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How to Build a Bridge Between

Finance and HR

Thursday, Feb 5 2015

Human Capital Management Institute

About Human Capital Management Institute


The Human Capital Management Institute (HCMI) was founded on the belief that organizations can
and must, find better ways of measuring their investments in human capital. Our vision of the future is
one in which human capital measurement and information is as integral to business decision making as
financial information is today.
- We Bring Financial Discipline, Standards and Rigor to the HR Function -

HCMI Background:

What We Do:

Specialized in HR analysis &


measurement

Measure the immeasurable in human


capital

Deep expertise in Workforce Analytics &


Planning

Transform workforce data into business


intelligence

Board made up of CFOs and HR heads

Provide tools and training so HR can


partner with Finance

Over 40 years of experience

Workforce Assessment Strategic Consulting Training


Best Practices Workforce Analytics and Planning Benchmarking
Human Capital Management Institute

HCMI Products & Services


TECHNOLOGY SOLUTIONS

CONSULTING SERVICES

Human Capital Financial Statements


Human Capital Impact Statement
Human Capital Asset Statement
Human Capital Flow Statement

Workforce Planning
Link Workforce and Financial Metrics
Forecast Skills, Costs, Talent and
Productivity

Workforce Quantifier ROI


Calculator
ROI of Workforce Decisions
Cost of Turnover, Cost per Hire

Career Path Quantifier


ROI of Career Path
Build, Buy or Lease Talent Analysis

Job Framework Mapping


Integrated Taxonomy 15,000+ jobs
Map Critical Job Roles

Span of Control Optimizer Tool


Benchmark and Optimize Spans
Optimize Management Layers

Integrated Dashboard

Data
Driven Decision
Making!

Advanced
Analytic
Studies
COE Launches
Training
Courses

Integrated HR
Databases
HR Data Warehouse
Drill-down, standard reports
Scenario Analysis

1 st Analytics Study

Bus. Units
Reject
Analysis

Analytics COE and


Roadmap Design

Bus. Units
Demand
more

HR Analysis
Validated

HR Data Cleansed
historical data scrubbed

Turnover,
Headcount, Hiring

Initial Reports &


Analysis

External
Benchmarking

First Good
Metrics

Context for decisions

Data Errors
Lost HR
Credibility

Data Errors
Historical data
still bad

HR data/systems
Assessed

HRIS system data

Data Gathering

HR Standards
Established

HR Analytics
Mandate

Analytics journey steps


Setbacks along the way

COE Formation

Journey path and goal

High
Turnover
Impact

Some
Turnover
Impact

Low
Turnover
Impact
Driver #3
Driver #2
Driver #1

Commute Distance
Dissatisfaction With Compensation

.02
.11

Hired Through Employee Referral

.19
.27

Job Title or Position


Work Location

.33
.50

High vs. Low Turnover Manager

.70

Number of Jobs in Last 3 Years

Analytic Consulting
On-Demand

Correlation Coefficient ( 0-1)

Factors Leading to Increased Turnover

Workforce Analytics
Assessment

Statistical
Prediction

Metrics

Predictive Modeling

PRO

DASHBOARDS

Data Blueprint

Data Integration
Blueprint

$$$ Financial Impact

TRAINING
& SUPPORT

Training and Advisory Support


Workforce Analytics Training
Workforce Planning Training
Custom onsite training

Human Capital Metrics Handbook

620+ Metrics and


Detailed Definitions

Human Capital Management Institute

Why Build a Bridge between HR and Finance?


What HR Thinks

What Finance Thinks

They (Finance) just dont get it

They (HR) just dont get it

They see people as numbers

Warm and fuzzy doesnt pay the bills

They say No to every HR project

HR cant show a real business case

Training is critical to our business

Training is critical to our business

Talent is key long term success

Talent is key long term success

We need to invest in talent

We need to invest in talent (we just


dont know how much)

The Real Issue: HR and Finance speak fundamentally different Languages

Human Capital Management Institute

Why Build a Bridge between HR and Finance?


So we just need to teach Finance to speak HR,
Right?
Wrong!
Okay, so now what?

Quick Quiz:
What is the Language of Business?

Money

What does Management Care About Most? Money

What is HR is most afraid to talk about?

Human Capital Management Institute

Money

Why HR and Finance (+IT) Need Each Other


Information Technology

Core Competencies

Financial Analysis

Core Competencies

Access to workforce data

Prepare workforce reports & analysis

Systems knowledge (where to get data)

Liaise with Finance function

Systems thinking (i.e., solution design,


report design)

Financial modeling for ROI, cost savings

Automation ability (repeatable process)

Validate assumptions, data, and analysis

Database construction, data management

Identify business data requirements

Critical Contributions

Turn data into fact-based decision tools

Critical Contributions

Pull data from systems for analysis


Identify/implement system changes to
improve processes and data quality

Bring analytic rigor to workforce analysis


Apply statistical, root cause analysis
(i.e. statistical or six sigma skills )

Define metrics & data report standards


Use Finance experience to validate
analysis t findings
Make complex analysis clear and
compelling

Build, establish, or populate databases


Liaise with IT organization
Address IT data security issues
Execute IT governance recommendations

Human Capital Management Institute

Human Resources

Core Competencies
Expert knowledge spot issues &
opportunities
Recommend interventions and solutions
HR expertise to evaluate findings
Liaise with HR function and organization
Ensure HR compliance and governance
Interpretation of analytic insights and
conclusions

Critical Contributions
Identify issues for investigation &
hypotheses for root causes
Sell findings and business case ROI
Support analytic storytelling
Drive change management and
communication
Lead interventions and changes to
workforce and HR policies & practices

Keystones in the HR to Finance Bridge


1. Ask the right questions
2. Use Finance methods to show gaps and
how people are truly more asset than
cost
3. Know the business what KPIs drive it
4. Use a business case for any HR project
or strategic decision
5. Use metrics and analytics to quantify
workforce and talent
KPI = Key Performance Indicator
Human Capital Management Institute

#1 Asking the Right Questions


What If you could answer the following?

1. What is our workforce productivity?


2. What size and cost of workforce can we afford?
3. Is quality of hire (i.e. Top Talent) better than cost per hire?
4. Is it better to build, buy or rent talent?
5. Are leaders effectively managing human capital? What is a
good leader worth?
Human Capital Management Institute

#2 Using Finance Methods and Language to


Make Your Point
1. Use the language of business $$$
What is our Total Cost of Workforce(TCOW)? Where do we track
that?
If headcount goes down, does that mean TCOW goes down?

2. Headcount
If Finance knows better than HR, how do we count people on leave?

3. Principle of Materiality: is 1% really enough to care about

4. Budget
Where did we budget for unplanned turnover (i.e. voluntary)?

5. Capital vs. expense (buy a computer or run training?)

Human Capital Management Institute

Using Finance Rules to Make Your Point


The Purpose of Traditional Financial Statements

CEOs often State Our People Are Our Most Valuable Asset
Financial Statements as used by existing stakeholders
Stakeholder

Use

Prospective Investors

Tool for business decision making that may affect an


organizations continued operations and annual report to
stockholders
Assess the success and viability of investing in a business

Financial Institutions

Decision to lend to a company or extend debt securities

Company Leadership

(banks and other lending companies)

Government Entities

Verify information accuracy for legal, tax and audit purposes

(tax authorities)

Vendors who extend credit

Assess business creditworthiness

Media and the General Public

Measuring success, branding, other reasons

But they leave out the company's most valuable asset:


The Workforce. Oops!
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Measurement Trick #31

Measurement Best Practices:


1.Metrics that are actionable
2.Metrics that identify, quantify, and clarify issues across the employee cycle
3.Metrics that link to business results
4.Metrics to capture leading versus lagging indicators
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#3 Know the Business


Key: Know How Workforce Talent Links to Business Strategy

Business Strategy is in the Annual Report or Strategic Plan


Workforce Strategy, KPI Metrics, HR Strategy are there if you know where to look

Business
Strategy

Workforce
Strategy

Return on
Invested
Capital

Raise Workforce
Productivity
Control
Workforce Cost

Sales Growth

Customer
Service
Excellence
Build
Workforce
Talent &
Skills

Raise Workforce
Productivity
Customer
Service Focus
Engage/Retain
Talent
Build Talent
Pipeline

KPI Metrics
Revenue/Profit per FTE
Human Capital ROI Ratio

HR Strategy &
HR Activities
Recruiting for Top
Talent Internally
and Externally

Return on Human Capital Investment


Total Cost of Workforce (% of Revenue)
Management Span of Control
Customer up-sell rates
Customer satisfaction Scores
Customer service training KPIs
Quality of Hire Index

Customize pay
based on service +
job criticality
Talent Management,
Performance,
Potential
Training for service
excellence

Employee engagement scores (NPS*)


High Performer Turnover Rate
Internal Hire Rate

Training to build
internal talent in
key roles

(* NPS = Employee Net Promoter Score)

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#4 Building a Business Case


What to Include

1. Compelling Questions
Ask the Right Questions

2. Objective Measures and Facts


Historical Data, Key Metric Indicators, Segmented Data

3. Powerful Visuals Charts


Chart(s) that Show Insight (i.e. Story) and Drive Action

4. Use Qualitative Story Telling


Two of our Top 3 Salespeople came from other industries

5. Link to Business Impact (ROI/Cost/Profit)


The Cost Savings is a range of $1.0 to $3.0 Million
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#4 Components of a Business Case


1. A Business Need or Imperative Why
A clear problem/opportunity or question(s) to be answered

2. Quantitative Analysis What


Current state assessment
Alternatives Evaluated, (include do nothing)
Cost Benefit Analysis or ROI What do we get

3. Risks
List key risks that impact the business (What if we do nothing)

4. Timing, Resources, Process


When, include roadmap or project plan (show 90 day deliverables)
How, process to be used (e.g. GEs six sigma process)
Who, document who will do it (champion, oversight, partners)

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#5 Using Analytics
Fitz-enz Levels of Analytics

Level 3
Prescriptive

V
A
L
U
E

Level 2
Predictive

Level 1
Descriptive

- Prescriptive Actionable If-Then Analytics


- Workforce Planning + Financial modeling(HCF$)

- Workforce planning, scenario modeling


- Multivariate statistical modeling
- Statistical regression analysis
- Forecast Leading(predictive) Indicators
-

Trend reports
Metric scorecards
Ad-hoc reporting
Transaction and count reports

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Contact Information and Upcoming Events


Jeff Higgins, CEO Jeff.Higgins@hcminst.com

www.hminst.com

Pasadena, CA: www.hcminst.com/training


Workforce Analytics Training Feb 24-25, 2015
Workforce Planning Training Feb 26-27, 2015
25% off Training Discount Code = HB25

@HCMI

Workforce Intelligence Consortium Group


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