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Balance Scorecard and its metrics

The Balanced Scorecard is a framework that helps organizations translate strategy


into operational objectives that drive both behavior and performance.

The balanced scorecard is essentially a framework that attempts to collate measures


across four areas: financial, internal process, customer and (people) learning, and growth
rather than just the traditional financial measures (hence the term ‘balanced’).Construct a
set of relevant metrics that meet with the initial rationale for the HR scorecard design.
The outcome of this should result in some form of draft for scorecard framework.

HR metrics

The most widely used HR metrics are typically concerned with employee attitudes,
employee turnover, employee skill levels, as well as outsourcing costs, service center
operations, the number HR transactions processed, staffing process, training programs
utilization and effectiveness, and promotions. These measurements are employed by 25
to 75% of all business organizations. Following are details of the popular metrics and the
performance indicators.

Each metric contains 2 to 5 performance indicators. For instance, “employee attitudes”


metric includes the following indicators: Job Contentment (the percentage of employees
satisfied with their job), and Manager Contentment (the percentage of employees
satisfied with their manager).

“Employee turnover” metric generally include such indicators, as Cost per Hire
(calculation of advertising, agency fees, employee referrals, relocation, recruiter pay and
benefits costs and the number of hires), Turnover Cost (calculation of termination, new
hire, vacancy and learning curve costs), Turnover Rate (rate of the employees leaving an
organization), Time to Fill (the period from job requisition approval to new hire start
date), Length of Employment (this indicator considers the job title, department, etc.).

“Recruiting” metric includes Vacant Period (number of overall days the positions were
vacant), New Hires Performance Appraisal (average performance appraisal of new hires,
compared to previous period), Manager Satisfaction (according to the survey of hiring
managers, compared to previous period), Turnover Rates of New Hires (during a
specified period), Financial Impact of Bad Hire (according to turnover cost and cost per
hire).

“Retention” metric includes Overall Employee Turnover, especially in the key positions,
Preventable Turnover (this indicator considers the reasons the employee left the
organizations and what measures may be taken to prevent it), Diversity Turnover
(turnover rate in professional, managerial, and technical positions), Financial Impact of
Employee Turnover.

“Training and Development” metric includes Learning and Growth Opportunities


(percentage of employees who are satisfied with the learning and growth opportunities in
the organization), On-the-job learning Contentment (percentage of employees who are
satisfied with on-the-job learning, project assignments for growth and development, and
job rotations), Opportunities for New Hires (percentage of employees who report training
opportunities among the top three reasons they accepted the job).

Although most organizations use similar set of HR measurements, however, even


common metrics don't always include standard components. For instance, a common
“cost per hire” metric may contain different expense categories, such as advertising,
online services, background checks and recruiter costs. Recruiting and staffing metrics
may also comprise various aspects. For instance, organizations usually measure “college
recruiting” by analyzing the source of organization newcomers and their progress at the
workplace.
HR measurements have significant implications for all areas of the business performance.
For instance, employee attitudes and turnover metrics are reported to have key influence
on decision making in the organization.

The scorecard is an organic design – one that changes with the business. Thus this step is
most important in continually updating and reviewing the scorecard framework, ensuring
that it continues to report relevant metrics and discontinuing those metrics that are no
longer required

Metrics – Their formulae and description

HR Metrics
Metric Formula Description
[(No of days absent in month) Measures absenteeism. Determine if
÷ your company has an absenteeism
(Avg.no of employees during problem. Analyze why and how to
Absence Rates month) x (No of workdays)] address issue. Analyze further for
x 100 effectiveness of attendance policy and
effectiveness of management in
applying policy.
(Advertising + Agency Fees + Costs involved with a new hire. Cost
Employee Referrals + Travel cost per Hire can be used as a measurement
of applicants and staff + to show any substantial improvements
Cost per Hire Relocation costs + Recruiter pay to savings in recruitment/retention costs.
and benefits) Determine what your recruiting function
÷ can do to increase savings/reduce costs,
Number of Hires etc.
Health Care Costs Total cost of health care Per capita cost of employee benefits.
per Employee ÷ Indicates cost of health care per
Total Employees employee.
HR expense factor HR expense HR expenses in relation to the total
operating expenses of organization. In
÷ addition, determine if expenditures
Total operating expense exceeded, met or fell below budget.
Analyze HR practices that contributed
to savings, if any.
Return on investment ratio for
Revenue - (Operating Expense - employees. Did organization get a
[Compensation cost + Benefit return on their investment? Analyze
cost]) causes of positive/negative ROI metric.
Human Capital ROI Use analysis as opportunity to optimize
÷ investment with HR practices such as
recruitment, motivation, training and
(Compensation cost + Benefit development. Evaluate if HR practices
cost) are having a causal relationship in
positive changes to improving metric.

Revenue - (Operating Expense - Value of workforce's knowledge, skill,


[Compensation cost + Benefit and performance. This measurement
Human Capital Value Cost]) illustrates how employees add value to
Added ÷ organization.
Total Number of FTE

Benchmark to indicate effectiveness of


Revenue company and to show employees as
Revenue Factor ÷ capital rather than as an expense.
Total Number of FTE Human Capital can be viewed as an
investment.
Total days elapsed to fill Number of days from which job
requisitions requisition was approved to new hire
Time to fill ÷ start date. How efficient/productive is
Number hired recruiting function? This is also a
process measurement.

Total training cost Training cost per employee. Analyze


÷ training function further for
Training Investment Headcount effectiveness of training (i.e. Has
Factor productivity increased as a result of
acquiring new skills and knowledge?
Have accidents decreased?). If not,
evaluate causes.
Total benefit The total financial gain/benefit an
- organization realizes from a particular
Training (ROI) Total costs training program, less the total direct
x 100 and indirect costs incurred to develop,
produce, and deliver the training
program

Total of the costs of separation + The separation, vacancy, replacement


vacancy + replacement + training and training costs resulting from
employee turnover. This formula can be
Turnover Costs used to calculate the turnover cost for
one position, a class code, a division or
the entire organization. Exit interviews
are a useful tool in determining why
employees are leaving your
organization.

No of separations during mo. This measures the rate for which


÷ employees leave a company. Is there a
Turnover Rate Avg. No of employees during trend? Has metric increased/decreased?
(Monthly) mo. Analyze what has caused
increase/decrease to metric. Determine
x 100 what organization can do to improve
retention efforts.

Turnover Rate No of employees exiting the job This measures the rate for which
(Annual) ÷ employees leave a company. Is there a
avg. actual No of employees trend? Has metric increased/decreased?
during the period Analyze what has caused
x 12 increase/decrease to metric. Determine
÷ No months in period what organization can do to improve
retention efforts. Evaluate if HR
practices has a causal relationship in
positive changes to improving metric
Total of the costs of temporary The cost for having work completed
workers + independent that would have been performed by the
contractors + other outsourcing + former employee or employees less the
overtime - wages and benefits wages and benefits that would have
Vacancy Costs not paid to vacant position(s) been paid to the vacant position(s). This
formula may be used to calculate the
vacancy cost for one position, a group, a
division or the entire organization.

Total number of Vacant positions Measures the organizations vacancy


as of today rates resulting from employee turnover.
Vacancy Rate ÷ This formula can be used to calculate
Total number of positions as of the vacancy rate for one position, a class
today code, a division or the entire
x 100 organization
Total WC cost for Year Analyze and compare (i.e. year 1 to year
÷ 2, etc.) on a regular basis. You can also
Workers' Average number of employees analyze workers compensation further
Compensation Cost to determine trends in types of injuries,
per Employee injuries by department, jobs, etc. HR
practices such as safety training,
disability management, and incentives
can reduce costs.
(Number of injuries and/or The incident rate is the number of
illnesses per 100 FTE ⁄ Total injuries and/or illnesses per 100 full-
hours worked by all employees time workers. 200,000 is the base for
during the calendar year) 100 full-time equivalent workers
Workers' (working 40 hours per week, 50 weeks
Compensation per year.)
Incident rate The calculated rate can be modified
depending on the nature of the injuries
and/or illnesses. For example, if you
X wished to determine the lost workday
case rate, you would include only the
cases that involved days away from
work.
200,000
(The number of days away from The severity rate is the number of
work per 100 FTE⁄ Total hours days away from work per 100 FTE. To
Workers' worked by all employees during calculate the severity rate, replace the
Compensation the calendar year) number of injuries and/or illnesses per
Severity rate X 100 FTE from the incident rate
200,000 calculation with the number of days
away from work per 100 FTE.
Percentage of applicants from a A comparison of the number of
recruitment source that make it to applicants at one stage of the recruiting
the next stage of the selection process to the number at the next
Yield Ratio process. (i.e. 100 resumes stage. (Note: Success ratio is the
received, 50 found acceptable = proportion of selected applicants who
50% yield.) are later judged as being successful on-
the-job.)

(FTE) =Full-time equivalent