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The First Three Things That HR Should Measure

January 30, 2003
Related Topics: Human Resources Management Systems (HRMS/HRIS), Featured Article
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There are at least three basic items that every organization should startmeasuring:
  1. Head count
  2. Turnover
  3. Cost per employee

    Keep in mind that "measuring" and "tracking" are two differentthings, and that measuring isn’t very useful until you start tracking and making comparisons. Single-point measurement, in and of itself, is of limitedusefulness. However, the regular measurement of key pieces of information overtime and the correlation between various measurements--including correlationwith non-HR data--can be extremely valuable.

Head count
    The first thing to track is head count. Track your head count not only by thetotal organization once a year, but also cost center by cost center, departmentby department, and job type by job type. Do it every month. Make a line graph toshow changes over time. Add another line to the chart, such as revenue orproduction volume. How closely does one line lead or lag the other? Trackinghead count in combination with non-HR data demonstrates relationships between HRfunctions/activities and the rest of the organization’s operations. When youcan see trends and relationships, you can begin to plan and project.

    Something as basic as head count can have meaning even to shareholders if youlook at it according to the focus of the organization. At the World Bank’sInternational Finance Corporation (IFC), where Joe Fucello is the HR programofficer, it is important that the approximately 2,000 employees berepresentative of the countries where the World Bank makes its investments.Fucello monitors head count by nationality.

Turnover
    Tracking turnover can be extremely valuable, especially if you can go beyondthe basics of turnover for the organization as a whole. Turnover that ismeasured department by department or branch by branch, and measured every month,begins to reveal patterns. Turnover that is measured according to race, gender,or age group begins to reveal even more interesting patterns that might suggestpoor management techniques, or a supervisor who is not skilled in avoidingdiscrimination.

    Measuring turnover according to the hiring source--your various recruiters orrecruiting agencies--can help to determine whether you’re getting your money’sworth from each source. Fucello is concerned about retaining his organization’svery best performers, so he tracks turnover by job type and by length ofservice. He’s starting to see patterns after about a year of doingmeasurements, and now he is beginning to explore the reasons behind thepatterns.

    Jeff Cottle, senior vice president of human resources and organizationalstrategy at SCT, a global information technology company focused on educationalinstitutions, also tracks turnover by employee type. He’s interested incontrollable voluntary turnover (to help focus the efforts of his employeerelations staff) and the reasons behind involuntary turnover. He measures "newhire" turnover (employees who left before 18 months) and "tenured"turnover. He closely monitors turnover among the professional services groupbecause those employees are billable consultants who produce revenue for SCT.

    All this measurement takes a lot of time, but it's well worth the effort, inCottle’s mind: "Our perspective on the use of metrics . . . is based on ourbelief that human-capital metrics have a direct correlation to financialmetrics."

Cost per employee
    Cost per employee helps you examine the value of every aspect of humanresources management: compensation programs, incentive and bonus plans, employeebenefits, training, staffing levels, and more. Again, correlation is the key.The salary or training costs per employee for Department ABC may be the highestin the company, but if the revenue from Department ABC is also the highest,perhaps those costs are justified. On the other hand, if revenue from DepartmentABC is not the highest in the company, you need to ask questions.

    If the training cost per employee for Course #1 is consistently high, thatmay also be acceptable if productivity consistently improves among the employeeswho take the course. If productivity does not improve, perhaps you’re spendingtoo much to deliver Course #1.

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