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.

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HR evaluation in wholesale trade business

What does usually company management of the take when the company faces obstacles or even severe crisis?  Top managers hold a meeting at which the attempt to find solutions to current problems.  Sure thing, most of the solutions require investments, but still all decisions and ideas come from employees at all levels.  Sometimes, the best and the most creative ideas come from ordinary front line managers who directly contact customers.  But what should one do to create such conditions in which an employee feels free to express himself?  An employee should be satisfied with his work, compensation and working conditions.  The task of human resource management is to provide employees with excellent working conditions and organization climate and offer them competitive salary and bonus systems.

The problem is that human resource department is not earning money.  That’s why inefficient human resource department only wastes money.  For example, the company may spend too much to find and hire professional personnel in such expenses will not be justified in the long term.  There is another example: human resource department conducts training session for employees but such training gives no visible results (increase of revenue, improvement in customer satisfaction etc).  This means that the company wasted money which is unacceptable, taking into account global recession.  That’s why the company should measure efficiency of HR department, as well as align HR measures and goals with the company strategy.

Different business areas required different approaches in evaluation of HR performance.  However, most businesses are using balanced scorecard system as this is a perfect tool to measure business performance and link operational in strategic management.  Differences in evaluation of HR in various business areas are choices of different key performance indicators.  In wholesale business these KPIs may look like this:

  1. Average telecommunication costs per employee. Very often managers occupied in wholesale trade are looking for new customers via phone.  They call companies and businessmen who might be potentially interested in the products wholesale company is offering.  Telephone is a must have tools for any wholesale manager.  Sometimes telecommunication costs constitute the bulk of expenses.  Of course, there should be no restrictions as to communication via phone, but at the same time these expenses must be kept at a reasonable level.  For example the company should encourage use of online communication means, e-mail etc.  By optimizing telecommunication expenses the company can have additional costs which can be used for some other purposes (for instance, for bonuses and compensation packages).
  2. Revenue per employee. This is a very important indicator in HR evaluation in wholesale business.  The wholesale company generates revenue by selling huge amounts of products.  There are managers who are responsible for sales, and these managers bring money to the company.  By tracking average revenue per employee it is possible to evaluate efficiency of sales managers.  If this indicator is constantly going down then something is wrong with a sales process, pricing policy, sales methods etc.  It is recommended to measure revenue per employee in the end of each reporting period.
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HR assessment in logistics

Evaluation of human resource management is equally important in all business areas.  Sure, some businesses require greater participation of people in production process, while other businesses are fully automated.  In both cases human factor plays different roles, but still, the business is run by people.  Some business owners tend to forget that their business is not only capital, real estate, production facilities, but people who work for the company.  Recent financial meltdown turned out to be a good lesson for many companies that did not value intellectual potential they had.  Many companies turned bankrupts just because they had no idea what to do in the new business reality, of while other businesses manage to survive and even expand.

Human resource management is all about recruiting, employing educating and retaining of personnel.  These processes seem quite easy and a first glance.  But nowadays it is not so easy to find a professional employee and create suitable working conditions for him.  Headhunting is very popular in certain business areas.  That’s why due attention should be given to human resource management at any midsize and large company.

Human resource policy and methods should be clear and understood for employees.  Only in such a way the feedback system will work which is very important for any company.  At the same time, performance of HR department should be evaluated.  Ineffective human resource management will not only result in loss of money but it can also weaken company position in the market.  Lots of competitive advantage is the worst thing that can happen to any business.

When evaluating human resource management in logistics/transport business it is imperative to take into account peculiarity is of this kind of work.  Logistics services require thorough planning and a very serious approach.  When using balanced scorecard system for HR evaluation in logistics it is recommended to measure the following indicators:

  1. Average travel costs per employee.  Many logistics specialists have to accompany cargoes on the way to end customers.  The distance can be measured in thousands of miles.  A certain balance is to be kept here: logistics specialist should use convenient means of transportation but at the same time expenses should be reasonable.  By decreasing value of this indicator logistics department may save additional costs which can be used for special bonus and compensation programs.  Sometimes, there is no necessity or urgency for a logistics specialist to accompany cargoes.  In such cases the entire delivery process may be managed remotely.
  2. Employee lateness.  This indicator is applicable in any business.  Being late for work is not good.  But lately is in logistics business may lead to failure of the entire delivery chain.  For example, logistics specialist is 1 hour late for work.  The cargo came late to airport terminal and thus it will come late for seaport.  Of this is a breakdown of the entire delivery scheme.  That’s why employee lath should be strictly controlled by HR department.  Those employees who were regularly late for work should be punished, while punctuality must be encouraged.
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Evaluation of HR performance in tourism/hotels business

Every successful company and business should pay due attention to human resource management.  The company may lose money, customers and partners but still have chances for survival if it has highly qualified and professional personnel.  It is people who can change situation and overcome crisis.  Sometimes the most creative and innovative ideas come from the lowest level of the company.  It is very important two professionally work with employees, measure their performance, evaluate their needs and attitudes.  There is nothing better than a loyal and satisfied employee.  Statistics show that the most satisfied employees have the most satisfied customers.  A satisfied customer is a loyal and regular customer for the company.  As known, a regular customer is a regular source of income.  So, the company is interested in having professional and loyal employees.

Human resource management, as a part of any management system, needs to be evaluated.  It should be noted that evaluation of human resource management more difficult as compared to evaluation of financial indicators.  Indeed, it’s not easy to measure such things as employee satisfaction or organization climate.  However, with the help of balanced scorecard this is possible.  BSC is known as the best performance evaluation tool that links operational and strategic planning.  In other words, it puts strategy into action.  BSC can also be applied to human resource management.

Different business areas require different approaches and methods of HR evaluate.  The differences lie in various key performance indicators.  In the field of tourism evaluation of HR it especially important since human factor plays an important role in this business area.  Thus, the following indicators may be used in HR evaluation in tourism/hotels business.

  1. Employee satisfaction.  As already said above, satisfied employees have satisfied customers.  Many people return to the same hotels every year just because they like service, attitude, atmosphere etc.  So, the entire serving personnel should be satisfied with their work to offer guests a welcoming atmosphere.  Employee satisfaction is measured through surveys.  It needs saying that sometimes this indicator may not be 100% accurate as not all employees will tell the entire truth.  However, experience proves that measurement of employee satisfaction positively affects employee performance and facilitates decision-making for top management.  A satisfied employee is loyal towards the company he works for, and of top management may expect new interesting ideas coming from the lowest level (doorman, girl at reception etc.)
  2. Percentage of employees receiving regular performance reviews. Hotel business faces very tough competition, and that’s why employee performance must be regularly reviewed.  Of course, it is not possible to evaluate the entire personnel, but human resource department must do everything possible to measure performance of as many employees as possible.  The higher this indicator the more efficiently human resource department works.  This indicator may be measured once a month, quarter or a year.  Higher percentage means that the greater number of employees undergo performance reviews and thus they are aware of own strong and weak points.  Such evaluation is good for top management as well.
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KPIs for HR evaluation in telecom business

Those who did not pay due attention to human resource management paid a very high price.  Most businesses have learned a very serious lesson from the recent financial meltdown.  It appeared that only those companies can survive and even the success during the recession time that have the most professional, loyal and creative personnel.  It is that simple!  Investments and new production facilities can do their job, but still all decisions are to be made by employees.  If company personnel is reluctant to offer new ideas and implement ambitions plans the company is doomed to fail.

That’s why human resource management gain popularity in the last decade.  Tough competition in the market forces companies to improve all the time.  Improvements should start with self employment, i.e. improvement of personnel.  If you want to invest you’d better invest in the people who work for your company.  But naturally business owners expect returns on investments in human resources.  Expected revenue pretty much depends on how human resource department works.

There is no unified were universal approach to evaluation of human resource performance for all business types.  Every business and every company is individual and it requires different approaches to human resource management and its evaluation, in particular.  However, use of balanced scorecard system can be recommended to all businesses that want to measure HR performance and align human resource measures and goals with strategic goals of the company.

When evaluating the HR performance in telecommunication business it is important to remember that people employed with telecom companies require special knowledge and experience.  Headhunting is especially popular in this business area.  What key performance indicators (KPI) might be helpful to measure efficiency of HR department in a telecommunication company?

  1. New hires achieving 12 month service.  Peculiar feature of telecommunication business is use of high tech.  Even people with proper education need experience especially in telecommunication business.  Besides, telecom technologies and solutions are changing all the time.  Thus, employees should learn to use them in their work.  When a company hires a new specialist it spends some money to train him and educate.  Of course, when such an employee leaves within one year, the companies suffer losses (education costs+ recruitment costs for a new employee).  That’s why it is very important to regularly measure this indicator which can also represent employee loyalty to the company, as well as employee satisfaction (as satisfied employee will obviously not leave the company).  The lower this indicator, the better work of HR service.
  2. Percentage of employees with their performance increased compared to last review.  Improvement of personnel skills is a priority task for any company.  It especially concerns telecommunication business were tough competition is observed.  If company personnel is performing better the company is likely to attract new customers/subscribers which means increased revenue.  It is important to regularly evaluate professionalism and competence of personnel, and keep this indicator at the highest possible level.  If the value of this indicator is going down, company management should look for the root of the problem.
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HR evaluation in retail sales chains

It is not a secret that human resources are most valued in those business areas where employees have to directly contact customers.  In such cases, company revenue is composed of a number of small operations and transactions initiated by front line employees.  Very often a customer needs decision to purchase a product only having talked to retail salesman.  Of customers want to know as much as possible about products or services they want to buy.  They want to learn something about warranty, money back guarantee, post sale service etc.  That’s why it is very important that a sales man is 100% satisfied with his work.  Besides, he needs to have his own financial interest in selling as much products and services as possible.

This is where human resource management changes the situation.  Huge retail sales chains as a rule consist of dozens and hundreds of supermarkets where thousands of people are employed.  Retail chains need to have very clear and transparent approaches and methods of human resource management.  It is important to align human resource measures and goals with a strategy of an entire retail chain.

Evaluation of human resource management is extremely important especially in such areas as retail sales business due to high personnel turnover rate and a great number of employees.  Human resource department does not earn money but only spends it in order to higher and educate professional personnel.  This money should be spent efficiently, that’s why use of balanced scorecard to evaluate HR performance is extremely important.  The following key performance indicators may be used in evaluation of human resource management in retail sales business:

  1. Compensation cost as of revenue. As a rule, different departments and supermarkets have plans and financial goals.  In the plan is implemented the personnel receives bonuses in addition to compensation.  But at the same time the company should strictly control the amount of money it pays out to employees.  Of course, if the revenue is increasing there is nothing wrong in increase of compensation cost as of revenue.  But if sales are going down compensation costs should be adjusted as well, otherwise the company may suffer enormous losses.  This indicator can also signal about efficiency of employees who work according to the principle “the more I sell them I get.” As a rule, this indicator is measured in the end of accounting periods.
  2. Employee communication etiquette. It’s not a secret that customers became very picky.  That’s why it is imperative that employees in retail chains are polite and use proper communication etiquette.  This indicator can be measured through surveys conducted by supervisors.  Introduction of ghost shoppers evaluation is a great way to see if salesmen are following principles of a proper communication etiquette.  Customer cannot be wrong.  This is the rule.
  3. Employee loyalty. Very often people working for large retail sales chains offer their friends and relatives to shop in the supermarkets they are working in.  This is the best advertising, and this attracts new customers.  Only loyal employees can recommend a retail chain.  This indicator is measured through surveys and questionnaires completed by employees.
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HR assessment in real estate/property business

Recent economic crisis has proved that if a company wants to improve it should start with the employees.  Even if a business has investors and sufficient production facilities to introduce new products and services the process of conquering the market will be a failure unless such a company has professional and loyal personnel.  It is not very easy to manage personnel if the company has hundreds and thousands of employees.  Much depends on employee attitude and satisfaction.  It is not a secret that most satisfied and loyal employees have most satisfied and loyal customers.  What does a loyal customer mean to a company?  He is a regular source of income.

In a tough competition companies have to improve and develop all the time.  It is impossible to develop without having a strategy.  And it is impossible to reach strategic goals without aligning operational in strategic management.  This is where balanced scorecard helps.  This performance evaluation tools measures key performance indicators to evaluate company progress on its way to implementation of strategic goals.  Human resource management, as an inseparable part of any business management system, should be also measured.  Moreover, HR goals and strategies should comply with requirements of the company general strategy and its vision.

It is important to say that different business areas have different approaches to evaluation of human resource management.  In fact, top managers should select the most important key performance indicators which a logical a different in different business areas.

In the field of real estate/property business the following KPIs will help company management evaluate efficiency of HR department:

  1. Bonus payout as of total possible.  It is a fact of common knowledge that real estate agents earn money by selling and letting property and having their commissions paid.  This indicator is very tricky.  On the one hand, real estate agent must be satisfied with the commission he receives so that he will show high performance as he is financially interested.  At the same time the company he works for is interested in greater profits for itself.  This is where balance needs to be found.  Ideally, requirements of real estate agents should be taking into account, but on the other hand the company should get sufficient profits.
  2. Average travel costs per employee. Real estate agents really work in office.  All the time they have to show real estate objects to potential customers.  Houses and apartments may be scattered throughout the city or even the state.  Of Course, sometimes deals are concluded via phone.  But it is important for some customers to listen about a house or an apartment.  Besides, some real estate agents can persuade even those customers who are unwilling to buy or just don’t need property.  For this reason property agents travel a lot.  Of that’s why such expenses should be controlled and minimized if possible.  Real estate agents should not use bicycles, but they should not use taxi either.  It would be reasonable to use economy cars consuming little gas.  This indicator may be measured as often as possible as the work of real estate agent is very intense.
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HR measurment in publishing business

Human resource management should be part of general management strategy for any business.  It is important to realize that people who work for the company are the most valuable asset.  Intellectual capital is being collected for years.  Educated and loyal employee is the supreme value for any company.  Human resource management is about finding professional employees, hiring them, educating and coaching, creating suitable working conditions for them, offering them competitive salary and compensation systems, and of course retaining them, i.e. creating all conditions for such employees to stay with the company.

Of course, every business requires different approaches.  Human resource management approaches and methods are individual for every company.  There are many factors to be taken into account before adopting any decision related to personnel.  Remember that if the company fails to have loyal and professional personnel it has no chances for survival.

As we are living in the age of information publishing services and publishing business are very popular.  Books, encyclopedias, magazines and newspapers are published to meet customers’ demands.  Of course, every aspect in the work of a publishing house should be measured.  So far, balanced scorecard system has proved to be the most effective tool to evaluate business performance and link operational and strategic management in order to reach strategic goals.

Balanced scorecard uses key performance indicators which are regularly evaluated to get information on the progress of the company on its way to strategic goals.  In the publishing business these key performance indicators may look like this:

  1. Average equipment cost per employee. Publishing business uses various equipment in production of newspapers, magazines, books etc.  This includes computers, special scanners, printing equipment etc.  Of course it wouldn’t be reasonable to save too much on equipment has this will have a negative impact on the product quality.  At the same time measurement of average equipment cost per employee will give company management a general idea on how much it is spending and it needs to spend to provide employees with everything they need to do their job.  Company management may think of the way to decrease this cost for example by offering employees share certain equipment.
  2. Turnover of new hire during first year.  The company may suffer losses because of staff turnover, especially when it concerns new hires.  When a new person is employed with the company he needs to be educated and he needs time to get used to the work.  Moreover, while not doing the complete work, such an employee still requires salary.  So, when he or she leaves in a few months it turns out that the company wasted its money.  This indicator shows how newly hired employees value working conditions, relations with management and their work in general.  By keeping this KPI at the lowest possible level HR department does not only save money but also improves intellectual potential of the company, since after a year such an employee will possess knowledge and experience necessary to do the job and show high performance.
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How to evaluate police HR performance

Human resource management is especially important in business areas where people play primary role.  Sure, we don’t want to say that machines can adopt decisions and overcome problems and even severe crisis.  But in some areas such as military or police human factor is extremely important.  The gun will not shoot by itself and the criminal will not come to prison by himself.  Police and military are those areas where human mistake may cost serious injuries or life, unlike commercial businesses were mistakes cost money, sometimes huge money.

For this reason a special attention should be given to human resource management in police.  The task of police HR department is to find people who want to work in police, educate them, help them understand all peculiarities of police work and then create suitable working conditions to retain such employees.

A police officer has to be 100% loyal to police service as he is representative of the law.  Any mistake a policeman may make can cost him his life or life of other people whom he should protect.  Taxpayers hire police to protect them, and taxpayers want their money to be used efficiently.

That’s why human resource policy in police departments needs to be constantly evaluated.  Some progress if police departments are already using balanced scorecard system to link operational in strategic management.  Sometimes personnel policy conflicts with strategic goals.  Balanced scorecard helps align human resource measures with mission and vision of the police.  As known, balanced scorecard measures performance through evaluation of key performance indicators.  In our case these indicators may look like this:

  1. Average number of training hours per employee.  What will happen to a policeman who has and shot a gun for a year?  The answer is quite simple – he will miss when the time comes to neutralize a suspect.  What will happen in the policeman has not run for half a year?  Will he catch a suspect when needed?  Of course, not!  Training in police is a must.  The more policemen trains the more professional he is.  It doesn’t matter if this concerns a field work or office work.  Average number of training hours per employee shows efficiency of HR department in its training and coaching campaigns.  It goes without saying that training should be effective otherwise this will be just a waste of money.  At the same time policemen should not spend much of their personal time to train as this will decrease their satisfaction with work and possibly their performance.
  2. New staff vs. experienced staff ratio. Of course, believes should hire young people who want to serve their society.  But rookies in police may cause serious problems.  Lack of experience in confronting criminals may cost them their lives.  That’s why it is important that the police department has a sufficient number of experienced officers who would instruct newcomers, shared some secrets of their work, or even protect them if necessary.  One cannot buy experience, but can only get it in real work.  Measurement of this indicator will help police avoid problems and improve their work.
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HR evaluation in news/mass media business

We are living in the age of information.  With the development of the Internet, online sources of information somewhat ousted printed media.  Every day we see people in public transport reading use from their cell phones and netbooks.  However, it is possible to see people who prefer the smell of fresh morning newspaper.  Anyway, with the development of communication means and the Internet Technologies exchange of information has become very easy.  So, if something happened that one part of the world is becomes top new use on the other part of the earth within several seconds.

As any business, news and mass media business requires proper human resource management.  Newspapers and magazines want to have the best reporters and newsmakers.  This business area is characterized by the fact that there are many freelance journalists who work for several companies and sell their footage and reports.  Most of them are working remotely as special reporters.  There is a common myth that human resource management is only effective with office based employees.  Nothing of the kind!  Remote employees also have their requirements, demands, as well as the company have certain requirements to freelancers.  Naturally, the mass media company wants to have the best news coverage from its freelance reporters. This is where human resource department comes into play.

In evaluation of HR performance in the news and mass media business use of balanced scorecard is highly recommended, as this tool makes it possible to integrate the chart goals, measures and objectives into the general system of company strategic goals, mission and values.  As known, balanced scorecard measures company performance through evaluation of key performance indicators.  In mass media and news business the following key performance indicators can be used in HR evaluation:

  1. Managers satisfaction with teleworking.  As a rule, news and mass media companies have managers who are in charge of working with freelancers and remote employees.  It should be mentioned that it’s not an easy job to deal with people who are located at another part of the planet.  It is impossible to avoid all problems and misunderstandings that can occur in work.  That’s why measurement of manager satisfaction with teleworking will indicate efficiency of remote work, and attitudes of both managers and freelancers of to the company.  This indicator is calculated as ratio of all managers in charge of teleworking to number of satisfied managers.  It would be reasonable to measure this indicator once a quarter.
  2. Average estimated savings cost of employees that are teleworking.  Naturally, freelancers save money since they do not have to commute to work, have regular lunches of his cafeteria etc.  The more employee can save the more he is satisfied with the work.  This, in eastern, improves employee satisfaction and loyalty to the company which usually leads to higher performance.
  3. Average travel costs per employee.  As a rule, report as travel a lot.  That’s why it is imperative to monitor travel costs and keep them at a reasonable level.  In such a way it is possible to save costs and use them for other purposes.
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