Top five metrics for workforce analytics
Over the past few years, organizations have done an unprecedented amount of restructuring, retrenchment, and downsizing. Much of this has been very reactionary, without time to think or take into consideration the optimal workforce size and structure. Most companies either lack metrics to measure the workforce, or measure everything and don’t know which numbers really matter.
The following five key human capital metrics provide visibility to understand and analyze the workforce and enable data driven decision making for the workforce. In addition, these metrics help organizations not to inadvertently cut skills that would be critical to future success.
The most advanced organizations in the world use human capital metrics and analytic tools to manage their workforce. With a defined human capital strategy and the following five key metrics, organizations will be better prepared to outperform competitors when opportunities surface:
First Metric: Total Cost of Workforce
The Total Cost of Workforce metric can be used at a macro level to measure alignment of the workforce, (usually the largest single cost) with business objectives.
CEO’s and top line management continually ask, “How do we know we have the right staff?” Or, “Do we have the right number of people to achieve our objectives?” These questions will always be critical in linking workforce and business strategy. All these questions are directed at HR; however, HR rarely has the tools to adequately answer these questions.
Total Cost of Workforce is the sum of all workforce related costs, including all compensation, benefits, and other employee costs. Total cost of employees includes all employee related costs for the organization for a given period of time. The workforce s defined as employees plus contingent (contract and temporary) workers.
Measuring Total Cost of Workforce allows organizations to get a true picture of their workforce spend and make better workforce strategy decisions. Organizations that only track employee costs are inaccurately representing their true workforce costs. Embedding workforce cost information and metrics into advanced tools builds a workforce analytic capability and focus that allows users to more effectively manage the size and shape of the workforce.
Second Metric: Management Span of Control
Management Span of Control is the best tool to address cost and structure of the management staff. When organizations are looking to optimize productivity and efficiency, this metric can be used to evaluate the overall organization as well as particular regions or business units. It is calculated by dividing the total population (including management) by the total management population. By understanding this metric and tracking it over time, organizations will gain insight into workforce trends and mix, for example, if the workforce is top heavy or if management is stretched too thin.
Management Span of Control can be used to identify pockets of the workforce where a specific structure can work better than others. The organization can adjust and optimize by increasing span of control where workers performer better with less management intervention or decrease span of control with entry level workers who need more guidance.
Using span of control, especially in large organizations, can uncover significant opportunities for cost savings, increased efficiency and productivity improvements over time.
Third Metric: High Performance Turnover Rate The real key to turnover rates, in good times or bad, is how many high-performing employees are leaving the company. This can be calculated by dividing the total number of high-performing employees that terminated in a given period by the average high performer population at the organization over the same period. Without accurate calculations to identify the true cost of turnover, and how it varies between performance levels across segments of the workforce, organizations don’t have the right information for data driven decision making and launching intervention strategies.
The key questions to ask yourself are: ”What is our high-performer turnover rate?’ and, “What percentage of our best people are we losing?”
The key is to track a metric that not only tells you about your organization, but that is also predictive. Turnover alone only tells you how many employees you’ve lost. High Turnover Rate indicates the value of that loss; it’s predictive of pure talent loss. If your overall turnover rate is only 4%, but your high-performer turnover rate is 8%, you’re bleeding talent.
Fourth Metric: Career Path RatioCareer Path Ratio shows the rate of upward movement versus lateral movement in an organization. If you think of organizations as a pyramid, there is a limited amount of up, but there’s an almost unlimited amount of over. There is a great deal of transfer capability for many different professional and executive roles. This is a very low cost way to enhance and build workforce capability over time, and stretch and challenge workers with a minimal increase to workforce costs.
Career Path Ratio is calculated by dividing total promotions by total movement at the organization. This metric combines two important measures that reflect mobility together into one metric that is more meaningful: total promotions and total transfers. If the ratio is close to 1, then it means the organization is either doing too many promotions, or it’s not doing enough transfers. Career Path Ratio can be calculated at an aggregate level for the entire company, business unit, or by position group.
Analyzing Career Path Ratio in combination with employee retention and performance enables companies to identify linkages between mobility and drivers of critical workforce issues. Identifying true drivers of engagement, performance, and retention allow organizations to use mobility to shape results and improve workforce productivity and business performance, while effectively managing workforce costs.
Fifth Metric: Talent Management IndexTalent Management Index is a combination of metrics that work together holistically across the entire employee lifecycle. It allows organizations to evaluate and analyze talent management practices for recruiting, mobility, performance management, training and development, and turnover and retention. Tracking Talent Management Index also enables organizations to hold all levels of management accountable for management practices and quality by measuring effectiveness of hiring practices, success of training and development efforts, and cost efficiency.
While many metrics could potentially be included in an organization’s Talent Management Index, below are five recommended metrics, several of which are also included in our top five metrics for workforce analytics:
- New Hire High Performer Rate. It’s calculated by the percentage of new hires, rated by individual organization standards, as high-quality, high potential or high-performing employees.
- Percent of High Performers. It measures the percent of the population that is rated as high performing. The best use of this metric, when calculated as part of Talent Management Index, is on an individual manager basis to hold management accountable for nurturing and developing the organization’s most promising talent.
- Career Path Ratio. It measures relative upward and lateral mobility at the organizations. For optimal use, it should be calculated by individual manager.
- Total Cost of Workforce. It may be hard to see how cost of workforce relates to talent management; however, the best managers are able to achieve better results while reducing overall workforce costs. They build, rather than buy, the best talent.
- High Performer Turnover Rate. This metric allows organizations to measure management effectiveness in retaining top talent at the organization. This metric should also be calculated on an individual manager basis. For effective talent management at any organization, the focus should always be on identifying, grooming, managing and retaining top talent. The power of the Talent Management Index lies in evaluating individual managers and making targeted improvements for overall organizational performance and productivity through effective talent management practices.
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Summary:The potential of these top five metrics is significant, and the greatest value can be achieved when they are linked to financial metrics, such as revenue or profit for FTE, for example. By leveraging key metrics to predict future outcomes, organizations have the ability to identify potential issues before they become too problematic, calculate the financial impact, and formulate a strategy for intervention.
Reprinted with the permission of Human Capital Management Institute (HCMI) and Human Concepts. Co-authored by Jeff Higgins, Grant Cooperstein and Moun Peterson of HCMI, and Katy Colletto of Human Concepts. For more information, visit www.hcminst.com and www.humanconcepts.com.