financial acumen for hr, presented at the 2014 tdrp annual conference
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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
HumanCapitalManagementInstitute
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8/10/2019 Financial Acumen for HR, Presented at the 2014 TDRp Annual Conference
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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.
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8/10/2019 Financial Acumen for HR, Presented at the 2014 TDRp Annual Conference
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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
HumanCapitalManagementInstitute
SaaS
Analytics
&
Workforce
Planning
Software
Consulting
Training
Benchmarking
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8/10/2019 Financial Acumen for HR, Presented at the 2014 TDRp Annual Conference
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QuestionsaboutFinancialAcumen
HumanCapitalManagementInstitute 4
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?)
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AskingtheRightQuestions
HumanCapitalManagementInstitute 6
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?
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8/10/2019 Financial Acumen for HR, Presented at the 2014 TDRp Annual Conference
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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?
HumanCapitalManagementInstitute 7
Introduction
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SHOWMETHEMONEY!
HumanCapitalManagementInstitute 8
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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8/10/2019 Financial Acumen for HR, Presented at the 2014 TDRp Annual Conference
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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
HumanCapitalManagementInstitute 9
Oops!
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8/10/2019 Financial Acumen for HR, Presented at the 2014 TDRp Annual Conference
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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
10 HumanCapitalManagementInstitute
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
HumanCapitalManagementInstitute 11
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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
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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)
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8/10/2019 Financial Acumen for HR, Presented at the 2014 TDRp Annual Conference
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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
HumanCapitalManagementInstitute 15
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8/10/2019 Financial Acumen for HR, Presented at the 2014 TDRp Annual Conference
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3
Steps
to
Financial
AcumenPreparation,
Preparation,
Jump
Already!
HumanCapitalManagementInstitute 16
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ContactInformation:
Human
Capital
Management
Institute
JeffHiggins,CEOjeff.higgins@hcminst.com
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
HumanCapitalManagementInstitute 17
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Appendix
18 HumanCapitalManagementInstitute
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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
Human Capital Management Institute
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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ReturnonHumanCapitalInvestment
Human Capital Management Institute
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
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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
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