Data is a critical component of modern business, and tracking key performance indicators (KPIs) is one of the most-reliable ways to measure progress and success. But traditionally, certain teams and departments have taken a more metric-heavy approach to performance evaluation—and others have not. Human resources (HR) has long been something of an anomaly for many otherwise-data-centric businesses.
To put it simply, some HR departments have trouble getting on board with big data. It’s not difficult to see why: HR needs to remain people centric, and the idea of implementing metrics and analytics makes some managers feel like they are devaluing the ‘human’ aspect of ‘human resources.’ But they shouldn’t. With the right key performance indicators (KPIs), human leaders have the data they need to make informed, strategic decisions regarding the employees who drive their business. HR KPIs provide a straightforward way to evaluate the effectiveness of HR operations, so they can be improved.
Absenteeism describes a situation in which an employee is absent from work beyond a reasonable amount of time. When employees regularly miss work it puts additional strain on the employees’ managers and teammates to pick up their slack. That is a major issue in and of itself, but absenteeism can also be symptomatic of larger employee satisfaction problems
You can calculate absenteeism by taking the number of absences of an individual employee over a set period (such as one month), dividing it by the total days in the period, and then multiplying the resultant number by 100 to get an absenteeism percentage. Generally speaking, anything over 3% absenteeism may indicate a problem worth investigating.
Employees generate revenue for your business, but they also represent a major investment in terms of resources, recruitment, and training. Cost per hire is a KPI that measures this investment, so that organizations can better understand the actual value of bringing on new employees and how quickly they can expect the hire to begin producing positive revenue.
Calculating cost per hire can be a difficult prospect and requires that you take into account all internal and external costs associated with recruitment for all new hires over a specified period of time. Divide the sum of those costs by the total number of hires over the same period to get the cost per hire.
There are few HR KPIs as obviously connected to business success as employee productivity. This KPI measures how long it takes for employees to complete assigned tasks or accomplish performance goals and provides insight into employee engagement and other key elements of the broader HR mandate.
There are multiple ways to calculate employee productivity, but one of the most widely used methods is called the labor productivity equation. This equation takes the total output of goods or services (as represented by a dollar amount) over a period of time, and then divides that number by the total labor hours. The result is the average dollar amount your company generates for every hour worked.
Talent retention measures the percentage of employees who chose to remain with the organization. As previously mentioned, recruiting and onboarding new talent represents a major investment. When talent leaves, it not only results in the loss of the original investment of hiring the employee, but it also creates additional productivity costs as teams scramble to cover the lost employee’s responsibilities until a replacement can be brought onboard. Understanding turnover rate as a KPI informs recruitment, workforce planning, and many other aspects of business strategy.
Calculate talent retention by dividing the number of employees you have on staff at the end of a predetermined time period (such as 12 months) by the number of employees you had on staff on the first day of the period, and then multiply that number by 100. This will give you the percentage representing how many of your employees are choosing to remain with your company. You can then look at how your salary, culture, and policies may be affecting that number.
On the other side of the coin from talent retention, turnover rate tracks the percentage of your employees who leave your company—voluntarily or otherwise—over a period of time. Although turnover and retention measure essentially the same thing, they are worth tracking separately. A high turnover rate suggests you may have a problem with company culture or employee compensation and can have a demotivating effect on employees. On the other hand, low turnover can mean that your culture and compensation are where they should be.
To calculate turnover rates, divide the number of lost employees during a set time period by the number of employees at the beginning of that time period, and then multiply the result by 100 to get your percentage.
Although there are many metrics that are relevant to HR and can provide valuable insight into the employee experience, the best HR KPIs will always be the ones that reflect the needs and aims of the wider organization. Additionally, KPIs should be:
Definite and concrete, with predefined success parameters.
Challenging but attainable, allowing the department to move outside of their comfort zone to redefine their best effort.
Measurable, providing a clear picture of any progress being made.
Exclusive, focusing on only a few important KPIs at any given time.
Simple, so that everyone involved can clearly communicate and easily understand what they represent.
Role-specific, belonging to an owner (generally a manager or other decision maker) who takes responsibility for guiding the KPI to reach established goals.
Aligned, with every KPIs working together to support larger goals.
Relevant, tracking only those metrics that relate directly to the HR department and that can be influenced by its actions.
One way to categorize HR KPIs is by determining whether they are lagging or leading. This distinction has nothing to do with how well the goals are progressing, but instead describes what kinds of initiatives, causes, or situations the KPI is measuring: past or future. Lagging KPIs relate to past outcomes and actual performance, while leading KPIs are relevant to future events and are used to predict and influence changes before they occur.
For example, turnover rate would be considered a lagging KPI because it describes the actual, current state of the company but does not suggest any opportunities to change that state. On the other hand, employee productivity is an example of a leading KPI in HR, because it can be used to forecast future labor costs.
Both lagging and leading KPIs are essential to monitoring and promoting progress towards HR-relevant goals.
Deciding which HR KPIs are the best fit for your business is only part of the equation. Once you’ve selected which metrics to track, you next need to create a balanced HR scorecard. An HR scorecard represents KPI data that leadership can use to visualize and analyze the success and failures of the KPIs themselves.
You can think of the scorecard as a kind of overview of KPI effectiveness, providing easy-to-follow and objective demonstration of HR KPI value and the contribution being made by the HR department towards achieving company goals. At the same time, scorecards help keep employees focused on those activities that positively impact the organization.
The right HR KPIs can provide your company with detailed insights into processes and factors that influence your success. But managing these KPIs accurately requires powerful, dependable tools. Put your HR KPIs to work for you, with ServiceNow.
ServiceNow Performance Analytics for HR Service Delivery gives you all the support and resources your team needs to identify and track the most relevant HR KPIs for your business—resolving problem areas, getting ahead of trends, and building a complete picture of your company. And, because Performance Analytics for HR Service Delivery is built on the Now Platform®, your teams will always have a centralized, single, reliable source of data truth.
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