Human Resource (HR) metrics are measurements used to determine the value and effectiveness of HR initiatives, typically including such areas as turnover, training, return on human capital, costs of labor, and expenses per employee.
Efficiency of HR functions
It is often required of human resources departments to show the organizational value of money and time spent on human resources management training and activities. The value of reporting and analysis of HR performance in various areas aims to improve the organization's function and internal temperature. HR's challenge is to provide business leaders with actionable information that helps them make decisions about investments, marketing strategies, and new products. HR metrics are a vital way to quantify the cost and impact of employee programs and HR processes and measure the success (or failure) of HR initiatives. They enable a company to track year-to-year trends and changes in these critical variables. It is how organizations measure the value of the time and money spent on HR activities in their organization.
The following are some of the examples on efficiency of HR functions:
Cost per hire: It is the cost associated with a new hire. It is not only important to know how much it cost in hiring, but it is also important to see if the money spent is used to hire right people. (Boudreau; Lawler & Levenson, 2004) Time to fill: It is the total days to fill up a job opening per each job. The shorter the time, the more efficient of the HR department in finding the replacement for the job HR expense factor: It is the ratio between total company expense and HR expense. It shows if the expenses on HR practices are too much in terms of the whole company expense.
Effectiveness of HR functions
It shows whether the HR practices have a positive effect on the employees or the applicant pool. This is very important for HR because they are regarded as the leader for acquiring, developing and helping to deploy talent. (Boudreau; Lawler & Levenson, 2004)
The following are some of the examples on effectiveness of the HR functions: (Kavanagh & Thite, 2009)
Training ROI: It is the total financial gain an organization have from a particular training. It shows the effectiveness of the training program and how much it can benefit to the company after the training. Absent rate: It determines the company is having an absent problem from the employees. It also reflects the effectiveness of the HR policies as well as the company's own policies. It always goes along with employee satisfaction.
Developing core competency
Metrics help develop core competency by demonstrating the connection between HR practices and the tangible effects on an organization's ability to gain and sustain competitive advantage. This approach often treats employees as human capital instead of expense. (Boudreau; Lawler & Levenson, 2004)
The following are some of the examples on effectiveness of the HR functions:
1. Revenue factor: It indicates the effectiveness of company operation with the use of the employees as their human capital.
2. Defects rate: It indicates the number of defective products in the operation. The lower the defect rate, the more effective the HR practices in developing companies' core competency in terms of reducing cost.
HR metric & Human Capital
Human Capital is another big topic in nowadays HR practices. HR no longer only assess their effectiveness and efficiency and the contribution to the company, but also they are starting to measure how those practices can positively affect the human capital (employees) in the organization. “Based on corporate culture, organizational values and strategic business goals and objectives, human capital measures indicate the health of the organization.” (Lockwood, 2006)
There is a special tool for HR to measure the human capital and it is called Key Performance Indicators (KPIs). It helps measure human capital outcomes, such as talent management, employee engagement and high performance, illustrates the firm's business, financial and strategic goals, and promotes partnership with senior management for organizational success. Nowadays, HR people integrated the traditional metrics to KPI which aligned with corporate objectives. The best KPIs should be able to reflect the human capital performance, such as financial outcomes, performance drivers. At the same time, when determining strategic KPIs, it is essential to consider who designs human capital measures and how they are created. The best way to design a good KPI is to communicate with the company business managers who know the jobs the best in their own divisions.