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Formulas For HR’s Effect on Business Results

December 11, 2001
Related Topics: HR Services and Administration, Featured Article
The formulas below offer a set of quantitative macro metrics linking humanand financial variables.

  1. Human Capital ROI
    This measures the return on capital invested in pay and benefits. The formulais:

    Revenue - Nonhuman Expenses
    Pay and Benefits

    Pay includes all money spent on regular and contingent labor.

  2. Human Capital Value Added
    This uses a similar formula to Human Capital ROI but divides by the number offull-time equivalent employees (FTEs). The formula is:

    Revenue - Nonhuman Expenses
    Full-Time Equivalents

    This yields a profit per FTE. These two measures are views of theprofitability attributable to human effort.

  3. Human Capital Cost
    This is simply the average pay per regular employee. The formula is:

    Pay + Benefits + Contingent Labor Cost
    Full-Time Equivalents

    It can be augmented by added in contingent labor. In that case, we would taketotal labor expenses, including benefits costs, and divide by FTEs, includingcontingents.

  4. Human Economic Value Added
    This is net operating profit after tax, minus the cost of capital divided byFTEs, including contingent labor. The formula is:

    Net operating profit after tax - Cost of capital

  5. Human Market Value Added
    This divides market capitalization by FTEs, including contingents. Theformula is:

    Market Capitalization


SOURCE: Reprinted from "The E-Aligned Enterprise: How to Map and MeasureYour Company's Course in the New Economy," Copyright © 2001 Jac Fitz-enzPublished by AMACOM Books, a division of American Management AssociationInternational, New York, NY. Used with permission. All rights reserved.

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