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Dear Workforce How Do We Carry Out a First-Ever Audit of Human Resources?

We need to perform an HR audit, which is new to our organization. How do we break this complex process into manageable, digestible bites?

September 7, 2011

Dear Stumped:

Regardless of the reason for it, remember that your audit is designed for one purpose: to improve the human resources function by identifying what works well and which areas need improvement. It should address basic factors like accuracy, timeliness, compliance and cost. The diagnostic also should tackle basic risks such as technology (outdated systems), staffing (competencies and bench strength) and data management (regulatory compliance, security and backup). Many sources of HR audit questionnaires exist that encompass these factors.

Beyond the basics, however, the audit enables your business leaders to look at HR from three perspectives:

  • Effectiveness

  • Efficiency

  • Alignment

HR effectiveness represents an effort to capture the effect of HR on the organization and ways to increase it. In a world of limited resources, HR must pick and choose where to excel and where to decide that "good enough is good enough."

Examine all the activities HR performs in your organization. Ask customers to evaluate the importance of those activities and how well they are performed by HR. Confidential interviews provide detailed responses, but Web-based surveys of a much larger population of the company's management provide a more complete picture. Analyzing the differences between importance and performance data (factoring trend data if available) quickly shows where HR may be over- or under-performing.

When looking at the results, recognize that some HR activities are required just to be in business (such as payroll administration) but others are possible sources of competitive advantage (such as workforce planning).

HR efficiency

The HR function has become remarkably efficient over the past 20 years thanks to technology, outsourcing, new service delivery models (e.g., employee and manager self-service) and structural changes. Auditing HR for efficiency, however, goes beyond simple cost comparison against benchmarks. Instead, a successful efficiency audit yields an understanding of your spending on each activity, against both benchmarks and priorities. After all, it doesn't matter if you're super-efficient at delivering the wrong things. Looking at efficiency in this light may uncover opportunities to shift spending to fund important initiatives.

Auditing for spending means capturing and allocating all costs. Take HR payroll costs (fully loaded), space and other infrastructure costs, and vendor costs. However, exclude program-specific costs such as total payroll or DB contributions. Often, organizations forget to identify and capture HR costs incurred outside the HR function.

For example, there may be a large number of people who sit in line operations, yet who spend some time inputting HR data. Their cost should be captured and included when determining HR efficiency. Looking at the full spending picture may help you identify opportunities to rethink structure and roles by making better use of new technologies and self-service.

HR alignment

Auditing for effectiveness should yield good information about your customers' perspective, but it is equally important to capture the views of people across the HR function. Ask everyone in HR to evaluate the importance of HR activities and how well they are performed by HR. Contrasting responses by activity (and by any other important organization demographic such as business unit or geographic region) allows you to measure the alignment between HR and its customers.

Ideally both groups will be closely aligned, but if not, the audit will help identify where improved communication is required. For example, HR may be aware of new programs that have been designed and are just rolling out, whereas your customers have yet to see any benefit. Or the business leaders may be concerned with issues that HR doesn't yet fully appreciate. Regardless of cause, any significant gap in perspectives should be addressed, or HR will not be aligned with the rest of the organization.

HR audits serve both tactical and strategic purposes. The tactical view addresses service quality accuracy, and compliance. The strategic view—which is of greatest interest to business leaders—addresses HR's impact and potential to contribute even more. A successful HR audit balances both.

SOURCE: David de Wetter, Towers Watson, Chicago, June 25, 2008.

LEARN MORE: In a related article, learn how to create online surveys that generate useful feedback for HR.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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