Human Resources/Financial Impact

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Question
Q:- financial impact of human resource activities

Answer
financial impact of human resource activities


HRM evaluation approaches
summarizes
Attitude/Compliance

HR Auditing
HR Case Studies
Employee Attitude Surveys
Management by Objectives


Benchmarking/ Tracking

Competitive HR
Benchmarking
HR Cost Monitoring
Key HR Indicators
HR Satisfaction Surveys



Value Add/ Impact

HR Profit Center
HR Macro Studies
ROI methodology
Balanced Scorecard
Human Capital  Measures


Comparison of methods to measure HR contribution

Method Evaluation focus
Surveys Attitudes/Perceptions
HR Reputation Attitudes/Perceptions
HR Accounting Value of Skills/Capabilities
HR Auditing Efficiency/ Existence of Practice
HR Case Studies Qualitative Description with Data
HR Cost Monitoring Program/Function/Behavior Costs
Competitive Benchmarking Performance Measures/Practices
HR Key Indicators Program/Function/Behavior Measures
HR Effectiveness Index Multiple Key Indicators
HR Management by Objectives Goal Settings for HR Performance Measures
HR Profit Centers Profit Contribution of Programs/Services
HR Return on Investment Benefits vs.Costs



Human Resource Management are doing:
Recruitment Management
Workforce Planning
Induction Management
Training Management
Performance Management
Compensation & Benefits
Attendance Management
Leave Management
Benefits Management
Overtime Management
Pay slip Distribution
Timesheet Management
Employee Information/ Skill Management
Employee Survey
Exit Interviews & Process
Health & Safety
The main activities of human resource management
The areas that we would list are as follows:
● recruitment and selection
● learning and talent development
● human resource planning
● provision of contracts
● provision of fair treatment
● provision of equal opportunities
● managing diversity
● motivating workers to achieve improved performance
● employee counselling
● talent management
● employee wellbeing
● payment and reward of employees
● health and safety
● disciplining individuals
● dealing with grievances
● dismissal
● redundancy
● negotiation
● encouraging involvement and engagement
● adding value
● ethics and corporate responsibility
● knowledge management
● change management
● managing cross-cultural issues or international HRM.

HRM  FACTORS  TO CONSIDER
Revenue per Employee
Expense per Employee
Compensation as a Percentage of Revenue
Compensation as a Percentage of Expense
Benefit Cost as a Percentage of Revenue
Benefit Cost as a Percentage of Expense
Benefit Cost as a Percentage of Compensation
Retiree Benefit Cost per Retiree
Retiree Benefit Cost as a Percentage of Expense
Hires as a Percentage of Total Employees
Cost of Hire
Time to Fill Jobs
Time to Start Jobs
HR Department Expense as a Percentage of Company Expense
HR Headcount Ratio—HR Employees: Company Employees
HR Department Expense per Company Employee
Supervisory Compensation Percentage
Workers’ Compensation Cost as a Percentage of Expense
Workers’ Compensation Cost per Employee
Workers’ Compensation Cost per Claim
Absence Rate
Involuntary Separation
Voluntary Separation
Voluntary Separation by Length of Service
Ratio of Offers Made to Acceptances  

====================
Behavior Costing Approach
A dollar amount is assigned to specific behaviors, such as
Absenteeism
Turnover
Job Performance
Employee value is not measured, but rather the economic consequences of employees’ behavior is measured
=================
Controllable and Uncontrollable Costs
Controllable costs are those a firm can alter and decrease
Employee turnover due to the following is controllable:
Moving to another company for promotion opportunities
Moving to another company for higher pay
Moving to another company for career development
Employee turnover due to the following is uncontrollable:
Death
Poor-health conditions
Spouse transfer
====================
Costing Employee Absenteeism
Absenteeism is the failure of an employee to report to or remain at work as scheduled, regardless of reason
Statistical breakdown of employee absenteeism
Most employee absences are family related
Sickness accounts for only approximately 1 in 5 cases
Stress accounts for approximately 1 in 6 cases
Entitlement mentality also accounts for about 1 in 6 cases

=====================
Costing Employee Turnover
Three components of employee turnover costs:
Separation Costs
Replacement Costs
Training Costs
================
Separation Costs
The four components of separation costs are as follows:
Exit Interview
Interviewer’s time
Termination time
Administrative Functions Related to Termination
Removal of employee from payroll
Termination of employee benefits
Turn-in of company equipment
Separation Pay
Severance packages
Increase in Unemployment Tax
===================
Replacement Costs
Replacement costs consist of eight components:
Communication of job availability
Pre-employment administrative functions
Entrance interviews
Testing
Staff meetings
Travel and moving expenses
Post-employment acquisition and dissemination of information
Medical examination
===================
Training Costs
There are three elements of training costs
Informational literature
Employee handbooks
Instruction in a formal training program
Instruction by employee assignment
O.J.T
=======================
Financial Effects of Employee Attitudes
An attitude is defined as an internal state that focuses on particular aspects of an object in the environment
Attitudes include three main elements
Cognition
Emotion
Action tendency
=====================
Financial Effects of Work-Life Programs
Work-Life programs are company programs like the following:
Child and dependent-care benefits
Child and elder care
Flexible working conditions
Flextime, job sharing, telework
Leave options
Maternity, paternity, adoption leave
Information services and HR policies
Parenting classes, cafeteria benefits, health issues
====================
Organizational Cultural Issues
Supports the non-work lives of employees
Costing the Effects of Training Activities
Two types of measures of training outcomes exist:
Indirect Measures
Improvements in job performance, decreases in errors, time to break even
More common than direct measures of economic outcomes ($ gained or saved)
Direct Measures
Indirect measures can often be converted to economic outcomes through utility analysis
When direct measures are available, as in sales training or statistical process control, standard valuation methods are appropriate to determine the value of outcomes in dollars
===================
Financial Impact of High-Performance Work Practices
Employees are given information, skills, responsibility, and incentives to make important decisions
These practices require the following components:
Reliance on front-line employees
Treatment of workers as assets to be developed rather than costs to be cut
Worker-management cooperation to break down adversarial barriers
Use of technology to assist human beings and not vice versa
=================
The Link Between
Productivity and Profitability
The Gallup Organization found that four management behaviors seem to underlie productive work places:
Select for talent
Define the right outcomes
Focus on strengths
Find the right fit
=======
Key HR Metrics

 ==========











HR and Benchmarking
•   Benchmarking
   Comparing specific measures of performance to an industry standard or best practices in other “best-in-class” organizations.
•   Common Benchmarks
   Total compensation as a percentage of net income before taxes
   Percent of management positions filled internally
   Dollar sales per employee
   Benefits as a percentage of payroll cost
HR and the Balanced Scorecard
•   The Balanced Scorecard
   Uses a diverse set of performance measures to align performance efforts with organizational strategy.
   Avoids a limited focus on financial measures by focusing on long-term drivers of performance and organizational sustainability.
   Requires spending considerable time and effort to identify the appropriate HR measures and how they tie to strategic organizational success.
   Address three elements—accountability, validity, and actionable results.
 

 Human Capital Effectiveness Measures
•   Return on Investment (ROI)
   Shows the value of investments in HR activities.





A = Operating costs for a new or enhance system for the time period
B = One-time cost of acquisition and implementation
C = Value of gains from productivity improvements for the time period


Other Effectiveness Measures

Assessing HR Effectiveness

•   HR Audit
   A formal research effort that evaluates the current state of HR management in an organization
   Audit areas:
   Staffing
   Compensation
   Health and safety
   Legal compliance
   Administrative processes and recordkeeping
   Employee retention
   Benefits

HR  METRICS  IN   COMPENSATION
1.ANNUAL  TOTAL  COMPENSATION INCREASE RATE = INCREASE IN EXPENSE.[ LESS  PROFIT]

2.ANNUAL  TURNOVER  RATE  INCREASE
= INCREASE IN EXPENSE.[ LESS  PROFIT]

4.COMPENSATION & BENEFITS  AS  A  %  OF OPERATING EXPENSES.
= INCREASE IN EXPENSE.[ LESS  PROFIT ]

5.INCENTIVE  PAYMENT   AS  A % OF  TOTAL COMPENSATION & BENEFITS.
= INCREASE IN EXPENSE.[ LESS  PROFIT ]

6..NEW COMERS  COMPENSATION & BENEFITS      AGAINST TOTAL FOR  THE  YEAR.
= INCREASE IN EXPENSE.[ LESS  PROFIT ]

7.% OF  EMPLOYEES  SATISFIED  WITH CURRENT  SYSTEM [ SURVEY ]
[INREASE IN PRODUCTIVITY/ SALES/PROFIT]


8.MEDICAL BENEFITS  EXPENSES  
= INCREASE IN EXPENSE.[ LESS  PROFIT ]

=========================================
Overall Workforce Productivity
The very best measure of overall HR success is workforce productivity. Any HR department that takes responsibility for improving workforce productivity is sure to be a hero among senior executives. The key is to continually improve the ratio between the dollars spent on employee costs (wages, benefits and overall HR expenses) and overall company revenue.
Metrics in this category include:
9.Percentage improvement in workforce productivity. Improvement in dollars spent on people costs for every dollar of revenue/profit generated (as compared to last year)
= INCREASE IN SALES / PROFIT]

Employee Engagement
It's essential that you balance employee engagement with employee productivity in order to ensure that managers don't abuse or burnout their employees in an effort to maximize productivity. Both are important, and there are studies that demonstrate the impact of high engagement on productivity and a firm's success. Managers should be rewarded for both high productivity and high employee engagement scores.
Metrics include:
The percentage of employees who "look forward to coming to work" everyday
= INCREASE IN SALES / PROFIT

The percentage of employees who feel that their managers exercise expected management behaviors (from survey results relating to two-way communication, challenging and exciting work, exceptional growth and learning, recognition and reward, some degree of control over their job, and knowing that their work makes a difference)
= INCREASE IN SALES / PROFIT

Recruiting
Managers consistently rate recruiting among the top three things they expect from HR. Without overdoing it, here are some simple metrics that you can use to assess recruiting effectiveness:
Number of overall days that key positions were vacant (due to recruiting)
= INCREASE IN EXPENSE.[ LESS  PROFIT]
Average performance appraisal score of new hires (compared to last year for the same job)
IF SAME == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  MORE = INCREASE IN SALES / PROFIT


Manager satisfaction with new hires (survey hiring managers; compare results to last year's average)
IF SAME == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  MORE = INCREASE IN SALES / PROFIT


The turnover rate of new hires within the first year
IF SAME == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  MORE = INCREASE IN SALES / PROFIT

The percentage of diversity hires in managerial and senior positions
IF SAME == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  MORE = INCREASE IN SALES / PROFIT

The dollar impact of a bad hire in key positions
IF SAME == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  MORE = INCREASE IN SALES / PROFIT

Retention
Retention is also a highly rated management issue. In this case, most turnover measures are too simple. Potential metrics include:
Overall employee turnover
IF MORE == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT


Performance turnover in key jobs (where performance turnover means that top performer turnover is "weighted" more heavily and bottom performer turnover more lightly than average worker turnover)
Preventable turnover in key jobs (where a sample exit survey is used to identify the real reasons individuals left the organization and whether the turnover could have been reasonably prevented)
Diversity turnover in professional, managerial, and technical positions
The dollar impact of employee turnover in key positions
IF MORE == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT

Managers' overall satisfaction rate with HR's retention efforts and the impact of these efforts on team productivity (survey of a sample of managers)
Overall HR Costs
Even though overall HR costs are relatively small compared to all general and administrative expenditures, it never hurts to have a metric to ensure that the dollars spent in HR are resulting in a continuous rated improvement of workforce productivity.
Dollars spent on HR costs for every dollar of revenue generated (compared to last year)
IF MORE == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT

Manager Satisfaction
While many HR departments strive to assess manager satisfaction with HR, I offer caution. Because most HR people are great at building relationships managers seldom rate HR professionals low when they are asked directly whether they are satisfied with HR or their HR representative. However, if they are asked a different question relating to how satisfied they are with HR's impact on their business unit's productivity and success in reaching its goals, you quite often get a different less positive answer.
As a result, I recommend you use a forced ranked survey that includes not just HR but every individual overhead function. Within that survey managers are asked just one particularly important question: "Rate each of these individual overhead functions on how much they contributed directly to your business unit's productivity and its success at reaching its goals?"
The metric to use:
Average ranking of all individual HR functions in a manager survey where managers are asked to rate all individual overhead functions specifically on their contribution to productivity and in helping the manager to meet his or her performance goals
Dollar Impact of HR on the Business
Estimate of the overall dollar impact of HR as a result of last year's recruiting, retention and productivity improvement (ROI) efforts
Second-Tier Metrics
Compensation and Benefits
Rather than trying to use a statistical method to determine pay fairness, I recommend that you survey employees on their perceptions of pay fairness compared to work expectations.
The number of "cents" in total compensation and benefits costs that it took to generate a dollar of revenue (as an indication of compensation effectiveness, where this year's ratio would be compared to last years ratio)
Percentage of employees who are satisfied with their compensation (survey of a sample of employees on their satisfaction with the rewards and the expectations of the firm)
Percentage of employees who are rated in the top performance appraisal level and who are paid above the average salary for their position (and vice versa)
Percentage of the average employee's pay that is "at risk" based on the employee's on-the-job output
Percentage of top-performing employees who resigned for compensation-related reasons (using a post exit survey, identify the percentage of top performers who listed pay issues among their top three reasons for leaving)
Employee Relations
The metrics focused in the employee relations area analyze whether poor performing employees rapidly improve their performance or are terminated within a year.
Percentage of employees who report that they have a bad manager (based on an employee survey, comparing this year's percentage to last years)
Turnover percentage of low-performing managers and employees within one year of receiving the low rating
Percentage of low-performing employees who are on a performance management program.
Percentage of employees who are in any performance management program who improved at least one level on performance appraisal ratings within one year
Manager satisfaction with the impact of HR's employee relations efforts on their team's productivity (survey results of a sample of managers)
Training and Development
Although learning, growth, and development are critical to both performance and employee retention, few training departments focus on the type of development that managers and employees find to be the most effective: on-the-job training and assignments. As a result, the recommended training and development metrics focus on learning, development, and growth.
Percentage of employees who report that they are satisfied with the learning and growth opportunities provided by the firm (survey of a sample of employees)
IF SAME == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  MORE = INCREASE IN SALES / PROFIT

Percentage of employees who report that they are satisfied with on-the-job learning, project assignments for growth and development, and job rotations (survey of a sample of employees)
IF SAME == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  MORE = INCREASE IN SALES / PROFIT


Percentage of employees who report that they are in the leading edge of knowledge in their profession (survey of a sample of employees)
IF SAME == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  MORE = INCREASE IN SALES / PROFIT


Percentage of new hires that report excellent training opportunities among the top three reasons they accepted the job (survey of new hires in which they force-rank their job acceptance factors)
IF SAME == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  MORE = INCREASE IN SALES / PROFIT



Generalist Activities
In many HR departments a significant percentage of all HR services are provided by generalists. As a result, it's important to identify metrics that measure generalists' satisfaction and impact. Each of the individual generalist scores would be averaged to get the overall effectiveness of the generalist function.
Percentage of managers who are satisfied with generalists (survey of all managers who are serviced by generalists)
Average percentage improvement in workforce productivity (ratio of employee costs to dollar value of output) within the divisions that each generalist serves
Employee referral rates in their business unit, as an indication of employees' willingness to recommend others to the firm
HR Goals Met
HR departments frequently set unclear and unquantifiable goals at the beginning of the year, but they are seldom measured throughout the year and formally assessed at year end. In order to improve HR performance and ensure that HR professionals are focused on the appropriate goals and activities, it's essential that the goal assessment process be more formalized.
Percentage of top priority HR goals that were met or exceeded during the year (goals are set, quantified, prioritized, and approved by senior management at the beginning of the fiscal year)
HR Metrics
•   Absenteeism - Percentage of Employees

IF  MORE  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT

•   Absenteeism Combined Calculation

IF  MORE  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT

•   Absenteeism Rate Per Employee

IF  MORE  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT

•   Cost Per Hire

IF  MORE  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT

•   Full Time Equivalent (FTE) Calculation

IF  MORE  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT

•   Human Capital ROI

IF  MORE  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT

•   Human Resource Expense Factor

IF  MORE  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT

•   Human Resource Ratio

IF  MORE  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT

•   Labor Costs as Percentage of Revenue

IF  MORE  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT

•   Profit Per Employee

IF  HR  COST MORE  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF HR COST LESS = INCREASE IN SALES / PROFIT


•   Time To Fill

IF  MORE TIME  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS LESS = INCREASE IN SALES / PROFIT


•   Total Health Care Costs Per Employee

IF  MORE  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT ]
•   Training Costs Per Employee

IF  MORE  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT ]


•   Turnover Costs

IF  MORE  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT


•   Workers' Compensation Incident Rates

IF  MORE  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT ]

•   Workers' Compensation Severity Rate

IF  MORE  == INCREASE IN EXPENSE.[ LESS  PROFIT]
IF  LESS = INCREASE IN SALES / PROFIT ]
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Leo Lingham

Expertise

human resource management, human resource planning, strategic planning in resource, management development, training, business coaching, management training, coaching, counseling, recruitment, selection, performance management.

Experience

18 years of managerial working exercise which covers business planning , strategic planning, marketing, sales management,
management service, organization development

PLUS

24 years of management consulting which includes business planning, corporate planning, strategic planning, business development, product management, human resource management/ development,training,
business coaching, etc

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Principal---BESTBUSICON Pty Ltd

Education/Credentials
MASTERS IN SCIENCE

MASTERS IN BUSINESS ADMINSTRATION

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