financial acumen for hr, presented at the 2014 tdrp annual conference

8/10/2019 Financial Acumen for HR, Presented at the 2014 TDRp Annual Conference

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1

Financial

Acumen

for

HR

HumanCapitalManagementInstitute

October

23,

2014



2/23

HumanCapitalManagementInstitute 2

OurSpeakerJeff

HigginsChief Execut ive Officer

Human Capital Management Institute

Jeff is the CEO of the Human Capital Management Institute,a driving force in Workforce analytics at leadingcompanies who transform workforce data into a source ofvalue creation via planning and predictive modeling.

With his unique combination of experience as both asenior HR executive and former CFO, Jeff helpsorganizations around the world rapidly advance theiranalytics & workforce planning journey.

He is a regular speaker at HR events, a member of theHuman Capital Institute National Advisory Council onTalent Leadership and a founding member of the PwC

Saratoga Institute advisory council on metrics.


3/23

AboutHumanCapitalManagementInstitute

HCMIBackground:

Specialized in HR analysis & metrics

Deep expertise in Analytics & Planning

Board made up of CFOs and HR heads

Over 40 years of experience

WhatWeDo:

Answer complex human capital questions

Quantify human capital

Transform workforce data to intelligence

Enable HR and Finance to talk

3

We believe organizations can and must, find better ways of measuring their investment inhuman capital. Our vision of the future is one with human capital information as impactful to

business decision making as financial information is today.

WeBringFinancialDiscipline,StandardsandRigortoWorkforceAnalytics


SaaS

Analytics

&

Workforce

Planning

Software

Consulting

Training

Benchmarking


4/23

QuestionsaboutFinancialAcumen


What is the Language of Business?

What does Management Care About Most?

What is HR is most afraid to talk about?


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KeyFinancialAcumenElements

5 HumanCapitalManagementInstitute

1. Speaking the language of business

2. Appreciating vs. depreciating Assets

3. Materiality: Is it really enough to care about

4. Return on Investment (aka cost vs. benefit)

5. Capital vs. expense (buy computer or run training?)


6/23

AskingtheRightQuestions


WhatIfyoucouldanswerthefollowing?

1. Which workforce HR metrics link to business results?

2. What is our workforce productivity?

3. What size and cost of workforce can we afford?

4. Is quality of hire (i.e. Top Talent) better than cost per hire?

5. Is it better to build, buy or rent talent?


7/23

ValueCreationinTodaysMarketplace

IntangibleCapitalValueMarket value driven by factors

Not on a balance sheet

Intellectual or Human Capital*

TangibleAsset/ValueMeasures well established for

modern Finance as a DecisionSupport Science

WellMeasured

Notwell

Measured

HardtoMeasure

Source: Ocean Tomo Research, Inc., 2011

Human Capital = employee knowledge, training, productivity, experience, culture, leadership, development,performance, creativity, etc.

EasytoMeasure

Arewemanagingtherightthingsorjustmanagingwhatweknowhowtomanage?


Introduction


8/23

SHOWMETHEMONEY!


15% productivity gain and lower costs($55.0 Billion Package Delivery Co. )

Predicting sales stars pre hire{$1.0 Billion Bank}

ROI of sales training{$2.0 Billion Retail Co.}

Location optimization for talent growth{ West Coast Regional Bank}

Employee engagement to revenue impact{$1.0 Billion public Airline}

40% voluntary turnover reduction{public, financial services co.}

ROI of internal vs. external hires {public bank}

$1.1BillionAnnual

$264MillionAnnual$1.1 million per sales person

$250MillionAnnual$250k per Salesperson

$200Million10years

$96MillionAnnual$5 per flight premium

$12Million

Annual

majority sales + operations positions

$6MillionAnnual


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TheWhyof TraditionalFinancialStatements

Financial statements are used by many different stakeholders

But they leave out the company's most valuable asset:TheWorkforce.

Stakeholder Use

CompanyLeadership Tool for business decision making that may affect anorganizations continued operations and annual reportto stockholders

ProspectiveInvestors Assess the success and viability of investing in a business

FinancialInstitutions

(banks and other lending companies)

Decision to lend to a company or extend debt securities

GovernmentEntities(tax authorities)

Ascertain the propriety and accuracy of information forlegal, tax and audit purposes

Vendors who extend credit Assess the creditworthiness of the business

Mediaand the GeneralPublic Variety of reasons


Oops!


10/23

1stISO US and pending ISO Intl standard

SHRM Technical Advisory Group (TAG) +special Taskforces (45 Currently)

HR disagrees on basic things (i.e.

what

to

include

involuntaryturnover,whatisapromotion)

ISO TC 260 TAG Taskforce formed to manageHR Standards

Standards are coming to HR!

Standards:Accountingvs.HR

Generally Accepted Accounting Practices(GAAP) + International Financial ReportingStandards (IFRS*)

Standard Setting Boards (i.e. PCAOB**)

Standards for widely used metrics and terms

Standard Disclosures and FinancialStatements (IncomeStmt,BalanceSheet,Cash

Flow

Stmt)

Common Basis for Analysis and Insight

Limited Industry Practices and Benchmarks(limited

Government

reporting

requirements)

SHRM*** but currently no Board ?

HR disagrees on basic things (i.e.whattoinclude

in

voluntary

turnover,

what

is

a

promotion)

Companies disclose only headcount , nostandard reports

Best Practice Companies using Internally


Accounting HR

*IFRS = International Financial Reporting Standards

** PCAOB = Public Company Accounting Over-site Board

*** SHRM = Society for Human Resource Management


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MeasurementTrick#31

Measurement Best Practices:

1.Metrics that are actionable2.Metrics that identify, quantify, and clarify issues across the employee cycle

3.Metrics that link to business results

4.Metrics to capture leading versus lagging indicators



12/23

WhattoIncludeinaBusinessCase

1. CompellingQuestions

Ask the Right Questions

2.

ObjectiveMeasures

and

Facts

Historical Data, Key Metric Indicators, Segmented Data

3. PowerfulVisualsCharts

Chart(s) that Show Insight (i.e. Story) and Drive Action

4. UseQualitativeStoryTelling

Two of our Top 3 Salespeople came from other industries

5. LinktoBusinessImpact(ROI/Cost/Profit) The Cost Savings is a range of $1.0 to $3.0 Million

12 HumanCapitalManagementInstitute 1212


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ComponentsofaBusinessCase

1. ABusinessNeedorImperativeWhy

A defined problem/opportunity or question(s) to be answered

2. QuantitativeAnalysisWhat

Current state assessment

Alternatives Evaluated, (be sure to include do nothing)

Cost Benefit Analysis or ROI Whatdoweget

3. Risks List key risks what we miss out on (address What if we do nothing)

4. Timing,Resources,Process

When, include roadmap or project plan (must

have

90

day

deliverables) How, the process to be used (e.g. GEs six sigma process)

Who, document who will do it (champion, oversight, partners)

13 HumanCapitalManagementInstitute 1313


14/23


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BestPracticesofHRAnalyticsPrograms

Focusonsolvingbusinessissuesfirst before HR issues

Findthetalentyouneedtoexecute

Focusonquestionsrather than answers or available data

Aimsmall;seekoutquickwins(define formulas, publishing KPIs, etc)

Integrateworkforce

data

to

business

data

(financial, customer, operations etc..)

Tellacompletestory:

Quantitative with strong numbers

Visualwith powerful visual charts

Qualitative with a story and real world examples from the business



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3

Steps

to

Financial

AcumenPreparation,

Preparation,

Jump

Already!



17/23

ContactInformation:

Human

Capital

Management

Institute

JeffHiggins,[email protected]

Formoreinformationonproductsandservices:

www.hcminst.com

SOLVESoftware

Human

Capital

Training

and

Financial

Statements

Consulting

Human

Capital

Workforce

Data

WorkforceMetrics

Handbook

Integration

Blueprint Planning

Workforce

Intelligence

Consortium

Group @HCMI



18/23

Appendix



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19 Human Capital Management Institute

Total workforce Directbusiness costs + HR, including:

+ Employeecompensation (salaries/wages, incentives,overtime, equity & other pay)

+ Contingenttemporary/contractlabor (costs)

+ Employeebenefits andperks(costs)

+ HRfunction (costs e.g., recruiting, training & support)

+

Retiree or

inactive

workforce

costs*

(costs)

TotalCostof Workforce(TCOW)The Bottom Line = Controlling Workforce Costs

Control/Benchmark business unit and organizational performance

TCOW as a % of Revenue

TCOW as a % of Total Expenses

TotalCost

of

Workforce =

Whyisitimportant? 1%TCOWsavings at a Fortune 500 co. = $30million

Workforce costs are the largest cost (average

70%

of

operating

expenses)

What gets poorly measured, gets poorly managed


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20

HumanCapitalROIRatio


HumanCapitalROIRatio

=

Total Operating Revenue (Total Expenses Total Cost of Workforce)

Total Cost of Workforce

Description:Net operating profit impact of each dollar invested inhuman capital or the total cost of the workforce. NOTE: If Total Cost of

Workforce is not available, total costs of employees can be used as analternative.

Bestuse:Organizations tracking Human Capital ROI Ratio caneffectively measure the linkage of overall workforce changes to trends

in the organizations market value over time. This metric is optimizedwhen analyzed by employee productivity, performance, turnover, andfuture workforce changes in support of optimizing overall marketcapitalization along with value provided per FTE employee or worker.


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21

ReturnonHumanCapitalInvestment


ReturnonHumanCapitalInvestment

=Total Operating Profit

Total Cost of Workforce

Description: Return on investment in terms of net operating profit, expressed as apercentage of the total dollar amount invested in human capital workforce costs.

Bestuse:"Leading" Return on Human Capital Investment is a strongly linked leadingindicator of (for publicly traded or other organizations for whom a relative market valueis obtainable), Organizations measuring or tracking this metric can effectively measure

the linkage of overall or large scale workforce changes to trends in the organization'smarket value over time. NOTE: this metric is optimally used for long term strategicpredictions rather than short term measurement since organizational market values canfluctuate dramatically due to uncontrollable events as well as industry and marketchanges.


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ChallengeofMeasuringHumanCapital

Compensation

Transfers

New HireTurnover

SuccessionData

Turnover

Training

Recruiting

Employee

Data

Benefits

Span

of Control

Workforce

Planning

SuccessAdvanced

Analy ticInsights

ComplexityofWorkforceData

Employee/FullTimeEquivalent (FTE)

Jobs/Roles/Skills

Time Tenure

Compensation ($ vs. Equity)

Frequencyof

Change

Promotions, Transfers, Hires,Terminations

Jobs/Roles/Skills

Time Tenure

MeasuringtheIntangible

LackofStandardsinHR

LackofAnalyticSkills

22HumanCapitalManagementInstitute 22


23/23

23

LinkingBusinessStrategytoMetrics

Linking

Business

Strategy

to

Metrics

that

Drive

HR

Action

ReturnonInvestedCapital

SalesGrowth

CustomerService

Excellence

BuildWorkforce

Talent&Skills

Raise WorkforceProductivity

ControlWorkforce Cost

Raise WorkforceProductivity

Engage/RetainTalent

Build TalentPipeline

BusinessStrategy

WorkforceStrategy

KPIMetrics

Total Cost of Workforce (%ofRevenue)

Revenue/Profit per FTE

Management Span of Control

High Performer Turnover Rate

Employee engagement scores (NPS)

Customer satisfaction Scores

Customer upsell rates

Customer service training KPIs

(NPS = Employee Net Promoter Score)

Internal Hire Rate

HRStrategy&HRActivities

Training for ServiceExcellence

Training to buildinternal talent in

Key Roles

Customize paybased on Service +

Job Criticality

Recruiting for TopTalent Internallyand Externally

Human

Capital

Management

Institute

CustomerService Focus

Talent Management,Performance,

Potential

Human Capital ROI Ratio

Return on Human Capital Investment

Quality of Hire Index

financial acumen for hr, presented at the 2014 tdrp annual conference

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