Why is it important to choose the right HR KPIs

It is very difficult to evaluate human resource performance.  Why is that?  Well, most indicators in human resource scorecard are nonfinancial.  Let’s not forget that balanced scorecard was the first performance evaluation system that included nonfinancial indicators to the set of key performance indicators in the four categories: financial, customer, internal processes, learning and growth.  It is easy to calculate revenue or expenses.  But non-material assets are not so easy to measure.  To think of such indicators as organization climate, employee loyalty, new higher turnover rate, talent retention rate and similar KPIs.  It will be quite difficult to organize all of them, divide between categories, set necessary values etc.  That’s why some top managers and business owners do not pay due attention to human resource development.  As a result the company spends too much to hire, educate, train and retain personnel.  Moreover, personnel which is not satisfied with the working condition of compensation system is less likely to show top performance.

What makes an effective HR scorecard
What makes an effective HR scorecard

Development of the right human resource scorecard is a real challenge.  However, with the right approach and tools it is possible to create effective key performance indicators for this extremely important element of business organization and management.

It may happen, that business owners set the ride financial goals, established good relations with customers, planned to hit the market with new products and services at competitive prices and developed the right internal procedures to reach the above goals.  But this may fail just because the company personnel is not ready to operate on a new level.  The company may lack competent personnel or spend too much to pay employees.

HR indicators have a great influence of financial results of the company
HR indicators have a great influence of financial results of the company

Human resource perspective may be included to the general Balanced Scorecard of the company, and performance of HR department can be also evaluated.  And effectively work in human resource department spends minimal amount of money to hire, train and retain the best professionals in a certain business area.  By monitoring and evaluating human resource KPIs, HR managers will be able to control employee discipline, their attitude to work as well as their loyalty.  That’s a fact that the most satisfied employees have the most satisfied customers. A satisfied customer is likely to become a regular customer for the company, which is always good for any business.

When developing human resource KPIs it is necessary to somewhat distract from financial indicators and focus on nonmaterial assets and intellectual potential the company has.