Peter Howes highlights how the use of eight metrics, that have specifically been identified for use in a downturn, can lead to greater workforce insight, improving efficiency and driving cost savings.
With the recession in full swing, rapid changes within the global business environment have left many HR directors reeling. Until recently most were preparing plans to cope with business expansion in an era of chronic skills shortages. Now, they are being asked to maintain and develop a workforce while reducing costs – ideally without losing any jobs. CEOs and CFOs are not blind to the challenge but they do expect HR to be confident, responsive and realistic about the hard decisions they are going to have to make. After all, it goes with the job.
“With the recession in full swing, rapid changes within the global business environment have left many HR directors reeling.”
Understanding your needs
Before considering steps such as retrenchments or cutbacks, the first step for HR should be to take stock of the current situation. Look at employee and recruitment-related metrics; they’ll provide the baseline from which to monitor the health of the business and they’ll also highlight areas where it is possible to introduce new practices and save money. For most organisations the eight most useful metrics right now are likely to be:
- Unscheduled absence per employee: Absence impacts business continuity, productivity and morale. Monitoring rates such as sick leave and addressing problem areas can have an immediate and noticeable impact on costs.
- Employee-initiated (EI) separation rate by length of service: Permanent recruitment takes time and money, and you need to know that your new recruits are staying long enough to justify that cost. If the turnover rate is high, it is important to consider how to improve recruitment or induction practices.
- Net recruitment ratio: This shows whether a workforce is expanding or contracting. HR should monitor the ratio to determine whether this is occurring at the targeted rate. Additional analysis by demographic segments will help to identify if the changes are occurring in the right workforce segments.
- The number of revenue generating staff compared to those involved in non-revenue generating roles: When tracked over time, this figure is a good guide to efficiency in organisational design.
- Return on human investment ratio: This is an important measure for determining that dollars are not being wasted as it tracks proportional human capital costs.
- The number of management compared to staff: When a company seeks to make lay-offs, this ratio provides essential data about the cost implications and helps to ensure that the most appropriate ratio of managers to employees is maintained.
- The ratio of full time employees (FTEs) compared to fixed term contractors: Contractors offer flexibility, particularly during peak demand but it comes at a price. This ratio provides benchmark data that should be compared against the industry median.
- The relative measure of employee engagement: Engaging employees’ hearts and minds takes on added importance in times like these. Financial uncertainty – at home or at work – can lead to loss of confidence and morale issues. Studying employee attitudes helps to highlight potential problem areas.
Once you have developed a picture of your current staffing position – along with any opportunities for immediate cost savings – the next issue is to look to the long-term and this begins with workforce planning.
Final thought
HR is undoubtedly growing in importance as the recession continues to hit organisations hard affecting profits and growth opportunities. As a result, it is being heavily scrutinised as tough decisions such as making redundancies are made. Before HR personnel wade in with ‘hunches’ and gut instinct, they should first take a step back and remove much of the associated subjectivity by implementing analytics analysis.
Hopefully this article has introduced some of the many analytic tools that can be used to provide weight and justification to key decisions that can significantly improve workforce insight, which in turn can generate significant operating efficiencies and cost savings.
With over 30 years experience in human resource management, founder and chief executive officer Peter Howes has a distinguished global reputation as a consultant in HR metrics, analytics and workforce planning. Peter’s major area of consulting over the past 25 years had been in workforce planning and HR/HCM analytics, reporting and measurement. For more information visit www.infohrm.com
One Response
HCM – Using analytics. How to benchmark?
A very interesting article, highlighting measures that can help us identify issues that can become large problems. But the difficulty for me is in understanding whether our ratio of, say, managers to staff is the common one, or whether it is too high or low. Absence and turnover statistics aren’t difficult to benchmark, but some of those highlighted in the article are very challenging.