What financial metrics should HR be using? What is most important to track? Which metrics measure effectiveness? Should the metrics vary depending on what industry your organization is in? Teri Morning fielded all of these questions and more in a recent BLR webinar. Check out the sample questions and answers below to learn more.
Q. Are there metrics that are helpful for HR that can measure effectiveness? For example: revenue or cost per employee?
A.Yes. Revenue per employee is relevant for a sales organization. Salespeople are there to earn revenue. If you have employees who are not earning revenue, you need to assess why not. You also need to look at cost per employee, but don’t forget to factor in productivity.
One metric HR often tracks – but it’s useless the way we often track it – is turnover. We track it all grouped together, but it would be better to separate avoidable and unavoidable turnover. Unavoidable turnover happens when life circumstances change, when the company has layoffs, or when there are disciplinary issues resulting in employees leaving the company, for example. Avoidable turnover, on the other hand, refers to the people the employer would have liked to have kept who they left for a reason that was avoidable.
Check for patterns in avoidable turnover. Is it higher in different departments? Under specific supervisors? Oftentimes you can see how many promotions (or raises) someone gets before they leave, or how long they stay with the company. This will help you know that if you’re planning on staffing from within and your high performers leave after 2 years, you’re going to have to change something if you want to keep staffing from within.
Q. We are a financial institution. What HR metrics do you recommend that we track?
A.Most financial institutions are moving from being transaction-based companies to being sales-based companies. At the same time, you don’t want your tellers having bad or pushy sales habits. As such, it might be good to track sales and also the quality of interactions—measured by the customer satisfaction of the products they’ve purchased.
Q. We wish to create an HR dashboard. What metrics do you recommend HR track in a hospitality company?
A.Most likely you’d be looking at things like customer return visits, for example. (Customers tend not to come back if they had a bad experience). Then figure out how employees play into customer experiences. Find ways to get information from the customers about what the employees are doing that influences their decision to come back. Know what your customer wants and figure out whether employees are providing it.
Q. Are there other financial metrics that are unique or especially used in the service industry?
A.In a retail setting, there are some standards of comparison: last years’ sales, peer group sales, increase in average sale size, employee time spent per sale (labor productivity), etc.
Q. The owner of our healthcare agency does not provide management reports out of concern that managers will misinterpret the numbers, but managers want more information about the budgets and the costs. How do you suggest we begin the process of providing managerial reports?
A.This might be a question of how to persuade them to provide these managerial reports. The size of your company also matters. Either way, a good place to start might be to give them examples of things you could do better if you knew specific numbers. That way they have some options—perhaps instead of giving you the full profit and loss statement for the whole organization, for example, they could give you the numbers you need to make decisions. Perhaps if they gave you costs of labor, for example, you could make decisions on how to use labor more effectively. You’ll need to tailor what you ask for based on what your needs are.
For more information on the importance of HR understanding financial terms, order the webinar recording of “Finance for HR: What You MUST Know to Secure Your Seat at the Business Table.” To register for a future webinar, visit http://store.blr.com/events/webinars.
Teri Morning, MBA, MS, SPHR, SPHR-CA, is the president of her own HR consulting firm. She has over 15 years human resource and training experience in a variety of professional fields, including retail, distribution, architectural, engineering, consulting, manufacturing (union), public sector and both profit and non-profit company structures.