Balance Scorecard And The Metrics Used

Balance Scorecard and its metrics The Balanced Scorecard is a framework that helps organizations translate strategy into operational objectives that drive both behavior and performance. The balanced scorecard is essentially a framework that attempts to collate measures across four areas: financial, internal process, customer and (people) learning, and growth rather than just the traditional financial measures (hence the term ‘balanced’).Construct a set of relevant metrics that meet with the initial rationale for the HR scorecard design. The outcome of this should result in some form of draft for scorecard framework.

HR metrics The most widely used HR metrics are typically concerned with employee attitudes, employee turnover, employee skill levels, as well as outsourcing costs, service center operations, the number HR transactions processed, staffing process, training programs utilization and effectiveness, and promotions. These measurements are employed by 25 to 75% of all business organizations. Following are details of the popular metrics and the performance indicators. Each metric contains 2 to 5 performance indicators. For instance, “employee attitudes” metric includes the following indicators: Job Contentment (the percentage of employees satisfied with their job), and Manager Contentment (the percentage of employees satisfied with their manager). “Employee turnover” metric generally include such indicators, as Cost per Hire (calculation of advertising, agency fees, employee referrals, relocation, recruiter pay and benefits costs and the number of hires), Turnover Cost (calculation of termination, new hire, vacancy and learning curve costs), Turnover Rate (rate of the employees leaving an

organization), Time to Fill (the period from job requisition approval to new hire start date), Length of Employment (this indicator considers the job title, department, etc.). “Recruiting” metric includes Vacant Period (number of overall days the positions were vacant), New Hires Performance Appraisal (average performance appraisal of new hires, compared to previous period), Manager Satisfaction (according to the survey of hiring managers, compared to previous period), Turnover Rates of New Hires (during a specified period), Financial Impact of Bad Hire (according to turnover cost and cost per hire). “Retention” metric includes Overall Employee Turnover, especially in the key positions, Preventable Turnover (this indicator considers the reasons the employee left the organizations and what measures may be taken to prevent it), Diversity Turnover (turnover rate in professional, managerial, and technical positions), Financial Impact of Employee Turnover. “Training and Development” metric includes Learning and Growth Opportunities (percentage of employees who are satisfied with the learning and growth opportunities in the organization), On-the-job learning Contentment (percentage of employees who are satisfied with on-the-job learning, project assignments for growth and development, and job rotations), Opportunities for New Hires (percentage of employees who report training opportunities among the top three reasons they accepted the job). Although most organizations use similar set of HR measurements, however, even common metrics don't always include standard components. For instance, a common “cost per hire” metric may contain different expense categories, such as advertising, online services, background checks and recruiter costs. Recruiting and staffing metrics may also comprise various aspects. For instance, organizations usually measure “college recruiting” by analyzing the source of organization newcomers and their progress at the workplace.

HR measurements have significant implications for all areas of the business performance. For instance, employee attitudes and turnover metrics are reported to have key influence on decision making in the organization. The scorecard is an organic design – one that changes with the business. Thus this step is most important in continually updating and reviewing the scorecard framework, ensuring that it continues to report relevant metrics and discontinuing those metrics that are no longer required

Metrics – Their formulae and description

Metric

Absence Rates

Cost per Hire

Health Care Costs per Employee HR expense factor

HR Metrics Formula [(No of days absent in month) ÷ (Avg.no of employees during month) x (No of workdays)] x 100

Description Measures absenteeism. Determine if your company has an absenteeism problem. Analyze why and how to address issue. Analyze further for effectiveness of attendance policy and effectiveness of management in applying policy. (Advertising + Agency Fees + Costs involved with a new hire. Cost Employee Referrals + Travel cost per Hire can be used as a measurement of applicants and staff + to show any substantial improvements Relocation costs + Recruiter pay to savings in recruitment/retention costs. and benefits) Determine what your recruiting function can do to increase savings/reduce costs, ÷ etc. Number of Hires Total cost of health care Per capita cost of employee benefits. Indicates cost of health care per ÷ employee. Total Employees HR expense HR expenses in relation to the total operating expenses of organization. In addition, determine if expenditures ÷ exceeded, met or fell below budget. Total operating expense Analyze HR practices that contributed to savings, if any.

Revenue - (Operating Expense [Compensation cost + Benefit cost]) Human Capital ROI ÷ (Compensation cost + Benefit cost)

Human Capital Value Added

Revenue Factor

Time to fill

Training Investment Factor

Revenue - (Operating Expense [Compensation cost + Benefit Cost]) ÷ Total Number of FTE

Revenue ÷ Total Number of FTE Total days elapsed to fill requisitions ÷ Number hired

Total training cost ÷ Headcount

Return on investment ratio for employees. Did organization get a return on their investment? Analyze causes of positive/negative ROI metric. Use analysis as opportunity to optimize investment with HR practices such as recruitment, motivation, training and development. Evaluate if HR practices are having a causal relationship in positive changes to improving metric. Value of workforce's knowledge, skill, and performance. This measurement illustrates how employees add value to organization.

Benchmark to indicate effectiveness of company and to show employees as capital rather than as an expense. Human Capital can be viewed as an investment. Number of days from which job requisition was approved to new hire start date. How efficient/productive is recruiting function? This is also a process measurement. Training cost per employee. Analyze training function further for effectiveness of training (i.e. Has productivity increased as a result of acquiring new skills and knowledge? Have accidents decreased?). If not, evaluate causes.

Training (ROI)

Turnover Costs

Turnover Rate (Monthly)

Total benefit Total costs x 100

Total of the costs of separation + The separation, vacancy, replacement vacancy + replacement + training and training costs resulting from employee turnover. This formula can be used to calculate the turnover cost for one position, a class code, a division or the entire organization. Exit interviews are a useful tool in determining why employees are leaving your organization.

No of separations during mo. ÷ Avg. No of employees during mo. x 100

Turnover Rate (Annual)

The total financial gain/benefit an organization realizes from a particular training program, less the total direct and indirect costs incurred to develop, produce, and deliver the training program

No of employees exiting the job ÷ avg. actual No of employees during the period x 12 ÷ No months in period

This measures the rate for which employees leave a company. Is there a trend? Has metric increased/decreased? Analyze what has caused increase/decrease to metric. Determine what organization can do to improve retention efforts. This measures the rate for which employees leave a company. Is there a trend? Has metric increased/decreased? Analyze what has caused increase/decrease to metric. Determine what organization can do to improve retention efforts. Evaluate if HR practices has a causal relationship in positive changes to improving metric

Vacancy Costs

Vacancy Rate

Workers' Compensation Cost per Employee

Total of the costs of temporary workers + independent contractors + other outsourcing + overtime - wages and benefits not paid to vacant position(s)

The cost for having work completed that would have been performed by the former employee or employees less the wages and benefits that would have been paid to the vacant position(s). This formula may be used to calculate the vacancy cost for one position, a group, a division or the entire organization.

Total number of Vacant positions as of today ÷ Total number of positions as of today x 100

Measures the organizations vacancy rates resulting from employee turnover. This formula can be used to calculate the vacancy rate for one position, a class code, a division or the entire organization

Total WC cost for Year ÷ Average number of employees

Analyze and compare (i.e. year 1 to year 2, etc.) on a regular basis. You can also analyze workers compensation further to determine trends in types of injuries, injuries by department, jobs, etc. HR practices such as safety training, disability management, and incentives can reduce costs. The incident rate is the number of injuries and/or illnesses per 100 fulltime workers. 200,000 is the base for 100 full-time equivalent workers (working 40 hours per week, 50 weeks per year.) The calculated rate can be modified depending on the nature of the injuries and/or illnesses. For example, if you wished to determine the lost workday case rate, you would include only the cases that involved days away from work.

(Number of injuries and/or illnesses per 100 FTE ⁄ Total hours worked by all employees during the calendar year) Workers' Compensation Incident rate

X

200,000

Workers' Compensation Severity rate

Yield Ratio

(The number of days away from work per 100 FTE⁄ Total hours worked by all employees during the calendar year) X 200,000

The severity rate is the number of days away from work per 100 FTE. To calculate the severity rate, replace the number of injuries and/or illnesses per 100 FTE from the incident rate calculation with the number of days away from work per 100 FTE. Percentage of applicants from a A comparison of the number of recruitment source that make it to applicants at one stage of the recruiting the next stage of the selection process to the number at the next process. (i.e. 100 resumes stage. (Note: Success ratio is the received, 50 found acceptable = proportion of selected applicants who are later judged as being successful on50% yield.) the-job.)

(FTE) =Full-time equivalent