predicting financial performance with human capital metrics webinar on 07/29/13

7/27/2019 Predicting Financial Performance With Human Capital Metrics Webinar on 07/29/13

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July 29, 2013

Human Capital Management Institute

Presents:

Predicting Financial Performance

with Human Capital Metrics

HUMAN CAPITAL

MANAGEMENT INSTITUTE


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About Human Capital Management Institute

HCMI Background:

Specialized in HR analysis &measurement

Deep expertise in Workforce Analytics &Planning

Board made up of CFOs and HR heads

What We Do:

Measure the immeasurable in humancapital

Transform workforce data into businessintelligence

Provide technology, consulting andtraining so HR can partner with Finance

2

SOLVE Workforce Intelligence Software w Strategic Consulting w Training

Best Practices w Workforce Analytics and Planning w Benchmarking

The Human Capital Management Institute (HCMI) was founded on the belief that organizations can andmust, find better ways of measuring their investments in human capital. Our vision of the future is one inwhich human capital measurement and information is as integral to business decision making asfinancial information is today.

We Bring Financial Discipline, Standards and Rigor to the HR Function



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HCMI Products and Services

Human Capital Financial Statements Human Capital Impact Statement

Human Capital Asset Statement

Human Capital Flow Statement

Workforce Quantifier ROI Calculator

ROI of Workforce Decisions

Cost of Turnover, Workforce Cost , Cost per Hire

Business Case for HR Interventions

Data Integration Blueprint Modular Talent Management Components

Detailed Data Dictionary + Metric Formulas

Key Analysis Segments and Dimensions

Human Capital Metrics Handbook Over 600 Metrics and Detailed Definitions

More than 100 KPI and Best in Class Metrics

Unique Metrics that Monetize Human Capital

Workforce Planning Link Workforce and Financial Metrics

Advanced Retirement Calculator

Forecast Skills, Costs, Talent and Productivity

CorrelationCoefficient(0-1)

FactorsLeadingto IncreasedTurnover

Job Title orPosition

Dissatisfaction With Compensation

High vs.Low TurnoverManager

Commute Distance

Driver#3

Driver#2

Driver#1

.50

.33

.27

.02

LowTurnoverImpact

HighTurnover

Impact

Some

TurnoverImpact

.11

WorkLocation

Numberof Jobsin Last3 Years .70

Hi red T hrough Empl oyee Referra l .19

Job Framework Mapping Integrated Taxonomy 15,000+ jobs

Map Critical Job Roles

Workforce Capability Assessment

Data and Systems Capability + Risk Analysis

Human Capital Measurement Standards

Span of Control Optimizer Tool Benchmark and Optimize Spans

Optimize Management Layers

Career Path Quantifier ROI of Career Path

Build, Buyor LeaseTalent Analysis

Analytic Engagement Projects High Performer Profiles

Engagement ROI and Sales Impact

Turnover and Retention Driver Analysis

Initial Reports&

Analysis

Data Gathering

First Good

Metrics

HR Data Warehouse

Drill-down,standardreportsScenarioAnalysis

ExternalBenchmarking

Contextfordecisions

Data

Driven Decision

Making!

Turnover,Headcount,Hiring

HRISsystem data

C

OEFormation

Data Errors

HR AnalyticsMandate

HR StandardsEstablishedLostHR

Credibility

HR data/systemsAssessed

HR Data Cleansedhistoricaldatascrubbed

Bus.Units

RejectAnalysis

Data Errors

Historicaldatastillbad

1stAnalyticsStudy

Advanced

AnalyticStudies

HR AnalysisValidated

Integrated HR

Databases

COELaunches

TrainingCourses

Bus. UnitsDemand

more

Analyticsjourneysteps

Setbacksalongthe way

Journeypathand goal

HR Roadmap Design Step by Step Actionable Deliverables and Insights

Map for, Systems, Data, Tools, Skills, Metrics + more

Training and Advisory Support Expert Guided Standard and Customized

Ongoing Advisory Support Services

Beginning and Advanced Training

SOLVEWorkforce Intelligence Software Integrated Dashboard, Advanced Tools, Metrics,

Data Blueprint and Predictive Modeling

Automated Completion of HCFS

Statistical Sales Predictor Predict Revenue by Economic/Workforce Factor

Link to economic drivers to workforce metrics

Human Capital Management Institute 3


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Measuring Human Capital



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Value Creation in Todays MarketplaceAre we focused on managing the right things or just managing what we know how to manage?


Intangible Capital ValueIn the Post Industrial Marketplace

Market value Is driven primarily byfactors that do not show up on abalance sheet. The largest beingIntellectual or Human Capital*.


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The Challenge of Measuring Human Capital

Compensation

Transfers

New HireTurnover

SuccessionData

Turnover

Training

Recruiting

EmployeeDat

a

Benefits

Span

of Control

Workforce

Planning

SuccessAdvanced

Analytic

Insights

Complexity of Workforce Data

Employee/Full-Time-Equivalent (FTE)

Jobs/Roles/Skills

Time - Tenure

Compensation ($ vs. Equity)

Frequency of Change

Promotions, Transfers, Hires,Terminations

Jobs/Roles/Skills

Time - Tenure

Measuring the Intangible

Lack of Standards

Lack of Analytic Skills



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Workforce Planning vs. Workforce Analytics


Workforce Analytics

Workforce Planning

Present

Future

Past

Predictive Analytics

Trend Analysis

Workforce

Knowledge

Key

Performance

Indicators

Workforce Optimization

Future Scenarios

Workforce Planning

Planning and Analytics

Workforce Analytics

Workforce Planning and Analytics LinkageStrongWorkforce Analytics insights enable

future Workforce Planningsuccess.
http://images.google.com/imgres?imgurl=http://www.uiwp.uiuc.edu/porfolio_2008/erin_ludwick/BOOK.jpg&imgrefurl=http://www.uiwp.uiuc.edu/porfolio_2008/erin_ludwick/index.html&usg=__t-8VjUtG2hj0LmCE6OlCD3X5rpE=&h=435&w=700&sz=175&hl=en&start=1&sig2=nynuujnvKezjTJTPWKh2uQ&um=1&tbnid=q53S-NcvStTlnM:&tbnh=87&tbnw=140&prev=/images?q=open+book&hl=en&um=1&ei=zhIVS6OPA4e6tAO1sJiIBA


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Human Capital Financial Statements (HCF$)

Greater Transparencyinto an organizations greatest asset: theworkforce

A Method to Value Knowledge Capital: measure knowledge capital,the 80% of market capitalization not captured by traditional financialstatements

Improved Investment Decisions: better information = moreinformed investment decisions

Standards in Human Capital Measurement and Reporting:enable advanced benchmarking capabilities for industry, geographic,specific job roles and more

Definitive Methodology for Quantifying WorkforceProductivity: quantifies productivity and talent management impactacross the talent management lifecycle

True Linkage of Human Capital to Financial Results

Deliver HR Value with Human Capital Financial Statements:



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Analysis Overview



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Background


Analysis Period:

1996 - 2011Sectors:

12 Primary IndustriesSample Size:

22,100 Companies

Primary Human Capital Metrics Analyzed:

- Human Capital ROI Ratio - Return on Human Capital Investment - Total Cost of Workforce

- Total Cost of Workforce Percent of Revenue - Total Cost of Workforce Percent of Expenses

- Profit per FTE - Revenue per FTE

1. Accommodation & Food Services 2. Admin Support & Waste Management Services 3. Arts & Entertainment

4. Finance & Insurance 5. Health Care 6. Manufacturing 7. Mining 8. Professional, Scientific & Technical Services

9. Real Estate, Rental & Leasing 10. Transportation & Warehousing 11. Utilities 12. Wholesale Trade

Industries:

Focus: Year-over-year changes in human capital metrics and business performance.

Primary Hypothesis: Financially successful businesses (those that have risingshare prices which are higher than competitors) have flexible and adaptable humancapital programs.


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11

Do Human Capital Metrics Predict Stock Price?

A 10% gain in human capital metrics drivesstock price gains of 3% to 19%

Total Cost of Workforce (TCOW) is superior to

headcount metrics (i.e., FTE)

YES! Select human capital metrics predict stock price change for companies

across 12 industry sectors !

New metrics reveal surprise productivitywinners and losers

63.9%59.4% 59.1% 57.0%

53.0% 52.6% 52.0%49.6%

47.2% 45.2%

35.6% 35.2%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%


HC Metrics Correlation to Future Stock Price Changes (R-Squared)


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Analysis Highlights



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Traditional Financial Performance


Highlights:

Finance & Insurance, Wholesale Trade, Transportation and Utilities improved

Accommodation & Food Services, Arts & Entertainment and Healthcare lag

Surprise - Transportation


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Is the Productivity Real?


While revenue and profit per FTE are commonly used metrics, they are by no means the best

predictors of financial success. This is because they only show changes in revenue and profitrelative to headcount rather than showing cost changes in the workforce overall.

Historically the assumption has been made that measuring headcount is a good proxy formeasuring cost of workforce, however as our analysis and the below example illustrates, this is afallacy.

The Case for TCOW:

For example, an organization with 100,000 employees at the end of 2010 and 100,000 employees at the end

of 2011 would appear to have effectively controlled workforce cost by managing total workforce headcount.

However, due to increases in benefits, wages, and changes in the workforce such as bonuses, promotions and

mix of jobs hired, organizations with flat headcount growth can easily (and often do) experience 10% or

greater increases in Total Cost of Workforce (TCOW).


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A New Relationship: Better Productivity Metrics


Contrary to the previous revenue and profit per FTE metrics, not all sectors improved duringthe analysis period.

Finance and Insurance and Arts & Entertainment both declined from 1996 to 2011.

Highlights

SURPRISE Finance &Insurance, is going thewrong way!

By these measures,Mining is a Big Winner

Most sectors areclustered


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Mining 2012 Update


However, Human Capital ROI Ratio and

Return on Human Capital Investmentdecreased 45% and 20% respectivelyfrom 2011 to 2012

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Dollars

(Thousands)

Year

Mining - Traditional Financial Metrics

Median Revenue per FTE Median of Profit per FTE

-

1.00

2.00

3.00

4.00

5.00

6.00

Ratio

Year

Mining - Workforce Productivity Metrics

Median Human Capital ROI

Median Return on Human Capital Invest.

Revenue per FTE increased 22%from 2011 to 2012, almost nochange in Profit per FTE


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Stock Price and HC ROI Ratio CAGR


Highlights

Rate of Change: CAGR vs. Actuals

Macro Economic Variables Must be Considered

Insight: Relative Company Performance


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Financial Services & Insurance BreakdownRevenue and Profit per FTE

Highlights

Commercial & SavingsBanks are middle of thepack

Sales Financing (i.e. GECapital), + InvestmentBankinglook like stars

Who is falling behind?

2011 Performance



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Financial Services & Insurance BreakdownHuman Capital ROI Ratio, Return on Human Capital Investment

Highlights Sales Financing is a top

performer (i.e. GE Capital)

Investment Banking is aSurprise from 1996 - 2011

21.8% Revenue per FTE Gain

(-29.2%) Human Capital ROIRatio Loss

(-19.0%) Return on HumanCapital Investment Loss

2011 Performance


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Note: in USD $$ Data for 2010, 2011 and 2012 Years KPI = Key Performance Indicator TCOW= Total Cost of Workforce FTE = Full Time Equivalent

Case Study: Productivity Metrics ComparisonBank of America, Wells Fargo and HSBC

2012 Financial KPIs 2010 - 2012 KPI Change Rate

2010 2012 Productivity


1 2

3

No Clear Winner

Wells and HSBC

Outperform BofA

Wells Looks Like

the Star


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Summary



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Superior Metrics to Manage Human Capital


Overall, high-performing sectors seem to enjoy one or more of the following factors:

1) Lower human capital intensity

2) Greater potential and to increase revenue and profits without equivalent increases in humancapital costs.

3) Increased demand and/or pricing for commodities (see Mining and Utilities) due to globaldemand, industry deregulation, or other factors.

4) Substantial automation of one or more core human capital labor elements.

Market Share Example:

Average Stock Price = $60/Share Shares Outstanding = 35 Million

5% increase in HC ROI Ratio and Return on HC Investment 5% Decrease in TCOW Percent of Revenue

Projected Value Creation (Market Cap) = $116.6 Million

Includes Accommodation & Food Services, Transportation & Warehousing and Transportation, Support & Waste Mgmt Services


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Human Capital ROI Ratio

HC ROI Ratio = (Revenue (Total Expenses - Total Cost ofWorkforce)) / Total Cost of Workforce


Description:

Net operating profit impact of each dollar invested in human capital.

Note: It is recommended that the metric "Total Cost of Workforce", which includes the total costs of employeesplus all contingent headcount (contract and temporary workers), is used in calculating Human Capital ROIRatio. If Total Cost of Workforce detailed information is not available, this metric may also be calculated usingthe total costs of employees as an alternative.

Best Use:

Organizations tracking Human Capital ROI Ratio can effectively measure the linkage of overall trends inmarket value over time (for publicly traded or other organizations for whom a relative market value isobtainable). Ideally, this metric should be used for long term strategic predictions rather than short termmeasurement as market value can fluctuate dramatically due to uncontrollable events as well as industry andmarket changes.


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Return on Human Capital Investment

Return on HCI = Total Operating Profit / Total Cost of Workforce


Description:

Return on Investment (Profit) expressed as a percentage of the total dollar amountinvested in human Capital.

Best Use:Organizations tracking Return on Human Capital Investment can effectively measure the linkage of overalltrends in market value over time (for publicly traded or other organizations for whom a relative marketvalue is obtainable). Ideally, this metric should be used for long term strategic predictions rather than shortterm measurement as market value can fluctuate dramatically due to uncontrollable events as well asindustry and market changes.


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Should include:

Employee compensation (salaries/wages, incentives, overtime, + equity & other pay)

Contingent temporary/contract labor (costs)

Employee benefitsand perks (costs)

HR function (costs, e.g., recruiting, training & support)

Retireeor inactive workforce costs (costs)

Total Cost of Workforce (TCOW)

Total Cost of Workforce =

Total Compensation Costs +

Benefits Costs +

Other Workforce Costs



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Next Steps


l


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SOLVE: Analytics in 3 Easy Steps

29 Human Capital Management InstituteSource Systems

1. Load data

2. Run Scenarios for ROI and Intelligence

3. Save and Present Results

Data Integration

Blueprint

Dashboards

HumanCapital

FinancialStatements

Metrics

Analytics w ROI

HRTransactions

Standards

Workforce PlanningSOLVEWORKFORCEINTELLIGENCESOFTWARE


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What you Get withSOLVE

CEO/COO CFO

CHRO

HR Function Leads

CIO

Workforce Productivity

ROI of the Workforce

Human Capital Financial Statements

Tools to Control Workforce Cost

Automatic HR Data Warehouse

Data Integration Blueprint

Integrated Talent Mgmt Scorecard

HR Power Tools (i.e. ROI Calculator)

HR Talent Management Dashboards

Workforce and HR KPI Metrics



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SOLVEOverview

Step 2) Scenario Manager

and SOLVE Wizard

Step 4) Workforce ROI

Step 5) Workforce Planning

Step 6) Career Path

Step 3) Human Capital

Financial Statements

Step 7)

Drill to Detail

Step 8) Advanced

Index Metrics

(In Development)

Step 9) Location

Optimization

Step 1)Dashboards

Step 1) Analyze workforce trends andidentify opportunities.

Step 2) Manage scenarios, set projections

leveraged across all tools.

Step3) Model Detailed TCOW, RCOW,

Productivity and Human Capital ROI.

Step 4) Calculate cost savings and ROI.

Validate scenario feasibility. ProjectRevenue, Profit, TCOW and Total Comp.

Step 5) Forecast and plan multiple

scenarios, drill into position groups andlocations. Identify pain points. Model HC,skills, cost productivity and talent.

Step 6) Calculate ROI of Career Paths.

Step 7) Drill to detail for specific locations,job groups and business units.

Step 8) Configure custom index metrics toanswer tough talent management questions.

Step 9) Model relocation analysis to

optimize workforce costs at the Location,location and position level. Includesexternal supply analysis and benchmarks.



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Question and Answer



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Contact Information:


Joseph Morrissey, VP Sales

[email protected]

Grant Cooperstein, VP Analytics

[email protected]

For more information about the following products and services, please visit the links below:

SOLVE Workforce Productivity Reports Human Capital Financial Statements

Training Human Capital Metrics Handbook Thought Leadership

Workforce Intelligence

Consortium Group@HCMI

http://www.hcminst.com/mailto:[email protected]:[email protected]://www.hcminst.com/products-services/solve-hr-management-software/http://www.hcminst.com/http://www.hcminst.com/products-services/human-capital-financial-statements/http://www.hcminst.com/training/http://www.hcminst.com/products-services/human-capital-metrics-handbook/http://www.hcminst.com/thought-leadership/human-capital-management-white-papers/orgplus-total-cost-of-workforce/http://www.hcminst.com/thought-leadership/human-capital-management-white-papers/orgplus-total-cost-of-workforce/http://www.hcminst.com/thought-leadership/human-capital-management-white-papers/orgplus-total-cost-of-workforce/http://www.hcminst.com/products-services/human-capital-metrics-handbook/http://www.hcminst.com/training/http://www.hcminst.com/products-services/human-capital-financial-statements/http://www.hcminst.com/products-services/human-capital-financial-statements/http://www.hcminst.com/http://www.hcminst.com/http://www.hcminst.com/products-services/solve-hr-management-software/mailto:[email protected]:[email protected]://www.hcminst.com/

predicting financial performance with human capital metrics webinar on 07/29/13

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