enhancing workforce analytics and planning with productivity and roi
DESCRIPTION
This webinar featured a discussion on how to focus on what matters most, measuring total cost of workforce, human capital productivity and ROI, and the connection between these HR-manageable areas and business outcomes like Revenue, Profit and even Stock Price and Sustainability.Additional information about this presentation: http://www.hcminst.com/news/andrew-jacobus-recent-webinar-guest-speaker-presents-at-hr-com-virtual-conference/Learn more about human capital analytics and workforce metrics from our webinar series: http://www.hcminst.com/thought-leadership/human-capital-management-webinars/TRANSCRIPT
-
1
Enhancing Workforce Analytics and Planning with Productivity and ROI
Andrew Jacobus Jeff Higgins
-
Introductions
Andrew Jacobus
Consultant and CoE Leader, Workforce Analytics & Planning [email protected]
www.linkedin.com/in/andrewjacobus
Jeff Higgins
CEO, HCMI
https://www.linkedin.com/pub/jeff-higgins/2/508/587
2
mailto:[email protected]://www.linkedin.com/in/andrewjacobusmailto:[email protected]://www.linkedin.com/pub/jeff-higgins/2/508/587 -
3
About Human Capital Management Institute
Have You Found Your Analytics
Pot of Gold?
Workforce Assessment Strategic Consulting Training
Best Practices Workforce Analytics and Planning Market Analysis Benchmarks
- We Bring Financial Discipline, Standards and Rigor to the HR Function -
HCMI Background:
World leading tools/methodology
100+yrs experience Analytics & Planning
Deep Finance & HR expertise
Advisory Board CFOs and HR heads
What We Do:
Measure the immeasurable in human capital
Full service tools, consulting & training
Transform workforce data into intelligence
Tools for HR to make the business case
The Human Capital Management Institute (HCMI) was founded on the belief that organizations can, and must, find better ways of measuring their investments in human capital. Our vision of the future is one in which human capital measurement and information is as integral to business
decision making as financial information is today.
http://www.hcminst.com/news/the-1-million-analytics-roi-challenge/http://www.hcminst.com/news/the-1-million-analytics-roi-challenge/ -
Agenda
4
1. Scope of Discussion for Today
2. Defining Productivity
Example Productivity Metrics
3. Productivity, ROI, and Analytics
4. Case Study (or two)
5. Q&A
-
What does Productivity mean to you?
5
Poll Question
-
From Wikipedia:
Productivity is an average measure of the efficiencyof production. expressed as the ratio of output to inputs used in the production process, i.e. output per unit of input... The value of outputs minus the value of inputs is a measure of the income generated in a production process.
Partial Productivities include Labor productivity, usually expressed as output per hour At the company level, typical partial productivity measures are such things as worker hours, materials or energy per unit of production.
In macroeconomicssumming up the value-added created in the single processesValue-added is obtained by subtracting the intermediate inputs from the outputs. [Example]: GDP (Gross Domestic Product).
6
Means a Lot of Things
-
Value Creation in Todays Marketplace
7
Intangible Capital Value
Tangible Assets/Value
Human Capital = employee knowledge, training, productivity, experience, culture, leadership, development, performance, creativity, etc.
Are we managing the right things or just managing what we know how to manage?
Measures are well established for modern Finance as a Decision Support Science
Hard to Measure
Easy to Measure
Market value driven by factors not on a balance sheet
Intellectual or Human Capital
vs.
-
Getting Finance to See the Value of HR
What is the Language of Business?
What does Management Care About Most?
What is HR most uncomfortable talking about?
$$$
$$$
$$$
-
1 Can we accurately forecast our workforce needs in the future?
2 What percent of our workforce is customer-facing or revenue-generating? What is the trend?
3 Can we model our workforce to optimize cost, profit and productivity?
4 What is our workforce productivity? Is it higher than peers?
5 What is the marginal return of one dollar invested in workforce?
6 Is the ROI on Human Capital higher than other investments?
7 Is workforce productivity increasing, decreasing or static? How are we performing versus peers?
8 What is the average time-to-full-productivity for new hires? For new hires in critical roles?
9 What are predictive indicators of turnover? What percentage of employees are at risk?
10 Are leaders effectively managing human capital? Do leaders correlate to employee engagement, retention and performance?
11 What business areas/positions/managers have the highest voluntary turnover? How do we compare to peers?
12 Where does our best talent come from? Which managers are the best talent scouts and coaches?
13 What is the cost of turnover to our business? The overall impact?
Human Capital Management Institute 9
Talent Risks - 25 Key Human Capital Questions
14 Are we losing the right people(low performers) or the wrong people(high performers or critical roles/skills)?
15 Do we know the leading drivers of employee turnover? Do we know the leading drivers of retention?
16 What is our quality of new hires? (Can we measure it?)
17 What recruiting source yields the most high performers? What recruiting source yields the best cultural fits?
18 Is there a link between employee performance and total rewards? If so, do we know the optimal pay/performance mix?
19 What is the total pay/rewards differential between high performers and average employees?
20 Could we offer compensation and benefits that both cost less and engage/retain employees better?
21 What is our Total Cost of Workforce as a percent of revenue? Of expenses? How do we compare to peers?
22 What is the ROI of training to the firm? Where could training investments improve productivity and profitability?
23 Is internal mobility a source of value or turnover and cost? What percent of the workforce moves internally each year?
24 What percent of the workforce has a defined career path?
25 What is the link between employee engagement, customer satisfaction, revenue and profits? What are the drivers?
-
Poll Question
10
How do you currently measureproductivity?
-
Productivity and Why is it so Important
Human Capital Management Institute 11
ProductivityOutputs Inputs
OutputsInputs Productivity
Labor Costs (Workforce) Material Costs Time/Speed Overhead (Labor/Other) Technology, Process & Tools
Revenue (Budget) Units of Production New Products Inventions/IP Technology/Assets
Profit Quality Efficiency Satisfaction
10060
40
Which has more impact on productivity: A 10% decrease to Inputs? A 10% increase in Outputs?
= 6 a 15% productivity gain
= 10 a 25% productivity gain
-
Options for Introducing Productivity Metrics
2. Pick a couple of advanced metrics to analyze and potentially report
1. Throw a few traditional metrics into a dashboard (and hope nobody notices)
3. Implement a foundational framework
-
Critical Input Metric
Human Capital Management Institute 13
Total workforce direct business costs + HR, including:
+ Employee compensation (salaries/wages, incentives, overtime, equity & other pay)
+ Contingent temporary/contract labor (costs)
+ Employee benefits and perks (costs)
+ HR function (costs e.g., recruiting, training & support)
+ Retiree or inactive workforce costs* (costs)
Total Cost of Workforce (TCOW)
Total Cost of Workforce =
The Bottom Line: Controlling Workforce Costs = Controlling Productivity
1% TCOW savings at a Fortune 500 co. = $30 million Workforce costs are the largest cost (average 70% of
operating expenses) What gets poorly measured gets poorly managed Control/Benchmark business unit and organizational
performance TCOW as a % of Revenue TCOW as a % of Total Expenses
Why is it important?
Revenue TCOW
-
Return on Human Capital Investment
Return on Human Capital Investment
=Total Operating Profit
Total Cost of Workforce
Description: ROI of workforce costs relative to profit. Expressed as a percentage of TCOW.
Best use: Return on Human Capital Investment is a strongly linked leading indicator of growth. Organizations measuring or tracking this metric can effectively measure the linkage of overall or large scale workforce changes to trends in the organization's market value over time.
Human Capital Management Institute 14
Advanced Human Capital Productivity Metrics
Human Capital ROI Ratio
Human Capital ROI Ratio =
Total Operating Revenue (Total Expenses Total Cost of Workforce)
Total Cost of Workforce
Description: Net operating profit impact of each dollar invested in human capital (or TCOW).
Best use: Human Capital ROI Ratio can effectively measure the linkage of overall workforce changes to trends in the organizations market value over time. This metric is optimized when analyzed by employee productivity, performance, turnover, and future workforce changes in support of driving overall market capitalization along with value provided per FTE employee or worker.
-
Poll Question
15
Describe your organizations HR-Finance relationship
-
Key Step: Align Human Capital to Finance
Human Capital Management Institute 16
1. Human Capital Asset Statement 1. Balance Sheet
2. Cash Flow Statement
3. Income Statement
Business Financial Statements
Human Capital Financial Statements (HCF$)
3. Human Capital Impact Statement
2. Human Capital Flow Statement
Examples: Total Cost of Workforce(TCOW) Productivity Impact Human Capital ROI Ratio
Examples: Inflows, Outflows, number of Contingent Staff, Transfers and Promotions
Employees Headcount Productivity Value Added Training Effectiveness Index Quality of Hire Index
Da
ta
#3
#2
#1Examples:
-
#1 Human Capital Impact Statement Example
Human Capital Management Institute 17
-
#2 Human Capital Impact Statement Example
Total Compensation & Benefits includes retention pay, special
pay and pay corrections
Total Cost of WorkforceTrue human capital and workforce related costs
Total Other HR CostIncludes all company retirement
related costs for current and former employees
Total HR ExpensesCovers all HR related cost and
expenditures in onboarding and ongoing training & development
The larger the percentage of total organizational expenses that are represented by TCOW, the greater the impact that changes in talent management and key employee and workforce variables have on the organization.
Human Capital Management Institute
-
#3 Human Capital Impact Statement Example
An improvement translates to Increase number of new hires meeting job standards Shorten ramp up time to full productivity Lead to higher overall productivity
Employee mobility decreases short term recruiting costs and long term compensation costs
Quantifies the impact of managerial performance across the employee lifecycle
Identify value creation the organization gets from developing talent
Training can become have a multiplier effect for overall employee value creation
Links performance measurement across all areas of the talent management and employee lifecycle
Increase in High performers can be interpreted as the success of interventions, policies and programs of an organization
Human Capital Management Institute
-
Case Study: BroadTek Communications
19
Key Questions to Answer:
1. Are we productive as a business, and getting better or worse?
2. How is that affected by our talent investments?
3. Is our Talent mix appropriate for now and for the future?
-
Case Study: BroadTek Communications
Human Capital Management Institute 21
The Human Capital Impact Statement
Revenue Prior Year Current Year Variance % ChgNet Operating Revenue $4,114,540,000 $4,444,560,000 $330,020,000 8.0%
Total Workforce Headcount (FTE) 4,645 4,750 105 2.3%
Revenue per FTE $885,800 $935,697 $49,897 5.6%
CostsTotal Expenses $2,788,752,921 $2,809,406,376 $20,653,455 0.7%
Total Operating Expense $2,262,997,000 $2,377,839,600 $114,842,600 5.1%
Total Cost of Workforce (TCOW) $447,661,952 $467,567,712 $19,905,760 4.4%
TCOW Percent of Revenue 10.9% 10.5% -0.4% -3.3%
TCOW Percent of Expenses 16.1% 16.6% 0.6% 3.7%
TCOW Percent of Operating Expenses 19.8% 19.7% -0.1% -0.6%
ProfitEBITDA(1) $1,316,652,800 $1,511,150,400 $194,497,600 14.8%
Net Operating Profit $573,155,422 $680,017,680 $106,862,258 18.6%
Profit per FTE $123,392 $143,162 $19,770 16.0%
Productivity and ROI of Human CapitalTotal Market Capitalization (2) $6,304,709,642 $6,800,176,800 $495,467,158 7.9%
Average Market Capitalization Value per FTE $1,357,311 $1,431,616 $74,305 5.5%
Human Capital ROI Ratio 3.96 4.50 0.54 13.5%
Return on Human Capital Investment 128.0% 145.4% 17.4% 13.6%
TOTAL WORKFORCE PRODUCTIVITY IMPACT: $355,630,545 $700,578,523 $344,947,978 97.0%
1
1
2
2
2
33
Key Findings: TCOW growing slower than Revenue and Profit per FTEPositive HC ROI Ratio and Return on HC Investment
-
Case Study: BroadTek Communications
22
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
ClearTel RayFi BroadTek
Revenue per FTEProfit per FTETotal Cost of Workforce per FTEProductivity Gain(Loss) per FTE
Note: All Dollars in Thousands KPI = Key Performance Indicator FTE = Full Time Equivalents
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
ClearTel RayFi BroadTek
Revenue per FTE
Profit per FTE
Total Cost of Workforce per FTE
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
Human Capital ROI Ratio Return on Human CapitalInvestment
ClearTel RayFi BroadTek
Current Financial KPIs Prior-Current Year KPI Variance
Prior-Current Year Productivity Variance
1
Poor Performance
Relative to Competitors
AveragePerformance
Relative to Competitors
StrongPerformance
Relative to Competitors
2
3 3
Human Capital Management Institute
-
Case Study: BroadTek Communications
Human Capital Management Institute 23
The Human Capital Asset Statement
Human Capital Headcount Deployed Prior PeriodPercent
of Total Current PeriodPercent
of Total VarianceEmployees 4,395 94.6% 4,535 95.5% 3.2%
- Management & Senior Leadership 610 13.1% 615 12.9% 0.8%
- Professional Staff 1,310 28.2% 1,405 29.6% 7.3%
- Sales Staff 730 15.7% 805 16.9% 10.3%
- Specialists and Technicians 515 11.1% 530 11.2% 2.9%
- Skilled Trade Staff 115 2.5% 105 2.2% -8.7%
- Operations Staff 210 4.5% 210 4.4% 0.0%
- Service Staff 550 11.8% 560 11.8% 1.8%
- Administrative Support Staff 250 5.4% 220 4.6% -12.0%
- Laborers and Helpers 105 2.3% 85 1.8% -19.0%
Contingent Staff 250 5.4% 215 4.5% -14.0%
Total Workforce 4,645 100.0% 4,750 100.0% 2.3%
Step #1: Measure Changes in Workforce Headcount Total Employees Sales Staff and Service Staff = Core Workforce Administrative + Laborers and Helpers = Non-Core Workforce
Step #2: Quantify Differential Value of High vs. Low Value Add Roles Core Job Roles add Greater Value Critical Job Roles add Greater Value
-
Case Study: BroadTek Communications
Human Capital Management Institute 24
Measuring Critical Job Roles
Low Value Add High Value Add
Roles that are administrative in nature
Roles that do not make decisions
Typically easier to outsource
Non Core
Core
Roles that are revenue generating
Roles that are key to bringing in future revenue
Roles that are customer facing
Roles that directly support revenue generation / or manage cost
Roles that indirectly support revenue generation
Roles that are not customer facing
22.5%
48.5% 23.5%
6.5%
54.5%
Prior Current
18.5%
Prior Current
21.5% 4.5%
Prior Current Prior Current
Roles that are strategic or growth-oriented
Roles that make decisions
Typically more difficult to fill
-
Poll Question
25
What Human Capital insights do you publicly report?
-
Contact Information & Upcoming Event
26
Andrew Jacobus [email protected]/in/andrewjacobus@ACJacobus
Workforce Intelligence
Consortium Grouphttp://bit.ly/hcmidisc
Jeff [email protected]@MetricsMan1+1.323.522.HCMI (4264)
mailto:[email protected]://www.linkedin.com/in/andrewjacobushttps://twitter.com/ACJacobushttp://bit.ly/hcmidischttp://hcminst.us7.list-manage1.com/track/click?u=9458a2d563efa34b4dce8bb4d&id=dda74434f6&e=103e898fc9http://hcminst.us7.list-manage1.com/track/click?u=9458a2d563efa34b4dce8bb4d&id=dda74434f6&e=103e898fc9mailto:[email protected]:[email protected] -
27
Appendix
-
Revenue per FTE
Revenue per FTE =Total Operating Revenue
Total Full-Time Equivalents
Average amount of net revenue generated for each full-time equivalent employee (FTE) as measured either for all employee FTE or total workforce FTE which includes employees, temporary workers and contractors.
Human Capital Management Institute 28
Traditional Productivity Metrics
Profit per FTE
Profit per FTE =Total Operating Profit
Total Full-Time Equivalents
Net operating profit generated for each full time equivalent employee (FTE) as well as workforce FTE, which includes employees, temporary workers and contractors.
How many controllable factors drive Revenue?
What if the business grows revenue, but is unprofitable?