enhancing workforce analytics and planning with productivity and roi

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

[email protected]

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


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


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.


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


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



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


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


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?



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


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%


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


Current Financial KPIs Prior-Current Year KPI Variance

Prior-Current Year Productivity Variance

1

Poor Performance

Relative to Competitors

AveragePerformance


StrongPerformance


2

3 3




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



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.


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?

enhancing workforce analytics and planning with productivity and roi

Documents

workforce analytics

human capital measurement

value of hr

labor productivity

human capitalvs

hr headswhat

value of inputs

yrs experience analytics