HR ANALYTICS CAN BOOST RETURN ON INVESTMENT (ROI): by Erasmus Pongo
Erasmus Pongo
HR Practitioner (Bsc, IPMZ , IAC)
I
have carried out a survey in a number of organisations in the past few
weeks here in Southern Africa. I found out that many HR Departments in
modern day organisations are mainly focusing on the Qualitative HR roles
at the expense of their Quantitative roles.Workforce analytics includes
all data and ratios derived from our HR database of employees. It works
with facts, always assuming that the data in the system is correct. One
frequent difficulty is consistent job categorisation, which is
essential for workforce planning. Another is the lack of useful
breakdowns on reasons for leaving and absence, important information
when looking at engagement and other people management initiatives.The
data enables us to calculate ratios and trends, which provides us with
much more useful information than the cold numbers themselves. Turnover
and absenteeism are presented as ratios, but are not always calculated
in consistent ways. Three- or six-month “moving averages” are generally
recommended. Other useful ratios may be: per person, eg training days;
per annum, eg promotions; and between job families, eg front-line staff
or technical support.
Percentages may be used too, such as for disabled employees, ethnic minorities, those with more than five years service and so on. Indeed, the possible combinations are many; the question is how to decide which ones to include in reports. An important truism to remember in this and other areas is that “the average is the enemy of truth”. One must beware of consolidating figures too much and hiding important variations and details.
Costs and proving a return on investment
Some of these figures can be turned into costs and this is always eye-catching for line management. An HR department should ensure that it has at least one person in the function who is competent at costing.
As a judge of training awards for many years, I have regularly been horrified at the naivety of many attempts to prove a return on investment. Formulas for calculating the cost of excess (there is always a baseline we expect as normal) absenteeism and turnover should be established and used consistently.
We may have some target ratios where the deviation from the target represents a cost we can assess. Some traps must be avoided – if turnover is resourced internally, it is a much lower cost. And much short-term absenteeism is not a real cost (= extra money going out of the bank) if no extra overtime or labour is deployed to cover. Otherwise, the cost is the loss of value that arises from the person not being there, and this is often very hard to evaluate.
Costing comes into its own when we attempt to do justifications or return on investment for projects and programmes. Many HR initiatives do not have direct impacts on costs or revenues, even though they aim at “business improvement”. One should not try and measure an outcome where less than 50% of the impact on it is likely to be due solely to the effect of the project. The key is to set realistic measurable objectives that can be directly attributable. Some may be knowledge-based, but many will require the measurement of opinions and feelings.
We need to use surveys extensively in HR work – for example assessing: satisfaction and engagement; opinions about a policy or programme; internal customer satisfaction; cultural change; and 360-degree behavior analysis. The design and presentation of such data requires both skill and integrity; it is easy to pull out bits and tell half stories to support a point of view.
All things being equal, in my next post I will highlight the tools and strategies that can be adopted to secure effective Quantitative HR in modern day industries. Feel free to email any feedback on erasmuspong@gmail.com
Percentages may be used too, such as for disabled employees, ethnic minorities, those with more than five years service and so on. Indeed, the possible combinations are many; the question is how to decide which ones to include in reports. An important truism to remember in this and other areas is that “the average is the enemy of truth”. One must beware of consolidating figures too much and hiding important variations and details.
Costs and proving a return on investment
Some of these figures can be turned into costs and this is always eye-catching for line management. An HR department should ensure that it has at least one person in the function who is competent at costing.
As a judge of training awards for many years, I have regularly been horrified at the naivety of many attempts to prove a return on investment. Formulas for calculating the cost of excess (there is always a baseline we expect as normal) absenteeism and turnover should be established and used consistently.
We may have some target ratios where the deviation from the target represents a cost we can assess. Some traps must be avoided – if turnover is resourced internally, it is a much lower cost. And much short-term absenteeism is not a real cost (= extra money going out of the bank) if no extra overtime or labour is deployed to cover. Otherwise, the cost is the loss of value that arises from the person not being there, and this is often very hard to evaluate.
Costing comes into its own when we attempt to do justifications or return on investment for projects and programmes. Many HR initiatives do not have direct impacts on costs or revenues, even though they aim at “business improvement”. One should not try and measure an outcome where less than 50% of the impact on it is likely to be due solely to the effect of the project. The key is to set realistic measurable objectives that can be directly attributable. Some may be knowledge-based, but many will require the measurement of opinions and feelings.
We need to use surveys extensively in HR work – for example assessing: satisfaction and engagement; opinions about a policy or programme; internal customer satisfaction; cultural change; and 360-degree behavior analysis. The design and presentation of such data requires both skill and integrity; it is easy to pull out bits and tell half stories to support a point of view.
All things being equal, in my next post I will highlight the tools and strategies that can be adopted to secure effective Quantitative HR in modern day industries. Feel free to email any feedback on erasmuspong@gmail.com
