What is the Importance of HR Metrics Analysis?

Photo by Franki Chamaki on Unsplash

Liz Strikwerda

Content strategist and corporate blogger (2000+ posts). Her work has been featured on G2's Learning Hub, Human Resources Today, CloserIQ, Better Buys and over 500 business websites. She plays bluegrass mandolin and enjoys hiking in the red rock wilderness of southern Utah. Connect with me on LinkedIn

Any small business that doesn't use HR metrics analysis will fall behind. Today's environment is too volatile and competitive not to take a scientific approach.

“Without big data, you are blind and deaf and in the middle of a freeway.” – Geoffrey Moore

When you improve even one variable using HR metrics analysis, it can trigger a chain reaction of benefits.

"The point is to “get past the ‘what’ and fully understand the ‘why.' The benefit of using metrics is that the decisions are better-informed and backed by facts—rather than hunches—and thus make key people decisions far more ‘sellable’ to the business.”–Cecile Alper-Leroux,

 

HR metrics, or Human Resources metrics, are Key Performance Indicators (KPIs). Businesses track them to measure the people processes in the company.

Small business HR teams can track metrics for all core and non-core areas. This includes hiring, pay, time and labor, training, engagement and retention.

Common HR metrics include:

  • Time-to-hire: average number of days it takes to fill a position
  • Cost-per-hire: the average cost of hiring a new employee
  • Time-to-productivity: the period of time from hire to full productivity
  • Employee turnover: the number of separations per year divided by headcount
  • Absenteeism or absence rate: employee absences divided by number of employees
  • Overtime: the ratio of overtime to total hours worked for a given period
  • Revenue per employee: net revenue divided by number of employees
  • Diversity and inclusion: total hires within a set period of time divided by specified demographic

What is the importance of HR metrics analysis?

HR metrics provide insights so you can make better decisions. They are essential for optimizing processes.

“Without big data, you are blind and deaf and in the middle of a freeway.” – Geoffrey Moore

Using analytics isn’t difficult but it does take time and persistence:

  1. Gather data about your workforce
  2. Analyze the data in the context of overall business strategy
  3. Make changes to improve operations
  4. Assess whether the changes are working
  5. Adjust as necessary

The point is to “get past the ‘what’ and fully understand the ‘why,’ The benefit of using metrics is that the decisions are better-informed and backed by facts—rather than hunches—and thus make key people decisions far more ‘sellable’ to the business.” Cecile Alper-Leroux, VP of Human Capital Management Innovation for Ultimate Software, 9 Tips for Using HR Metrics Strategically, SHRM

What are the benefits of tracking HR metrics?

Certainly, the importance of using analytics cannot be overstated. Any small business that doesn’t use HR metrics analysis will fall behind. Indeed, today’s environment is too volatile and competitive not to take a scientific approach.

Let’s highlight some high-level benefits. As you read through these, consider the components within each category:

  • Improve labor resources allocation (scheduling, bidding, hiring, compensation)
  • Predict the results of proposed changes with ‘what if’ scenarios (PTO policies, benefits changes, additional shifts, additional locations, team makeup)
  • Decrease compliance risks (overtime, minimum wage, exempt vs non-exempt classification, FMLA, PBJ, ACA)
  • Improve the ROI of HR programs (engagement, wellness, financial planning, performance)

Start with one process

So, how do you get started? We recommend starting with just one process. When you improve even one variable using HR metrics analysis, it can trigger a chain reaction of benefits.

Example: overtime per manager

As an example, let’s talk about tracking overtime per manager. You can do this with a simple timecard report.

Suppose you discover that 60% of overtime occurs with one manager. Now it’s time to dig into the data and figure out why. Perhaps the production goals are unrealistic. Maybe the team is understaffed. Or perhaps the manager simply doesn’t know how to build shift schedules.

In our example, let’s suppose you compare scheduled hours to actual hours worked for the manager’s team. When you review the timecards, you discover that several employees habitually stay on the clock for lunch, which is supposed to be unpaid.

With this knowledge, you can take measures to solve the problem. First, you would need to review the policy with the manager who should, in turn, review it with the team members. You could also get a time clock with meal break prompts. Furthermore, a timekeeping system with missed punch alerts could help.

When you’ve worked to fix the situation (adjusting as needed) the improvements would compound. First, your profit margin would increase due to less overtime. Secondly, less overtime could improve employee morale. Thirdly, better morale could help you keep employees longer. Lastly, improved retention would save on recruiting and training costs.

This is an example of working on just one process. Consider the impact of using HR analytics to improve many processes. It could make a big difference.

In addition to comparing metrics to historical data, compare them to similarly-sized companies in your industry. It’s good to know the average turnover rate, for example, or time-to-hire.

What tech simplifies HR analysis?

Human Resources Management Systems (HRMS), Human Resources Information Systems (HRIS), and Human Capital Management (HCM) are all types of HR software that can track metrics.

These systems are suites of HR tools that work together. These tools include:

Applicant tracking system (ATS)

An ATS helps recruiting teams lower hiring costs, find better talent and use hiring metrics to fine tune processes.

Onboarding systems

When you use an onboarding system with a well-designed process, you will increase new hire engagement. This speeds up time-to-productivity. In addition, it lowers the risk of the employee quitting in the first year.

Performance management systems

Successful companies make sure managers do performance reviews often. Performance management software helps teams track performance over time.

Leave management systems

With COVID leave added to the mix, leave management has never been more complex. Tracking PTO, state and federal family leave, and other types of leave with spreadsheets is hard. Leave management software makes it a lot easier. Employers can customize the software for their company PTO policies, state and federal laws, and union or government contracts. Automating this process saves time, improves accuracy and protects against compliance issues.

Learning management systems (LMS)

A learning management system is an online platform for managing training. (Self-directed digital training is also called eLearning.) An LMS allows HR teams to customize and track training in a centralized location. These products often integrate with onboarding or performance management software. With the increase in remote working, an LMS is a must-have for modern workforces.

Employee timekeeping and scheduling software

Time tracking is a foundational business process. Paycheck accuracy is paramount. To best use your workforce, you need to-the-minute employee time and attendance. Cloud-based software synced with hardware clocks provides a unified timekeeping solution. The system captures punches, confirms identity, tracks hours, meals and PTO, enforces schedules and prevents time theft. Mobile clock-in and geofencing allow companies to track offsite punches and location.

Employee scheduling and timekeeping are interrelated. Certainly, shift planning impacts efficiency. Scheduling software allows you to create schedules in minutes using templates and drag-and-drop. Schedule modules synced to timekeeping simplifies schedule access, timecard submission, shift trades, and PTO. Overtime alerts help prevent unplanned overtime and related compliance issues.

Benefit management systems

Employee benefits are both extremely important and notoriously difficult to manage. Using specialized software to manage retirement plans, health insurance and other benefits is a best practice used by successful companies.

Up to date HR tech is essential if you want your business to grow. But many business owners are hesitant to dive in.

It’s not complicated…

Why don’t more small business owners invest in intelligent HR automation? Some think it sounds too complicated. The reality is that running a business without it couldn’t be more complicated. It’s like trying to navigate an obstacle course in the dark.

Even in a small business, there are plenty of moving parts. And they could move a lot better with the right tools.

Analysis saves time in the long run

Does it sound time-consuming to use HR metrics analysis? It isn’t with the right software. An HR system saves everyone time. That includes you, your employees, your managers, Human Resources staff, and even your customers. An HR system automates processes along with metrics analysis and reporting. In fact, some businesses can automate up to 80% of HR functions with the right software.

WorkforceHub is an affordable, quick to deploy HR system intentionally designed for the complexities of running a small business. To see it in action visit WorkforceHub to schedule a demo.

Photo by Franki Chamaki on Unsplash

Simplify HR management today.

Simplify HR management today.

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