financial outcomes with those observed during a specified time interval in the past. If your company is new, though, you should measure its productivity against conventional guidelines typical for your industry.

Personnel attendance involves absenteeism and tardiness, while its engagement defines whether the company’s employees are satisfied with their co-workers, supervisors, schedules, attitudes and tasks or not. Thus, there is an efficient HR metric, which is frequently used to identify personnel productivity. It involves the percentage enhancement in employee productivity observed during prior years as well as its currency value.

Other human resource metrics should always be compared to the results obtained from those personnel KPIs mentioned above. For instance, communications generally refers to how correctly and precisely information is passed on to employees, while recruiting efficacy reveals the number of new positions that were created with regard to total turnover rate. This interrelation makes it possible to detect all current problems associated with the performance of the HR department and solve them on time.

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Human resource metrics are widely implemented in small and large organizations these days. This is because the growing number of business owners realize their importance for the development of their companies. The main purpose of HR measurement is to point out problems that prevent the company from maximizing their profits. These metrics also help develop business objectives and the most effective methods of achieving them. Apart from this, human resource metrics make it possible to learn how to develop a reliable monitoring and evaluating system in order to measure the HR performance of the company. Therefore, it makes sense to state that human resource metrics are interrelated with the business strategic planning.

Measurement of HR

HR metrics are mainly used to measure the following aspects: the productivity of activities performed by the HR department, turnover and retention rates, recruiting efficiency, employee skillfulness and training, customer satisfaction etc.  If these metrics are compiled properly, they make it easier to obtain the following statistics: revenue factor, human capital added value, return on investment, overall compensation revenue ratio, personnel training ratio, voluntary separation rate, health care expenses, labor cost revenue ratio, turnover costs etc. Let us have a closer look at some of these metrics and the way they are calculated.

HR evaluation cycle

The first human resource metric we are going to discuss here is revenue factor. It is calculated by means of dividing the company’s overall revenue by the amount of employees who work full time. If you wish to identify the human capital added value, you will have to consider the total revenue of the organization minus operating and compensation expenses divided by the overall number of employees who work full time. Total compensation revenue ratio, in its turn, is defined by means of dividing the overall compensation cost by the company’s revenue.

It is no secret that proper personnel training contributes to their productivity. With regard to this, it becomes clear why training investment should be obligatory considered by the company’s managers. This HR metric is calculated by dividing the overall cost of training by the total amount of employees who need this training.

If all the above mentioned human resource metrics are implemented and measured properly, it will contribute to the improvement in the company’s competitiveness, increase in its productivity and employee satisfaction as well as enhanced return on investment. As a result, these changes will be reflected in the improved business performance as well.

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Human resource (HR) metrics or KPIs are implemented with the only purpose, namely to provide data related to the efficiency of your HR department that may contribute to enhanced financial outcomes. These metrics are introduced within the Balanced Scorecard System and are considered a significant part of performance measurement and management. They help define how well the personnel department of your company accomplish the major HR goals, which, in their turn, are linked to more serious business objectives.  Managers of the company may use measurement results to review their HR strategic plans.

Pros of evaluating HR performance

The most effective way to present HR metrics is to use a human resource Balanced Scorecard system mentioned above. The Scorecard was introduced in 1992 by David Norton and Robert Kaplan and is used to specify the company’s strategies with regard to four basic perspectives, including financial (helps identify what HR strategies have to be implemented in order to satisfy the needs of customers), internal (deals with the company’s endeavors to make HR activities and functions consistent enough to satisfy customers’ demands), customer (helps find out what exactly customers expect from the company and how HR metrics should be presented favorably) and organization learning (helps learn how to improve the productivity of HR personnel).

Importance of training evaluation

What you should realize is that it is impossible to measure all HR activities at the same time. Otherwise, you will have to implement dozens of HR metrics simultaneously, which will complicate the whole measurement process. Actually, it is not necessary to do that. Instead, you should measure only those metrics that are important (if not crucial) for your business. Thus, you can easily measure the efficiency of the recruitment process, performance management, training and productivity improvement, benefits and compensation etc.  Profound analysis of these aspects will help you draw appropriate conclusions in order to identify those factors that have to be enhanced for the benefit of your organization.

Each HR metric has two sides. They provide a strong link between human resource activities and your business goals. It means that if you manage to adopt proper HR strategies, your chances to reach your business objectives will increase as well. Likewise, if you fail to reach your business goals with the lapse of time, there will be a need to review those HR metrics you have implemented and set up new KPIs if possible. In other words, you should understand that the main goal of HR measurement is the productivity of your organization.

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