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Human Capital Measurement System and Interpretation
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Human Capital Measurement System and Interpretation
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hi all! im currently setting up measuring human capital in my company and i have some questions i would be SO greatful is ANYONE can resond as im getting no where fast.
i am looking to measure the
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Forums » Topic Forums » General Forum » Human Capital Measurement System and Interpretation
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Human Capital Measurement System and Interpretation
posted at 11/11/2008 9:16 AM EST
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Posts: 3
First: 11/5/2008 Last: 11/12/2008 |
hi all! im currently setting up measuring human capital in my company and i have some questions i would be SO greatful is ANYONE can resond as im getting no where fast.
i am looking to measure the below metrics and i want someone to explain to me the INTERPRETATION of these. Eg - Human Capital ROI is expressed as a number, and the higher the number, the higher the ROI and the more value that employee is... something like that.... The metrics are: 1.) Human Capital Value Added Rev - Nonhuman Expenses / FTE 2.) Human Capital ROI Rev - Nonhuman Expenses / Pay and Benefits 3.) Human Capital Cost Pay and benefits/FTE 4.) Human Economic Value Added operating profit - cost of capital/FTE 5.) Total labour cost Rev percent Pay and benefits/Rev x100 ANY HELP WHATSOEVER would be very very gratefully recieved. thanks Katie |
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Human Capital Measurement System and Interpretation
posted at 11/12/2008 5:17 AM EST
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Posts: 1103
First: 3/16/2007 Last: 8/19/2011 |
Okay, that is what you will measure. Not trying to be difficult but what will you do with those numbers? How will you use them to drive change, promote better workflow, engage your employees morte and in short improve productivity and profitability?
What supporting documentation or data will you use to in this process and how will you get it? Does this meet the needs of your management? Do they understand what you are trying to do? Do they support it? |
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Human Capital Measurement System and Interpretation
posted at 11/12/2008 10:10 AM EST
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Posts: 3
First: 11/5/2008 Last: 11/12/2008 |
Hi there, yes this has all been discussed and confirmed in line with driving our stategy and promoting employee engagement... i have identified these as metrics to analyse, but i now need some furhter help to make sense of the figures!.. .can you help at all?
thanks |
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Human Capital Measurement System and Interpretation
posted at 11/12/2008 11:38 AM EST
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Posts: 1103
First: 3/16/2007 Last: 8/19/2011 |
Their value to your organization and what they mean should have been a part of the discussion with your leadership. Otherwise they simply report "things" in a dollar and cents manner that have no substance or relevance to your organizations business model or plan.
I can start with your premise that Human Capital ROI is expressed as a number, and the higher the number, the higher the ROI and the more value that employee is.... this is a broad generalization and means little in this context. Lets start with this: Human capital management is the acquisition and retention of the best employees through: 1. Strategic talent acquisition processes 2. Development of internal talent 3. management of talent productivity 4. rewarding success that is tied to the business So to make that work in a company you must understand that the goal is really increasing a laborers output capability by investing in, and adding worth, versus finding a bunch of people who will work yet are unqualified to excel in todays business environment.. In their present context your formulas (how were they created in your organization?) do nothing more than treat people as a cost because you show no real ROI as aligned against your growth strategy. By your own words you admit they you chose them as measurements but you don't know what they measure. Consequently they become what I describe in my first paragraph until you understand the total picture and not the narrow focus of the formula. It is one thing to measure and there certainly is no shortage of that anywhere. However, to really affect change and organizational direction you must do more than create new measurements; you have to know what to do with them. In other words, how will these measurements give your company , and allow you to bring, a new decision perspective to the table? Why do the formulas (what you are measuring) add value to your organization? Why are they important? How will HR truly drive these numbers, impact the outcomes and make decisions that support the organizations strategic plan? Taking your formulas in order (as, a, b, c, etc. ) they would translate to: a. Adjusted profit dollars added per FTE. While designed to show how management actions add true economic value, your formula is incomplete; it should be (revenue-[operating expense] [compensation cost+benefit cost(except paid time not worked)]) / FTEs. However, what is your benchmark for success? b. Shows the dollar amount returned for every dollar invested in compensation and benefits. It also shows a relationship to of human capital to productivity and profitability. This formula too is incomplete as it is not adjusted properly. c. Nothing more than showing your operating expenses per FTE. Out of context with other factors it has little meaning other than to show an expense.. d. While this should show profit generated per FTE do you want net or gross? How do you intend to show the relationship between HR prducts and this number? e. Shows nothing more than your labor costs as a percent of revenue. Depending upon industry the benchmark for this value could be anywhere. Ill go back to my original point. These formulas, apparently taken from some periodical or publication, used in this manner are nothing more than numbers. They lack any true meaning without putting them into a context of strong performance management coupled with effective organizational design and work system design analysis. While you present a start this is but step one in a process involving many many more steps. Otherwise all you are doing is reporting a bunch of numbers that are not truly aligned with your business strategy. This will ultimately result in the numbers becoming just another slide in a PowerPoint presentation. I would encourage obtaining more knowledge as it relates to how HR contributes to organizational growth and profitability. This will take you far in completely comprehending this process you are undertaking and truly add value to your organization. I would suggest a couple of readings to start.; Designing Complex Organizations by JR Galbraith, 1973; Creating a Strategic Human Resources Organization by Susan Mohrman, 2006. |
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Human Capital Measurement System and Interpretation
posted at 11/12/2008 12:38 PM EST
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Posts: 2442
First: 2/12/2000 Last: 9/14/2011 |
To add ot what HRPro has said, there needs to be goals for these metrics as well relativity.
"Absolute numbers mean absolutley nothing" (if no one owns that quote then maybe I should claim it!) I would talk to some external consultants and determine if there are published benchmarks for your industry for these metrics. It would be good to know the stats for "best in class" as well as the averages. This is no different than the old rule of thumb/benchmark of 1 HR person per 100 employees. Without knowing what functions are included in HR the number is meaningless. |
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