HR evaluation

Managers of some companies believe that the greater number of metrics they implement, the better results they will obtain. This is definitely a misconception, since the excessive amount of HR metrics will make the whole performance measurement system weak and ineffective in the long run. As far as the introduction of this system is quite expensive, it becomes understandable   that overdoing will lead to the waste of money, effort and time. On the other hand, properly selected HR metrics kept at the required level by means of eliminating those aspects which will not solidify the capabilities of your human resource department, will eventually result in the formation of a more qualified and productive human resource team.

HR evaluation cycle

As soon as you get involved into the process of HR metrics implementation, you should keep in mind to focus on those factors that directly affect the performance of your personnel. This is because profitable and successful company that aims at reaching their strategic objectives is one of the basic measurements of an efficient and productive human resource team. Therefore, HR metrics that focus on these aspects should always remain a priority to you.

HR department is responsible not only for the process of recruitment people, but also for the retention of qualified staff. This is actually not an easy task, since only the most skillful and experienced human resource masters have the ability to maintain a low personnel turnover rate.  Of course, your business will not experience troubles associated with the fact that an incompetent employee will be replaced by a more qualified worker.  The most problematic point here is that extra financing will be required to train a newbie, which is always needed irrespective of the professionalism of this person. In case these situations occur regularly, it may become an unreasonable waste of your financial assets. So, it makes sense to use HR metrics in order to increase the level of personnel retention as well.

HR BSC

Despite of the fact that not all senior managers consider this performance measurement system useful and important, the increased number of them understand the exceptional value of qualified human resources for their companies. They strive for proper implementation and interpretation of those HR metrics that are currently important for their businesses. What are they? Experts point out the following ten measurements that matter for the effective management of human capital in any organization: revenue factor, human capital return on investment, human capital added value, cost per one hire, labor cost revenue ration, health care expenses per one employee, training investments, overall compensation revenue ratio, voluntary separation rate and, of course, turnover costs. No matter what HR metrics you are going to develop in your company, they should obligatory be related to your business strategies and objectives. This will signify that your HR specialists understand the essence of this system and its importance for the organization they work in.

HR evaluation importance

HR Balanced Scorecard analyzes the performance of any company with regard to the following perspectives: financial, strategic, customer and operational. Each of them involves a number of aspects to be evaluated. Thus, the financial perspective determines how well business owners manage the total turnover cost and whether the return on human resource investment is viable or not.  The strategic perspective defines if the company’s management invests into the advancement of human resource capabilities and how well their business strategies are interrelated with the goals they have set.  Customer perspective is considered when there is a need to analyze factors that affect the level of customer satisfaction, while operational perspective underlines the accurateness and efficiency of technologies applied for proper human resource performance improvement. It is assumed that effective and correct HR management will be obligatory reflected in the substantial increase of the company’s shareholder value, which is typically one of the most essential and important missions of any business.

Advantages of HR BSC

As far as it is not easy to differentiate between the proficiency of applicants, it makes sense to implement a reliable and accurate system, which will help HR specialists get the most out of the recruitment process. If you realize the necessity of this step, then HR metrics are what you really need. Though their development and measurement is quite expensive, they are still worth your investments. If you do everything properly, you will benefit from this system in the long run.

Evaluation cycles of HR

How exactly is it possible to define the return on your financial investments with the help of HR metrics? The fact is that there are lots of significant aspects that have to be considered here. These primarily involve the overall amount of employees hired during a specified period of time, the percentage of workers who undergo the probation period as well as the percentage of those who will be able to get a regular status in your company. No doubt, it is not easy to analyze all these factors, but if the human resource department employees cope with this task successfully, it will not take long to draw corresponding conclusions and improve the situation on time. That is why the above mentioned aspects should be obligatory included into the company’s HR metrics.

Experts point out that the number of metrics you are going to implement should not be high. Otherwise, HR specialists will be puzzled with them and may even overlook those that are of key importance for your business. Try to stick to ten basic HR metrics, which will facilitate the application of this system in your company.

Example HR KPIs

What makes HR metrics so valuable? The thing is that they are really helpful in analyzing the company’s current performance and drawbacks that prevent these businesses from reaching all the objectives their managers have initially set.  They are often compared to specific guidelines that make it possible for different organizations to find cost-effective solutions to the most obvious human resource problems they currently face. If measured properly, HR metrics help enhance the overall efficiency and productivity of the company’s workforce. That is why we may state that the basic objective of their implementation is accurate and quality personnel assessment.

Money related HR KPIs

How is it possible then to work out a reliable human resource metrics system? This generally depends upon the experience and qualifications of HR department workers. Those of them, who have never heard about the concept of HR metrics before, are more likely to make serious mistakes in their development and measurement, which can make the whole approach ineffective. In this respect, proper training matters greatly and managers of such companies should make everything possible to provide their human resource department employees with the required knowledge. As soon as they realize the basics of this system and measurement principles, they will not face problems when implementing HR metrics. As a result, they will be able to define those applicants who are more suitable for vacant positions the company has.

Gathering information about the personnel proves to be one of the main steps in the evaluation of their performance.  Still, not all facts will be helpful here and HR specialists should be able to sort out those of them that are of paramount importance in this process. As a rule, ten metrics are more than enough to make this system effective. Such aspects as personnel engagement, recruiting and retention, workforce productivity and manager satisfaction should obligatory be included into this list, since they are those factors that affect the company’s performance most of all.

HR Balanced Scorecard

So, what is the best way to apply the Balanced Scorecard system to human resources? To start with, you should define what HR metrics exactly you plan to implement and what measures you are going to undertake if you realize that something needs to be improved here. For example, if you focus on the reduction of turnover costs, you should think over the development of efficient recruiting techniques and new- hire orientation ways that will enable you to optimize the level of workforce retention.  What measures will you have to undertake to cope with these tasks then? You will definitely need to identify the basic features of productive employees who work in your company for over two years and apply different methods of screening new applications more precisely. In addition, you will have to integrate the so-called “”branding effort” into the process of recruitment and improve the orientation program for better retention of new employees.  The next step will be to decide how many HR metrics you are going to establish. When it comes to the reduction of turnover costs, the following measures will be the most effective: cost-per-hire, time-to-fill, turnover rates and costs, customer satisfaction with new-hire process, supervisor satisfaction with orientation etc. As you see, there is much work to be done before you decide what human resource metrics you will establish. So, you need to have enough patience and dedication to make it a success.

Major mistakes in HR metrics

Apart from this, the HR BSC should obligatory involve the following efficient elements: accountability, measurable results and validity.  In other words, any HR metric should be understandable and have a connection with business objectives. Only in this case, the HR BSC system will prove to be really meaningful.

Benefits of HR BSC

Human resource metrics, just like other essential measurements within the BSC system, should feature powerful connections with the company’s strategies. This may guarantee that proper HR evaluation means much for the management of the organization and they are striving for its improvement.  There are four basic perspectives utilized within the system of Balanced Scorecard. They are strategic, customer, operational and financial perspectives. The first one is used to identify whether the company’s owners properly invest in the growth of their HR capabilities. The second perspective is applied to define if the work of the HR department is appreciated by people and encourages them to work there. Operational factor, in its turn, is helpful when there is a need to decide how effective the HR management transactions and processes really are and what is done to enhance them. Lastly, the financial perspective is highly important as well, since it makes it possible to see whether the return on HR investment is competitive or not.

HR ratios

Each of the above mentioned perspectives uses a number of metrics in the process of HR performance measurement. Actually, the list of these metrics is quite long and involves the following indicators to be analyzed: revenue factor, human capital return on HR investment, general compensation revenue ratio, turnover costs, training investment aspect, cost per hire, health care expenses per employee etc. Still, no matter how long this list is, it does not necessarily mean that you should tend to establish all these HR metrics at a time. Instead, you should decide in favor of those that affect your business most of all.

The conclusion is as follows: effective measurement and management of the company’s human capital is one of the most essential parts of creating business value, which means that it should become a major component of the Balanced Scorecard system in general.

Who requires HR BSC

HR metrics may prove to be extremely helpful to you in this situation. Still, you will not get the desired result if you do not manage to select the most essential indicators that will be critical for the company’s business development. There is no doubt about the fact that it is not easy to decide what exactly you need to measure.  Furthermore, it is simply impossible to evaluate each human resource activity even if you passionately wish to do that. Actually, measuring all the activities is not even necessary. Therefore, you do not have a better option than selecting the most important HR metrics with regard to your business goals. For instance, you can easily assess the efficiency of recruitment strategies, compensation and profits, training and development and general performance management. If you cope with these four tasks successfully and get only positive results from each of these aspects , then you may be one hundred percent sure that it will lead to the improved productivity of your company.

Member of HR working group

As soon as you have the HR metrics on hand, you will need to present them in the most convenient way. The Balanced Scorecard system will appear to be helpful to you in this respect. Actually, you should know that each metric has a very important meaning for the analysis of the company’s functioning. This is because they provide a connection between human resource activities and your business goals. As a result, properly adopted HR strategies will ensure quicker and more effective accomplishment of the company’s objectives.

As far as the basic aim of implementing HR metrics is productivity, it is of paramount importance to realize this even prior to thinking over the most essential performance indicators. When you feel that you are ready to set up the metrics you have chosen, do not hurry to do that. Otherwise, you run the risk of overlooking significant aspects. It is highly recommended that you should have a strategic plan of their implementation, since this is the most reasonable way to make sure that your HR department really adds value to your company.

HR ratios

What makes HR metrics so valuable? The fact is that they make it possible to get evidence of the overall efficiency of the company’s human resource department, thus contributing to the improvement of its functioning.  Implementation of these metrics is frequently reported to be a significant part of human resource management. This is because they help make a reasonable assessment of indicators that show how well human resource activities accomplish the objectives of this particular department, which further affect other business goals you have set. Typically, the company’s managers can easily make use of valuable information they have managed to gain from the established metrics and review the strategic mission of the human resource department.

Best HR metrics ideas

So, how exactly are these metrics organized? The best way to present them is to use the Balanced Scorecard system, which has already become popular in lots of business organizations. This tool specifies all strategic plans with regard to four basic perspectives, namely financial, customer, internal and organization learning. To understand the idea of the HR balanced scorecard system better, we should discuss each of these perspectives separately.

The financial perspective gives an answer to the following question: “What human resource strategies should the management of the company have in order to come up to the customers’ expectations?” The customer perspective, in its turn, is closely connected with the first one, since it is applied with the only purpose – to define what exactly the company’s clients wish to get from it. The internal perspective helps decide in what way it is possible to make the human resource function consistent with the customers’ needs. Finally, the organization learning aspect focuses on the professional enhancement of the company’s employees, which may affect long-term business objectives.  If you manage to consider all these human resource BSC perspectives and establish all the metrics used by this system correctly, it will contribute to the development of your business, thus bringing you the increased income.

HR model

Actually, the choice of HR metrics is nearly unlimited nowadays. However, this does not mean that you should apply as many of them as you wish. The thing is that the more metrics you will select, the more puzzled you will be. This is because they will prevent you from getting an insight into the performance of your HR department. A better alternative is to establish only those HR metrics that have the most obvious impact upon your business.  With this purpose, you should consider not only the metrics you will use in the process of assessment, but also the methods of gathering the required data and the ways of calculation you will need. You should also decide how exactly you will interpret the results in order to solve the most urgent HR problems.

Why optimize HR?

Some of the most widespread HR metrics found in lots of organizations include absence rate, program costs for one employee, total revenue and that for one worker, compensation rates, cost per hire, level of employee satisfaction, return on investments, training hours, utilization percent,  turnover rates, yield ratio etc. These are only a few metrics applied nowadays. However, not all of them are considered crucial enough to be established in each company.

What are the most vital HR metrics then? They are recruiting, retention, training and development and staffing. Let us provide a closer insight into each of them. Recruiting human resources metrics are meant to measure actions related to successful personnel employment. Managers, who are going to evaluate this process, typically make use of the following variables: turnover rates of new employees, recent hire effectiveness, poor hire effects, return on workforce investment etc.

HR retention metrics frequently evaluate significant turnover aspects by quantifying such variables as average tenure, turnover rate and its financial impact, the amount of veteran workers etc. As a rule, results obtained through this procedure show how much money a company invests into each employee and helps the managers work out plans that will help retain the most productive and proficient workers.

When it comes to training and development HR metrics, it is important to note that they are used to enhance learning and coaching processes. They involve such measurements as the amount of money and time spent on training activities, professional orientation etc. and demonstrate how efficient and successful the coaching processes are.

HR staffing metrics, in their turn, are used to calculate the total return on workforce investment. They involve the following indicators: cost per one hire, the ratio of recruiting effectiveness and the employee replacement cost. As you see, there are lots of HR metrics to be established for a quality HR performance analysis.

How to evaluate HR perofrmance

People who do not know much about human resources BSC, should realize that it is nothing more than just a method of personnel performance evaluation, the final objective of which is to improve the workforce management. It basically focuses on several aspects that are associated with the functioning of the HR department. These aspects include the customers, the financials, the company’s inner processes as well as learning and professional growth.

HR ratios

The introduction of the Balanced Scorecard system has made it possible to analyze the most significant assets of the company in order to define what aspects should be improved and what changes should be implemented  with the only purpose – to enhance the performance of the organization. Though it may initially seem that this task is quite simple, it is definitely a wrong assumption. That is why you are highly recommended to learn more about HR BSC.
Typically, there are 4 perspectives, without which the whole process of HR measurement will be senseless. These perspectives comprise costs, financial investments, outcomes as well as a set of other meaningful strategic aspects. Let us analyze each perspective more accurately.

To start with, you will not go without defining human resources costs, which involve money you have managed to acquire from the HR department. To analyze this perspective, you will have to use such metrics as remuneration and acquisition costs. In the next perspective (which is human resources investments), you will have to take into account professionalism and skillfulness of your personnel, since your employees are your main asset, which will help you withstand tough competition that exists in your particular business. Human resources outcomes, in their turn, will comprise such metrics as the workforce turnover rate, revenues and productivity enhancements.  Strategic aspects included into the final perspective will incorporate such indicators as customer satisfaction, strategic accomplishments, market share as well as the quality of services and products offered.

Having identified the most valuable HR metrics, you should arrange and analyze them within the Balanced Scorecard system.  This will give you an idea of how advanced the performance of your HR department currently is.