workforce metrics dictionary: six steps for measuring...

Workforce Metrics Dictionary: Six Steps for Measuring HR Initiatives

A PeopleFluent® White Paper

Measuring HR Initiatives

What is the value of your workforce to your organization’s bottom line?

This is a question that HR professionals face on a daily basis. It’s also the reason why workforce metrics have become critical tools for businesses.

Workforce Metrics Dictionary: Six Steps for Measuring HR Initiatives | 2

Developed by the workforce planning and analytics division of Peoplefluent, a leader in talent management solutions, this guide provides definitions of key metrics, as well as a step-by-step process and examples for identifying the net benefits gained from a specific HR initiative.

Section 1 identifies nine core HR practice areas, along with the key metrics associated with each. From absenteeism to recruiting and work-life balance initiatives, HR professionals look closely at these to determine how to track and measure performance.

Section 2 delivers a six-step process that focuses on a specific business problem, such as absenteeism, and calculates the cost to the organization’s bottom line as well as the net benefit of the HR initiative that addresses this problem.

Through this simple process, HR professionals, workforce planners and other key stakeholders in the organization can use data to clearly represent the value of HR initiatives to the organization’s bottom line.

Key Workforce Metrics and the Impact on the Bottom LineKey HR Practice Area / Initiative Related Metrics/KPIs Bottom-Line Impact

Absenteeism • Absence Rate• Absence Days per Employee• Unscheduled Absence Rate• Unscheduled/Sick Days per Employee• Overtime Expense• Overtime as a % of Total Labor Costs• Employee Performance/Productivity Index

• Payment of salary/benefits during absence• Insurance/health care costs• Overtime costs • Cost of replacement workers • Impact on employees’ morale and on customer satisfaction• Productivity impact on employees/team/department

Benefits / Educational Reimbursement

• Tuition Reimbursement Request Ratio• Promotion Rates• Employee Performance/Productivity Index• Performance Differential Rate• Retention Rates• Benefit Costs per Employee

• Total benefit costs vs. value (sales/revenue/productivity) employee will generate over course of employment

• Correlation between benefit participation & business results

• Correlation between benefit and turnover intentions• Turnover/Replacement costs (see employee separation)

Development / Management Training Program

• Employee Performance/Productivity Index• Training Expense per Employee• Training Hours per FTE• Training Effectiveness Index• Retention Rate

• Cost of development/training program• Correlation between participation & business results (such

as retention, sales, customer service)• Impact on performance/productivity/profitability before &

after training program (or split sample differential)


Key HR Practice Area / Initiative Related Metrics/KPIs Bottom-Line Impact

Employee Attitudes • Employee Satisfaction Rate• Employee Engagement Index/Score• Manager Quality Index/Satisfaction Rate• Voluntary/Preventable Turnover• Employee Performance/Productivity Index

• Correlation between employee attitudes and turnover intentions

• Turnover/Replacement costs as result of preventable attrition

• Correlation between employee attitudes and customer satisfaction

• Productivity impact on employees/team/department• Impact on employees’ morale and on customer satisfaction

Overall HR • Revenue per Employee/FTE• Sales per Employee• Profit per Employee/FTE• Labor Costs as % of Revenues• Units Produced per Employee• Workforce Productivity

• Total Revenues• Total Cost of Workforce• Labor Costs• HR Costs

Recruiting Hiring Selection

• External/Internal Hire Rate• New Hire Performance Rate• Performance Differential Rate• Quality of Hire Index• Source of Hire• Average Time-to-Fill• Average Cost per Hire• Time-to-Productivity• New Hire Turnover

• Total compensation & hiring costs vs. value (sales/revenue/productivity) employee will generate over course of employment

• Performance differential• Recruitment costs• Cost of vacant position (lost sales/revenues/productivity)• Savings from unfilled job• Impact on employees’ morale and on customer satisfaction

Retention Employee Separation

• Turnover Rate• Voluntary/Involuntary Turnover Rate• Good/Bad Attrition Rate• High/Low Performer Retention Differential• Staffing Rate Approaching

Retirement Eligibility• Retirement Rate• Average Workforce Age• Average Tenure at Termination

• Correlation between turnover and profitability• Separation, replacement/hiring and training costs• Overtime costs • Cost of replacement workers • Impact on employees’ morale and on customer satisfaction• Productivity impact on employees/team/department

Safety Program • Number of documented safety violations• Number of defects/accidents• Incidence Rates• Safety Training Expense per Employee• Workers’ Comp Cost per Employee

• Correlation between safety program participation & incidence rates

• Cost of safety program• Workers’ compensation costs• Cost of safety violations/penalties

Work-Life Balance Initiatives

• Employee Performance/Productivity Index• Performance Differential Rate• Unscheduled Absence Rate• Voluntary/Preventable Turnover Rate

• Cost of work-life balance initiative• Health care/insurance costs• Turnover/Replacement costs

(see employee separation)• Correlation between benefit participation & business results• Impact on employees’ morale and on customer satisfaction• Productivity Impact


Determining the Bottom Line Impact of an HR Initiative

Steps Description

1. Start with the Business Problem Clearly state the business problem. Be as specific as possible.

2. Calculate the Cost of the Problem Calculate the cost of the business problem specified above. Examine both direct and indirect cost implications and use conservative estimates or industry guidelines if exact figures are not available.

3. Identify the Solution to the Problem Identify a solution based on specific company data/analysis or industry research. (When using research findings, keep in mind that the most effective solution may be different for each organization.)

4. Calculate the Cost of the Solution Calculate how much implementing the solution will cost the organization today and in the future. Account for indirect and internal costs as well using conservative estimates.

5. Identify Expected or Actual Result For a new initiative, identify the results you expect to see after 3/6 months, 1/2 years, etc. For an existing initiative, track the impact of the solution on the business problem over the course of the past months/years.

6. Perform Cost/Benefit Analysis As a final step, perform a cost/benefit analysis to analyze the net benefits gained from your initiative. This can use several methodologies, including (but not limited to):

• Benefit/Cost Ratio• Return on Investment• Net Present Value• Payback Period

Example #1:

Absenteeism/Employee Wellness Program Example

Steps Description

1. Start with the Business Problem Our organization has an unscheduled absenteeism rate of 5% among our 100-person employee population. This means that five employees are absent, unscheduled, on any given day.

2. Calculate the Cost of the Problem The cost of sick day can be conservatively estimated as the employee’s salary plus 30% benefit costs divided by 260 (# of workdays). Using the actual average salary of $40,000, this is $52,000/260 or $200/day/person. With 5 people out every single day, this costs the organization $1,000/day or $260,000/year.

(This is a conservative estimate. Unplanned absences like sick days result not only in these direct costs but also in higher insurance costs and lost productivity. Indirectly, they can negatively impact coworkers’ productivity and morale, which can affect customer service and other business objectives.)

3. Identify the Solution to the Problem As a solution, the organization has decided to implement a workplace wellness program after researching all available options.

4. Calculate the Cost of the Solution The cost of implementing a workplace wellness program is $30,000/year.

5. Identify Expected or Actual Result Based on industry studies and historical results of this particular wellness program, the organization expects to see a 20% decrease in absenteeism, going from 5% to 4% a year or from 5 absent employees to 4 absent employees on any given workday (i.e., net benefit of 1 non-absent employee).


Steps Description

6. Perform Cost/Benefit Analysis Calculate the Return on Investment using the following formula:

ROI = (Program Benefits – Costs) / Costs [($200 * 260) – $30,000] / $30,000 = $22,000 / $30,000 = 73%

As a benefit, you’ll save $200/day or $52,000/year vs. the cost of the program at $30,000 or a net benefit of $22,000/year for the organization. This translates to a positive ROI of 73%.

Example #2:

Turnover/Management Training Initiative

Steps Description

1. Start with the Business Problem Our organization has an annual voluntary turnover rate of 20% for its computer programmers. This means that one in every five programmers, or 10 out of our 50-employee department, leave voluntarily each year.

2. Calculate the Cost of the Problem Industry studies show that the total cost of replacing an employee (including separation, replacement, training and indirect costs) can be as much as 150% of a person’s salary. Using an actual average salary of $80,000, this translates to $120,000/programmer or $1.2 million per year ($120,000 * 10 programmers).

3. Identify the Solution to the Problem Based on the past three years’ employee engagement survey results, you decide to implement a 3-year management training initiative. Study results showed that ineffective managers have the most impact on employee engagement and they are the main cause of voluntary attrition within your organization. So a combination of management training and one-on-one coaching is the solution you’re implementing.

4. Calculate the Cost of the Solution A series of management training workshops and internal coaching lessons with individual supervisors will cost the organization $100,000/year.

5. Identify Expected or Actual Result After you implement the solution and monitor the results, you find that voluntary turnover decreases from 20% to 18% (Year 1) to 16% (Years 2 and 3). This means that the program “saved” 1 (Year 1) and 2 (Years 2 and 3) people from leaving voluntarily.

6. Perform Cost/Benefit Analysis Cost/Benefit Analysis:

After calculating the improvement benefit (150% of the salary of 1 or 2 additional people who did not leave), you calculate the net improvement benefit.

Dividing the Total Net Improvement Benefit ($200,000) by the Total Cost of the Training ($400,000) over the course of three years results in a ROI of 50%.

The Net Present Value of these improvements is calculated at $115,300 using a 15% discount rate.

The payback period of 1.6 years tells us that this program breaks even in about a year and a half.


Example #3:

HR Initiative

Steps Description

1. Start with the Business Problem

2. Calculate the Cost of the Problem

3. Identify the Solution to the Problem

4. Calculate the Cost of the Solution

5. Identify Expected or Actual Result

6. Peform Cost/Benefit Analysis


Peoplefluent’s workforce analytics solutions give you the wisdom to strategically address critical business issues.

Learn more at www.peoplefluent.com

About PeopleFluent

PeopleFluent, the leading total workforce HCM technology company, redefines Talent

Management with an innovative Talent Engagement Cloud that is built around people and

not HR processes. By deeply integrating pervasive video, strategic analytics and collaborative

social technologies into its complete suite of Talent Management applications, PeopleFluent

redefines employee engagement to address productivity loss and diminished financial results

due to an increasingly disengaged workforce. With PeopleFluent, companies can change at

the speed of business without costly IT interventions through intuitive, highly configurable

software that is built upon the right data. Spanning across an organization’s entire global

workforce with one talent cloud, PeopleFluent equips leaders with the meaningful talent data

and strategic analytics necessary to make better business decisions.

PeopleFluent has worked with over 5,100 organizations in 214 countries and territories to

engage employees to drive better business results. Today, 80% of the Fortune 100 relies on

PeopleFluent as part of their talent management delivery strategy, helping them successfully

achieve their talent aspirations.

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