Introduction to Human Resource Metrics

Amanda is the human resources manager of Allied Manufacturing. The HR

department at Allied Manufacturing generates costs but does not generate any
revenue. Because of this, Amanda's department is constantly under pressure to
demonstrate its value to the organization. She has been tasked with the
challenge of justifying the amount of money that the company spends on the
human resources function. Amanda will use human resources metrics as a tool
to justify the expenses that her department incurs.
Human resources metrics are different measurements that are used to show
the value that the human resources function provides to the organization. These
measurements demonstrate how effective the efforts of the human resources
department are to the overall success of the organization.
Types of Human Resources Metrics
There are three types of human resources metrics:
➢ Metrics that measure the effectiveness of the human resources function
➢ Metrics that measure the efficiency of the human resources department
➢ Metrics that measure the effectiveness of the employees within the
organization
Importance of HR Metrics
Human Resources, also popularly known as the people’s department of an
organization serve as a link between an organization and its employees. The
Human Resources Department of an organization is in charge of all employees
and employee-related functions. Taking care of an organization’s most valuable
asset, they ensure that the employees have everything they require to perform
day-to-day tasks and are responsible for creating a healthy work environment
that attracts and retains qualified people based on certain HR metrics.
It is important to track the company’s human capital and measure how effective
human resources initiatives are. Here are 8 of many points describing the
importance of HR Metrics and Analytics:
❖ Compare expectations to actual results –
Once you have set a standardized metric result, the employees know what they
are being compared against and the HRs know what each of the results mean.
By comparing the set standards or expectations with the actual results, gaps can
be identified, analysed and worked upon. In order to fulfil the gaps, the
necessary actions must be taken by HRs.
❖ Quantify the quality –
With the help of HR metrics and analytics, quality of the work being done can be
quantified. As the quality is being described in numerical terms, reports can be
prepared for performance review, future predictions and other results in order
to be analysed to make the necessary changes in the organization
❖ Know the ‘what’ to find out the ‘why’ –
Before knowing why something went wrong or why expectations were not met,
it is crucial to find out what went wrong and which piece of data suggests that.
Knowing the result helps understand a part of behind-the-scenes, and the
possible factors having an effect on results. Deeply comprehend the data before
coming to a conclusion, because once the patterns are highlighted, HRs can
make better future decisions
❖ Strategize –
Research shows data-driven strategies show better results than randomized
strategies. Before deciding strategies for any particular department, it is
extremely crucial to comprehend the main reason for implementing those
strategies and predict the outcome, more importantly the long-term effects of
the implementation. When used strategically, HR metrics can transform how HR
operates, providing team insights and allowing it to actively contribute to the
organization’s goals
❖ Make informed decisions –
Based on historical data and the results from HR metrics, HRs find it easier to
choose between options in order to make an informed decision. As they weigh
the pros and cons of the options and understand the opportunity cost between
different potential decisions, they find more clarity in one choice compared to
the others depending on the findings from HR metrics. By collecting and
analysing the relevant data, important decisions can be backed by logic and
practicality to be made in support of the company.
❖ Improved training –
Once the company has sufficient data to analyse and identify the gaps in the
organization, especially in employee performance, HRs and department
managers work on the training process to enhance the output. Both, the
company as well as the employees benefit from different training techniques.
Changing the perspective on training is an important part of helping employees
put in their best efforts, a training technique that has not worked in the past
might do wonders for just one employee in a company

❖ Increased productivity –
Research shows enterprises investing in training programs based on the gaps in
HR metrics and analytics get a better Return on Investment (ROI) than
enterprises investing in training programs based on improper and inaccurate
data. It helps organizations know whether all employees are making full use of
the opportunities and knowledge provided to them during the training
programs. Expectations can be easily fulfilled once they are communicated
directly to the employees and if they are being trained with the end goal in mind

❖ Better employee experience –

HR metrics and analytics help enhance the employee experience by motivating
them to work towards their personal and professional goals together. As the
organization helps employees fill in the gaps in terms of work, the employees
realise the value that is added to their life while continuing to work towards
enhancing the company’s value. When the company focuses on making the
employee experience better, employees focus on putting their best foot forward
to help the company reach greater heights, making it a win-win situation.
The success of an organization depends on the performance of its workers;
therefore, it is important to measure their performance from time-to-time in
order to make a decision that benefits the company and employees, both.
Organizational psychology helps apply psychological principles to all employees
in an organization with the main goal of maintaining organisational performance
while focusing on employee well- being. Although, it is important to measure
and analyse HR metrics, it is also necessary to keep in mind other factors that
might affect the employee’s productivity and perspective about the
organization
 What metrics should HR measure?
The most important HR metrics and formulas should measure by HR are
as follows –

Measuring too many metrics can waste a lot of your time. Not all metrics
are very useful! To help you focus your attention on the areas that
matter, here are six of the most important HR metrics you should be
measuring.

➢ Cost Per Hire –

Understanding how much it costs you to recruit one person can be very
helpful. It can help you isolate and test different parts within your
recruitment pipeline, so that not only do you find out which techniques
are bringing you the best candidates, but you also find out where to make
cost savings for your business

➢ Turnover –
Measuring staff turnover helps you understand whether your retention
strategies are working. You can go one step further than measuring
overall employee turnover, too. For example, you might want to track the
turnover of different demographics and roles. This can help you adjust
your retention strategy in a more targeted way

➢ Absence –
Tracking absence gives a good indication of how productive your existing
workforce is. While it doesn’t tell you how productive your employees
are during their active hours, it certainly tells you how many hours they
are putting into the business. Your HR system should give you tools for
tracking absence. For example, you might be able to use your HR
software to track employees’ Bradford Factor scores. This helps you
measure more problematic patterns of absence

➢ Job Satisfaction and Engagement –

It is good to know how your employees are feeling at work. This could
help you to understand whether or not your employees are giving 100%
happier employees tend to produce better results. There is a lot of
debate on how to track job satisfaction and engagement. One simple
 method is to conduct a survey asking employees whether they look
forward to coming to work most days

➢ Performance –
You can measure and track performance by conducting appraisals and
performance reviews. To get a better picture, make sure you include 360-
degree feedback, rather than one-sided feedback from direct managers.
You should also act on the information you learn. Appraisals that gather
dust 11 months out of 12 are not much good

➢ Training Expenses per Employee –

The total cost of your organization’s training courses and programs
divided by the total number of employees

Examples of HR Metrics
Recruitment –
➢ Headcount: The total number of employees in your organization or
within a specific department you may be tracking.
➢ Demographics: The characteristics of your workforce such as age,
gender, education level, and length of service.
➢ Time to Hire: The average number of days between when a job is posted
and when a candidate accepts your offer.
➢ Acceptance Rate: The number of offer letters your organization extends
divided by the number of candidates who accept an offer.
➢ Cost per Hire: The average cost of hiring a new employee. You can
generate this number by adding up both internal and external hiring
costs then dividing that total by the number of employees you hired in a
given period.
➢ Time to Productivity: The time it takes for new hires to become
acclimated at your organization and start working at full productivity.
➢ New-Hire Turnover: The number of new hires who leave within a set
period of time, such as within their first year of employment .
Employment –
Engagement & Retention
➢ Employee Satisfaction: The number of employees who would
recommend your company as a good place to work versus the number of
employees who wouldn’t, indicating overall employees’ satisfaction
➢ Total Turnover Rate: The number of employees who leave your
organization within a given period of time divided by the average number
of total employees (then multiplied by 100 to come up with a percentage).
➢ Voluntary Turnover Rate: The turnover rate including only those
employees who leave your organization voluntarily.
➢ Talent Turnover Rate: The rate of turnover among your organization’s
high-performing and high-potential employees.
➢ Retention Rate: The opposite of your turnover rate in that you divide the
number of employees who remained in your organization over a given
period by the number of total employees.
➢ Retention Rate per Manager: The retention rate broken down by
individual teams and managers.

Employee Value & Performance

➢ Revenue per Employee: The total amount of revenue divided by
the total number of employees
➢ Performance & Potential: A nine-box matrix that allows you to
categorize employees according to their performance and potential
levels for better succession and leadership planning
➢ Employee Performance: You can track employee performance
through self-assessments, peer reviews, manager assessments, or
a combination of all three
➢ Goal Tracking: If your performance management software includes
goal tracking, you can see the goals employees have set, how these
goals connect to larger company goals, and the progress employees
have made
➢ Company Performance: A high-level comparison of how well
employees is performing versus how engaged and valued they feel
Training & Development
➢ Training Expenses per Employee: The total cost of your
organization’s training courses and programs divided by the total
number of employees
 ➢ Training Completion Rate: The number of employees who
completed a given training divided by the total number of
employees, then multiplied by 100 to get a percentage
➢ Time to Completion: The average amount of time it takes for an
employee to complete a given training program
➢ Training Effectiveness: There are several methods for measuring
training effectiveness, including running tests or assessments to
generate a pass/fail rate
HR Service & Software
➢ Ratio of HR Professionals to Employees: The number of employees
in your organization per HR professional on your team
➢ Cost of HR per Employee: The total amount your organization
spends on HR functions divided by the total number of employees
➢ HR Software Employee Participation Rate: The number of
employees who actively use your HR software divided by the total
number of employees, multiplied by 100 to get a percentage
➢ ROI of HR Software: There are several factors that contribute to the
ROI of your HR software, but the core formula is the difference
between how much the software costs your organization and how
much money it generates or saves your organization

What are Analytics?

Analytics is the science of analysing raw data to make conclusions about that
information. It helps a business to optimize its performance, perform more
efficiently, maximize profit, or make more strategically guided decisions.
There are several types of analytics like What happened (Descriptive Analytics),
Why something happened (Diagnostic Analytics), What is going to happen
(predictive analytics), what should be done next (Prescriptive Analytics).
Analytics relies on a variety of software tools ranging from spreadsheets, data
visualization and reporting tool, data mining programs.

Big data and Analytics

Big data analytics is the process of collecting, examining, and analysing large
amounts of data to discover market trends, insights, and pattern that can help
companies make better business decisions. This information is available quickly
and efficiently so that companies can be active in crafting plans to maintain
their competitive advantage.
Big data is characterized by the five V’s which makes data “big” and these are
Volume, Velocity, Variety, Variability and Value.

Stages in Data Analytics

Data analytics is the process of examining data sets in order to analyse and draw
conclusions from historical outcomes, increasingly this is done through the aid
of software such as dashboards.
There are five stages of data analytics which we will explore in this article.
➢ DATA MINING –
Data sets exist across many different types of mediums, and data mining is the
process of obtaining this information from a large amount of raw data, through
different open data sets. The two most common ways to do this are web
scraping and APIs
An API (application programming interface) is a program that is written
into a website by the web developer to collect information in a certain way or
format, to then be able to feed it into another program in a way that program
understands
Web scraping is the use of ‘bots’ which crawl through websites extracting
any useful data in its raw form from the code within that website. This is one of
the messiest ways to pull raw data sets from, and often the data has to be
reformatted at a later date to avoid copyright issues
➢ DATA CLEANING –
Ideally, data should exist in a uniform pattern, rows and columns with all data
sets being in the same format, however, for most sources of historical data being
pulled, this is not the case. Data cleaning is the process of data scientists either
manually or programmatically reformatting this data into the most economical
way for it to be able to be interpreted
➢ DESCRIPTIVE STATISTICS –
This is the initial analysis of the data, describing the main features of the
numerical and categorical information in summaries or via graphs. While this
step gives you preliminary information, without further investigation, the initial
summary can paint a deceptive picture to the true value of the results.
➢ PREDICTIVE ANALYSIS –
Now that the data has been collected and formatted into a useable state,
predictive analysis can take place. This is the process of using a form of advanced
analytic techniques to forecast the likely next step.
➢ PRESCRIPTIVE ANALYTICS –
With the results gained from the predictive analysis, marketers, along with the
businesses they represent, are able to use the prescriptive analytics step to
formulate a plan of attack when making business plans, backed by the
assuredness of a comprehensive data examination.

SUMMARY
The key to getting the most out of the data analytics process is by having a clear-
cut understanding of the questions that are required to be answered. Without
having an insight into the outcome, you want to achieve, it can be difficult to
extract the correct information during the initial steps.

Types of Analytics
The four types of analytics are usually implemented in stages and no one type
of analytics is said to be better than the other. They are interrelated and each of
these offers a different insight. With data being important to so many diverse
sectors- from manufacturing to energy grids, most of the companies rely on one
or all of these types of analytics. With the right choice of analytical techniques,
big data can deliver richer insights for the companies
Before diving deeper into each of these, let’s define the four types of analytics:

• Descriptive Analytics: Describing or summarising the existing data using

existing business intelligence tools to better understand what is going on
or what has happened
• Diagnostic Analytics: Focus on past performance to determine what
happened and why. The result of the analysis is often an analytic
dashboard
• Predictive Analytics: Emphasizes on predicting the possible outcome
using statistical models and machine learning techniques
• Prescriptive Analytics: It is a type of predictive analytics that is used to
recommend one or more course of action on analysing the data

Let’s understand these in a bit more depth –

➢ Descriptive Analytics –
This can be termed as the simplest form of analytics. The mighty size of
big data is beyond human comprehension and the first stage hence
involves crunching the data into understandable chunks. The purpose of
this analytics type is just to summarise the findings and understand what
is going on.

Among some frequently used terms, what people call as advanced

analytics or business intelligence is basically usage of descriptive statistics
(arithmetic operations, mean, median, max, percentage, etc.) on existing
data. It is said that 80% of business analytics mainly involves descriptions
based on aggregations of past performance. It is an important step to
make raw data understandable to investors, shareholders and managers.
This way it gets easy to identify and address the areas of strengths and
weaknesses such that it can help in strategizing.

The two main techniques involved are data aggregation and data mining
stating that this method is purely used for understanding the underlying
behaviour and not to make any estimations. By mining historical data,
companies can analyse the consumer behaviours and engagements with
their businesses that could be helpful in targeted marketing, service
improvement, etc. The tools used in this phase are MS Excel, MATLAB,
SPSS, STATA, etc.

➢ Diagnostic Analytics –
Diagnostic analytics is used to determine why something happened in the
past. It is characterized by techniques such as drill-down, data discovery,
data mining and correlations. Diagnostic analytics takes a deeper look at
 data to understand the root causes of the events. It is helpful in
determining what factors and events contributed to the outcome. It
mostly uses probabilities, likelihoods, and the distribution of outcomes for
the analysis.

In a time, series data of sales, diagnostic analytics would help you

understand why the sales have decrease or increase for a specific year or
so. However, this type of analytics has a limited ability to give actionable
insights. It just provides an understanding of causal relationships and
sequences while looking backward.
A few techniques that use diagnostic analytics include attribute
importance, principle components analysis, sensitivity analysis, and
conjoint analysis. Training algorithms for classification and regression also
fall in this type of analytics

➢ Predictive Analytics –
As mentioned above, predictive analytics is used to predict future
outcomes. However, it is important to note that it cannot predict if an
event will occur in the future; it merely forecasts what are the
probabilities of the occurrence of the event. A predictive model builds on
the preliminary descriptive analytics stage to derive the possibility of the
outcomes.

The essence of predictive analytics is to devise models such that the

existing data is understood to extrapolate the future occurrence or
simply, predict the future data. One of the common applications of
predictive analytics is found in sentiment analysis where all the opinions
posted on social media are collected and analysed (existing text data) to
predict the person’s sentiment on a particular subject as being- positive,
negative or neutral (future prediction).

Hence, predictive analytics includes building and validation of models that

provide accurate predictions. Predictive analytics relies on machine
learning algorithms like random forests, SVM, etc. and statistics for
learning and testing the data. Usually, companies need trained data
scientists and machine learning experts for building these models. The
 most popular tools for predictive analytics include Python, R, RapidMiner,
etc.
The prediction of future data relies on the existing data as it cannot be
obtained otherwise. If the model is properly tuned, it can be used to
support complex forecasts in sales and marketing. It goes a step ahead of
the standard BI in giving accurate predictions.

➢ Prescriptive Analytics –
The basis of this analytics is predictive analytics but it goes beyond the
three mentioned above to suggest the future solutions. It can suggest all
favourable outcomes according to a specified course of action and also
suggest various course of actions to get to a particular outcome. Hence, it
uses a strong feedback system that constantly learns and updates the
relationship between the action and the outcome.

The computations include optimisation of some functions that are related

to the desired outcome. For example, while calling for a cab online, the
application uses GPS to connect you to the correct driver from among a
number of drivers found nearby. Hence, it optimises the distance for
faster arrival time. Recommendation engines also use prescriptive
analytics.

The other approach includes simulation where all the key performance
areas are combined to design the correct solutions. It makes sure whether
the key performance metrics are included in the solution. The
optimisation model will further work on the impact of the previously
made forecasts. Because of its power to suggest favourable solutions,
prescriptive analytics is the final frontier of advanced analytics or data
science, in today’s term.
 Conclusion
The four techniques in analytics may make it seem as if they need to be
implemented sequentially. However, in most scenarios, companies can
jump directly to prescriptive analytics. As for most of the companies, they
are aware of or are already implementing descriptive analytics but if one
has identified the key area that needs to be optimised and worked upon,
they must employ prescriptive analytics to reach the desired outcome.

What are HR Analytics?

Human Resource analytics (HR Analytics) is defined as the area in the field
of analytics that deals with people analysis and applying analytical process
to the human capital within the organization to improve employee
performance and improving employee retention.

HR analytics doesn’t collect data about how your employees are

performing at work, instead, its sole aim is to provide better insight into
each of the human resource processes, gathering related data and then
using this data to make informed decisions on how to improve these
processes.

Benefits of HR Analytics
➢ Improved Hiring Decisions –
HR analytics helps HR professionals make better choices based on historical
data. Through HR analytics, the recruiter and hiring team can make data-driven
hiring decisions rather than "trusting their intuition" or "gut" and hoping for the
best.
An effective HR analytics tool can enable HR professionals to easily determine
the best candidates and hire them. For example,- if you hired 10 candidates and
four out of them belonging to a particular university could not qualify beyond a
level, perhaps you will not hire someone from the same university again.
HR analytics prevent you from making such mistakes. Moreover, it also allows
the recruiter to learn more about candidates through online databases,
applications, social media profiles, job portals, records, etc.
➢ Reduced Talent Scarcity –
Structured and stat-backed recruiting strategies provide the insights needed to
cast a more accurate hiring net to ultimately build a better pipeline. With the
help of HR analytics, it is easier to know whom to target for a particular position
when a requirement arises in the company.
It is easier to understand the type of person required, the knowledge required,
along other aspects that might be missed in a regular talent acquisition process.
When talent is scarce for a specific industry or role, it might seem that talent
isn’t there at all. The talent is there but finding it would require you to employ
new methods of attracting or searching for it.

➢ Improved Hiring Process –

Over a period of time, once the company has enough data to break down into
patterns, the company can then use it to make its recruitment process quicker
and efficient.
Hiring managers will know which positions in the company require what type of
talent, people, background, and experience, along with the type of people that
will not be suitable. Then it becomes much more elementary to target a specific
talent pool.
➢ Good Training –
Training is a necessity for any organization to constantly grow. Gaps in the
process of training can increase the cost to the company and give rise to
unwanted challenges. Various professional development programs offered by
companies, if not handled properly, can deplete a major chunk of the company’s
budget.
That is why it is highly suggested that enterprises invest in training by first
collecting big data and learning from the patterns. HR analytics can enable
enterprises to buy or implement accurate training programs.
It can help organizations to identify if employees are making full use of the
opportunities and knowledge given to them during training programs and if it is
even relevant for them or not.

➢ Better Employee Insights –

HR analytics help the company look at an employee's professional life by
tracking, sharing, and analysing performance-related data. This is why
companies track and record the behaviour of their employees with customers,
co-workers, and how they spend their time.
Furthermore, the employee's performance data could be used by the hiring
manager to identify great talent. This data not only provides more insights about
the employees but also shapes the strategies to boost employee morale,
retention, and engagement.

➢ Reduced Attrition Rate –

HR analytics can easily help identify and demystify the causes and patterns of
attrition among employees. It tells you the reason why employees leave and
why they stay.
The reasons could range from under-performance, lack of skills, overworking, to
low compensation, management issue, unsuitable work environment, and
more.
Understanding the exact reason behind your employees leaving your
organization sooner than expected can help you rectify the challenge and
connect with your employees better.
HR analytics helps in finding the gap areas where employees are finding difficulty
in meeting goals and targets. HR professionals can use various methods like
employee surveys, team assessments, exit and stay interviews to find out the
reason for attrition and map out strategies to retain them.

➢ Improved Candidate Experience –

Recruitment analytics help companies understand exactly what kind of talent
they are looking to hire. Since this understanding is backed with credible data,
this puts those organizations way ahead in the game to narrow down and attract
the right talent in a shorter span of time.
A shorter hiring process automatically gives a good impression to candidates and
gives them a better hiring experience. Simultaneously, this helps improve your
brand image, giving your enterprise an edge over competitors.

➢ More Productive Workforce –

Since enterprises have a grip on the kind of people to hire for a job, it becomes
easier to expect and better predict performance and productivity from
employees.
With analytics, you get an understanding of the workforce and, hence, know
what kind of environment, policies, and teams will make them work hard and
optimize company performance.