Human Resource leaders who have embraced analytics have the advantage at budget time. Rather than the usual tussle with Finance over the HR department’s headcount and the costs of implementing and maintaining HR processes, people analytics give us the tools to step into the conversation speaking the language of finance with cost justifications and ROI figures.
The end of June marks the end of the financial year for Australian companies and many others around the globe. Last week an HR Manager asked me how to justify her HR department’s headcount and costs. This week we’re digging into her data. Is this the year you’ll be ready to talk dollars, risk and ROI with your CFO? If you need more data to support your budget preparation, here are a few places to look.
No increase in staff ≠ no recruitment
There isn’t a budget line item for the cost of unplanned turnover but it’s a business reality. Every year there are promotions, transfers, exits and the need to replace existing positions. Doing this well requires time, people and other resources. The analysis of historical attrition, vacancy chains and inflow/exits of staff sets the baseline for recruitment activity. Costs and time can be attached to each aspect of this employment churn.
Fixed vs. variable employment costs
Forget looking at salaries to estimate workforce utilization costs. Your salaried and regular staff make up only one aspect of the labour costs. You need to add in the variable costs of overtime, casual and contract labour, and consultants paid through accounts payable to have full understanding of the cost of labour to keep the organisation running at its current level. If variable costs run consistently high over the previous periods, embedding that work into your full time employment roster as additional FTEs or fixed term contracts will save money. This insight will also spark discussion about whether it’s best to buy, build or rent your talent.
Quality of hire vs cost of hire
When it comes to the recruitment process, it is rich with dollar figures and data to ensure you can optimize your hiring costs. But in the effort to reduce time to hire, avoid paying agency fees or being unable to justify the cost and use of assessment tools, are these cost savings at the expense of attracting and retaining the best performers? Unfortunately, the answer for many HR departments is ‘…we don’t know’. Even fewer analyse the link between the recruitment costs and performance measures at 1, 6 and 12 months post hire. You may be getting talent on board quickly and cheaply but it may be at the cost of retention or performance which could ultimately be costing you more money. What is your business case for changing your recruitment expenses next year and how will it create a greater ROI?
Do you know who is leaving?
Forget vanilla turnover stats. Start measuring who is leaving – high performers, mission critical staff, talent pool participants, low performers – to understand whether you have a net talent gain or loss at the end of the year. In addition to their impact on productivity, who leaves is also a comment on the strength of your corporate culture and the strategic alignment of your HR practices and corporate priorities. Segment your data to uncover trends and to pinpoint interventions required to retain key talent.
Every company strives to be an employer of choice in their field. Building a high performing and engaged team requires the development and execution of strategic talent practices and interventions. What training, mentoring and leadership development programs are planned for the coming year and how will you use lead indicators to measure the ROI?
Are you ready to belly up to the bar and put your cards on the table with the CFO? If this budget season has passed you by, now is the time to take those first steps towards evidence based decision making. Start with the data that is readily or easily made available to help quantify the impact of your HR practices. As you begin to measure and cost your HR activities, you will be able to identify patterns and trends around which you can build your business case for change.
It’s time to embrace your new budget super powers and leverage HR’s bottom line impact on business outcomes.