Human Resources can often be seen as an unnecessary cost, as it does not directly generate revenue. By having clear metrics that show the return of investment of an HR department, will assist in providing justification or reasoning to business leaders and decision-makers.
This blog will introduce you to metrics used by HR departments, that can show the effectiveness of human resources and the different initiatives implemented.
HR Metris & HR Analytics
The two ways of measuring effectiveness are HR metrics and HR analytics, both are data-driven. HR metrics look at past measures, such as numbers of candidates applied, turnover rate etc. While HR Analytics, looks deeper into the why: why is the turnover rate extremely high? Both metrics and analytics play an important role in understanding HR departments effectiveness.
Data should be collated on employee retention, employee satisfaction and company culture, as all three can help drive the business.
Examples of commonly used metrics:
1. Cost per hire
How much does it cost to recruit - looking at both direct costs (recruitment agencies, job ads) and indirect costs (internal employee time, productivity of the vacant role or handover period and paying two employees).
2. The number of applicants and their suitability of the role
Through analysing the number of suitable applicants that applied for the role, you are able to gain an insight to the effectiveness of your employer branding, employee value proposition, reputation, and the quality of the job advertisement.
3. Advantage cost per employee
All costs associated with an employee (including payroll tax, insurance, employee benefits/the number of employees).
4. Training hours
Total training hours/total number of employees.
5. The income per employee
Revenue/Total number of employees.
6. Absenteeism: Number of sick days per month/number of days that should’ve have been worked (number of working days per month x number of employees).
The number of employees left/number of employees.
8. Unwanted turnover:
Turnover is not always bad or unwanted, as new employees bring fresh new ideas and experience from their previous employers. By looking at people who left, who were wanted within the business, will provide a deeper understanding of employee engagement.
Once you have decided on what metrics you are going to use, you need to ensure you start to compare the data, year on year. This comparison can provide some insight into the effectiveness of HR. i.e. if your staff turnover rate, decreases, and you had recently implemented new HR initiatives – this could be the direct result of those initiatives.