You are on page 1of 24

THE MISSING LINK IN CORPORATE

REPORTING: HUMAN CAPITAL

March 16, 2016

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:

World leading tools/methodology

Measure the immeasurable in human capital

100+yrs experience Analytics & Planning

Full service tools, consulting & training

Deep Finance & HR expertise

Transform workforce data into intelligence

Advisory Board CFOs and HR heads

Tools so HR can make the business case

Workforce Assessment Strategic Consulting Training


Best Practices Workforce Analytics and Planning Benchmarking

Have You Found Your Analytics


Pot of Gold?
Human Capital Management Institute

Products and Services


Full-Service Workforce Analytics and Planning Provider

Training and Advisory Support


Integrated HR
Databases

HR Data Warehouse
Drill-down, standard reports
Scenario Analysis

Turnover,
Headcount, Hiring

Initial Reports &


Analysis

First Good
Metrics

Data Errors
Lost HR
Credibility

Data Gathering

HR Analytics
Mandate

COE Launches
Training
Courses

1st Analytics Study

Bus. Units
Reject
Analysis

Bus. Units
Demand
more

HR Analysis
Validated

HR Data Cleansed

historical data scrubbed

External
Benchmarking

Context for decisions

HR Standards
Established

HR data/systems
Assessed

HRIS system data

COE Formation

Training
Workforce Analytics Training
Workforce Planning Training
Custom onsite training

Data
Driven Decision
Making!

Advanced
Analytic
Studies

Data Errors
Historical data
still bad
Analytics journey steps
Setbacks along the way
Journey path and goal

Analytics Center
of Excellence

Consulting Services
Specialize in

Workforce Analytics and Planning


Assessments
Data Integration Blueprint
Building a Business Case

Workforce Analytics and Planning


Roadmap, Assessment and Business Case

Advanced Workforce Analytics


and Planning Consulting

HCMI Assessment Framework


Beginning Foundation
Multi-Dimensional
Workforce Assessment

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

Turnover,
Headcount, Hiring

Initial Reports &


Analysis

First Good
Metrics

Data Errors
Lost HR
Credibility

HR Analytics
Mandate

COE Launches
Training
Courses

1 st Analytics Study

Bus. Units
Reject
Analysis

Bus. Units
Demand

HR Analysis
Validated

more

historical data scrubbed

Spotlight Strengths &


Weaknesses

External
Benchmarking
Context for decisions

HR Standards
Established

COE Formation

Mine the Data for


Drivers of Critical
Business Outcomes

Data Errors
Historical data
still bad
Analytics journey steps
Setbacks along the way
Journey path and goal

Create Perceptual
Workforce Maps

Linkage

Identify Areas of
Opportunity

HR Data Cleansed

HR data/systems
Assessed

HRIS system data

Data Gathering

Business,
Workforce &
HR Strategy

Data
Driven Decision
Making!

Advanced
Analytic
Studies

Focus &
Resources
(Center of
Excellence )

Enable Data-Driven
Decision Making

Workforce Cost
and
Productivity
Reporting,
Scorecards &
Accountability

Workforce
Knowledge

Business
Complexity &
Structure

Speed, Systems
Integration &
Automation
Measurement
& Analytic
Capability

Set the Stage for


Advanced Analytics

Standards,
Processes & Data
Quality

Advanced Technology Solutions


SOLVE Dashboards
Measure Metrics that Matter
Quantify Financial Impact of Talent

Talent Management Dashboards


Metrics, Training and Research

SOLVE Pro

Human Capital
Financial
Statements

Workforce
ROI Calculator

Workforce
Planning and
Career Path

Location
Optimization

P3 Personality
Assessment

Advanced Workforce Analytics and Planning


Predictive Modeling and Forecasting

P3 Personality Assessment
High level of accuracy, reliability and validity

HCMI Background
HCMI has been focused on workforce productivity since 2009. In 2010 a client asked if
human capital data could be presented in reports like financial statements. Thus began
a journey to Human Capital Financial Statements (HCFS).

After 5 years, working with over 100 organizations, and creating the worlds largest
workforce productivity database, we have distilled the complexity of human capital
reporting into a single document called a Human Capital Disclosure Statement.

Jeff Higgins, Founder & CEO Human Capital Management Institute


Jeff is a driving force in Workforce analytics at leading companies who
transform workforce data into a source of value creation via planning and
predictive modeling.
With his unique combination of experience as both a senior HR executive and
former CFO, Jeff helps organizations around the world rapidly advance their
analytics & workforce planning journey.
He is a regular speaker at HR events, a member of the Human Capital
Institute National Advisory Council on Talent Leadership and a founding
member of the PwC Saratoga Institute advisory council on metrics.
Human Capital Management Institute

Where are we today?


No corporate reporting on human capital

No

standards for talent, aka human capital reporting


86%

of companies report only hires, terminations and


staff level

HR

reporting on what HR cares about


Human Capital Management Institute

Polling Question #1

The Missing Link in Corporate Reporting


What is the Missing Link?

Human Capital

What CEOs most often state as their most valuable asset


Represents the single largest expense for most organizations

Human Capital is Very Broad, What Truly is the Missing Link?


The ability to show human capital as a value-add (i.e. bottom line for human capital)
Must be standard, easily understood, yet give deep insight (what, where, when, why, how, who)

What if human capital could be quantified, its value shown in the


form of workforce productivity and return on human capital?
What CEO doesnt want to know the productivity of their workforce? None
Would workforce productivity predict future business success?
Oh Yes!

Human Capital Management Institute

Why Bother with Human Capital Reporting?


What gets measured gets managed. No wonder
human capital is treated as a cost to be minimized
Institutional Investors are asking for it
Dow Jones Sustainability Index adopted Human
Capital ROI Ratio in 2014 (over 900 companies submitted for 2014)

Dow Jones Sustainability


Index (DJSI)

Human Capital Management Institute

What are the Right Questions to Answer?


There are Many Great Questions. Today we Focus 5 Key Ones
1.

What is our workforce productivity, return on people? How do we rank?

2.

Can we show how workforce changes impact cost, profit and productivity?

3.

Can we model the workforce to optimize cost, profit and productivity?

4.

What is our total cost of workforce? Can we control it better?

5.

What is our cost of turnover? How does turnover impact business results?

Human Capital Management Institute

Polling Question #2

The Human Capital Disclosure Statement

Data

What to Include in Human Capital Reporting


Human Capital Disclosure Statement

Traditional Financial
Statements

1. Human Capital Impact

Examples:
Total Cost of Workforce (TCOW)
Productivity Impact
Human Capital ROI Ratio

#1

2. Human Capital Flow

#2

Examples: Inflows, Outflows, number of


Contingent Staff, Transfers and Promotions

3. Human Capital Cost

#3

1. Income Statement

2. Cash Flow Statement


3. Balance Sheet

Examples: Employee Salary Cost,


Contingent Workforce Cost, Recruiting
Cost

#4

4. Management Discussion
Examples: Overall workforce growth,
critical and non-critical job roles, etc.

Key Step: Align Human Capital to Finance


Human Capital Management Institute

12 12

Introduction to Workforce Productivity

Human Capital Management Institute

13

Keys to Human Capital Impact

Prior Year

Current Year

% Chg

Revenue
Net Operating Revenue
Total Headcount (FTE)
Revenue per FTE

1,400,000,000
15,000
93,333

$
$
$

1,170,000,000
779,950,000
51,997
55.7%

$
$

143,750,000
9,583

1,540,000,000
16,400
93,902

10.0%
9.3%
0.6%

$
$
$

1,285,000,000
861,000,000
52,500
55.9%

9.8%
10.4%
1.0%
0.4%

$
$

159,375,000
9,718

10.9%
1.4%

Costs
Total Operating Expenses*
Total Cost of Workforce (TCOW)
TCOW per FTE
TCOW % of Revenue

Profit
Net Operating Profit
Profit per FTE

Workforce Productivity
Hunan Capital ROI Ratio
Return on Human Capital Investment

Human Capital ROI per FTE

1.29
18.4%
$

15,333

1.30
18.5%
$

15,549

0.1%
0.4%

Revenue per FTE is up


Revenue increased 10.0% while
headcount increased 9.3%, resulting in
a revenue per FTE increase of .6%
Total Cost of Workforce (TCOW)
increasing more than Revenue
TCOW was up year-over-year 10.4%
above the 10.0% Revenue increase,
negatively affecting workforce
productivity.

Profit per FTE


Operating Profit increased 10.9%, and
profit per FTE 1.4%, partly offsetting
the negative impact of higher TCOW.
Further profit gains vs. peers seem
unsustainable without further
productivity gains.

% 1.4%

Workforce Productivity
Both workforce productivity metrics
improved, however the rate of growth
is minimal and well below the 3%
productivity gains of competitors.
Human Capital Management Institute

25

B. Human Capital Flow


Management Internal Hire Rate
75 Internal Staff were promoted into mgmt however 115 were hired externally or only
39% of internal staff was considered ready for management

Buy

Build
Critical Job Roles - Sales
While 860 sales people were
hired, (450) departed. Why? Are
they high or low performers, new
hires or veterans? Co. Growth and
success is heavily reliant on this
group.

Rent

Increases in Support Staff


What is driving increased support
staff? Is this why TCOW is
increasing faster than revenue?

Contingent Workforce Is contingent workforce a feeder group for critical


roles? A low cost workforce strategy or a gap filler? How does contingent
workforce fit in the strategic company direction?
Human Capital Management Institute

15

C. Human Capital Cost Breakdown

Benefit Costs The largest rapidly rising cost is


benefit costs for employees. What is the plan to
better manage these costs? How does the
organization compare to peers in this area?
Absence Lost Days and Cost
These costs are increasing rapidly, was this due
to one time events or longer term trends?

Are Training & Development costs aligned


with the company growth strategy? Is the
organization Building, Buying or Renting its
best current and future talent?

Total Cost of Workforce is increasing as a


higher rate than revenue, a long term predictor
of declining workforce productivity. How will
the company better manage these costs as they
execute on their growth plans?

Human Capital Management Institute

16

Case Study: Traditional Productivity Metrics


Snohomish County Planning & Development
While Revenue per FTE and Profit per FTE are commonly used metrics, HCMI research shows that
they are not the best predictors of financial success. This is because these metrics only capture
changes in revenue and profit based on headcount, rather than cost changes in the workforce.
$90,000

Profit / Surplus per FTE

$80,000
$70,000

SCPD is well above the median


Washington county department in
Profit/Surplus per FTE.

$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$$(10,000)

$-

$500,000

$1,000,000
Revenue Per FTE

Accomodation & Food Services


Finance & Insurance
Manufacturing
Professional & Tech Services
Transportation & Warehousing
Wholesale Trade
Oil & Gas
Washington Counties *
Snohomish County Planning and Development Services

$1,500,000

$2,000,000

$2,500,000

Arts & Entertainment


Healthcare
Mining
Real Estate, Rental, Leasing
Utilities
Admin Support & Waste Mgmt Svcs
Information
Construction

*County Departments Included: Kitsap County Department of Community Development, Spokane County Building
and Planning, Pierce County General Fund, Whatcom Planning and Development, and Thurston Planning

Human Capital Management Institute

17

Case Study: Advanced Productivity


Snohomish County Planning & Development
While SCPDs TCOW per FTE is higher than most other counties, it is also generating more
return per dollar invested in the workforce. SCPDs HC ROI Ratio ranked first in 2013.
Advanced Productivity 2012

Advanced Productivity 2013

1.4

Human Capital ROI

Human Capital ROI

1.2

1.0
0.8
0.6
0.4
0.2

0.0
$0
Competitors

$50,000
$100,000
TCOW per FTE

$150,000

Snohomish County Planning and Development Services

1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
$0

$50,000
$100,000
TCOW per FTE

Competitors

$150,000

Snohomish County Planning and Development Services

Advanced Productivity Metrics 2013

Snohomish Planning and


Development
Washington Counties*

TCOW per FTE

Human Capital ROI

$97,907

1.26

$89,200

1.05

*County Departments Included: Kitsap County Department of Community Development, Spokane County Building
and Planning, Pierce County General Fund, Whatcom Planning and Development, and Thurston Planning

Human Capital Management Institute

18

Case Study: Financial Trends


Snohomish County Planning & Development

From 2010 to 2011, Revenue and Profit fell faster than Total Cost of Workforce, resulting in
lower overall productivity. In 2012 and 2013, however, this was reversed. Revenue increased by
18.1% and Profit increased by 227.7%, while Total Cost of Workforce only increased by 6.8%

Key Financial Indicators


$16,000,000
$14,000,000

$14,343,134
$13,158,114
$11,688,244

$12,000,000
$10,000,000

Annual Change Rates


18.1%

20.0%
15.0%

$12,144,198

10.0%
$11,327,148
$10,426,909

$10,730,746

$11,455,152

3.9%

5.0%

6.8%

$8,000,000
$6,000,000

+227.7%

$4,000,000

$2,994,521

$2,000,000

$1,670,736
$812,746

2.9%

0.0%
-5.0%

-7.9%

-10.0%

$913,834

-11.2%
$0

-15.0%
2010
Fee Revenue

2011

2012
Surplus

2013
TCOW

2011
Total Fee Revenue

Human Capital Management Institute

2012

2013

Total Cost of Workforce (TCOW)

19

Case Study: Forecasting Total Cost of Workforce


Scenario-Status Quo Regional Bank

Millions

$627 million GAP


Calculated TCOW
$X,XXX,XXX
below Plan
above Strategic
calculated
bydata
2020
TCOW Calculated vs. Strategic Plan Goal
$2,000

$1,814

$1,800

Strategic Plan vs.


Calculated TCOW % Change

25%

$1,600

22.0%

20%

$1,400
$1,200

$1,187

$1,000
$800

15%

15.1%

10%

$600
$400

10.0%

5%

$200
0%

$2015

2016

2017

Calculated

2018

2019

2020

2016

2017
Calculated

Strategic Plan

Variables

Status Quo

Workforce Headcount

12%

Average Employee Salary

8%

Bonus & Incentive Pay (Average)

5%

Turnover , Internal Hiring

2018

2019

2020

Strategic Plan

Controlled Growth

20%, 2%

Human Capital Management Institute

20

Case Study: Forecasting Total Cost of Workforce


Scenario-Controlled Growth Regional Bank

Millions

TCOW Calculated vs. Strategic Plan Goal

$0 GAP 2020
Strategic Plan
Achievable

Strategic Plan vs.


Calculated TCOW % Change

$1,400

$1,000

$1,187 12%
$1,164
10%

$800

8%

$600

6%

$400

4%

$200

2%

$1,200

10.5%
10.0%
7.6%

$-

0%
2015

2016

2017

Calculated

2018

2019

2020

2016

2017

2018

Strategic Plan

2019

2020

Calculated

Variables

Status Quo

Controlled Growth

Workforce Headcount

12%

5%

Average Employee Salary

8%

4%

Bonus & Incentive Pay (Average)

5%

2%

Turnover Reduction, Internal Hiring

20%, 2%

Human Capital Management Institute

-25%

+30%

21

Show Me! Live

Human
Capital
Management
Institute

Human
Capital
Management
Institute

22

Questions
Jeff Higgins, CEO
jeff.higgins@hcminst.com
Human Capital Disclosure Stmt: www.hcminst.com/products-services/human-capital-disclosure-statement/

For more information on products and services:

www.hcminst.com
SOLVE Software

Human Capital
Financial Statements

Training and
Consulting

Human Capital
Metrics Handbook

Workforce Data
Integration Blueprint

Workforce
Planning

Workforce Intelligence
Consortium Group

@HCMI
Human Capital Management Institute

23

Critical Input Metric


Total Cost of Workforce (TCOW)
Total workforce direct business costs + HR, including:

Total Cost of
Workforce

+ Employee compensation (salaries/wages, incentives,


overtime, equity & other pay)
+ Contingent temporary/contract labor (costs)

+ Employee benefits and perks (costs)


+ HR function (costs e.g., recruiting, training & support)
+ Retiree or inactive workforce costs* (costs)

Why is it important?

Revenue

TCOW

1% TCOW savings at a Fortune 500 co. =


$30 million
Workforce costs are the largest cost (average
70% of operating expenses)
What gets poorly measured gets poorly
managed

The Bottom Line: Controlling Workforce Costs = Controlling Productivity


Human Capital Management Institute

24