How to Measure HR Effectiveness

Human Resource Strength & KPIs

As an HR professional, your success lies in reducing employee churn and recruiting top talent. The right workforce allows your organization to improve efficiencies and meet its business goals. However, because most businesses view their HR departments as cost centers, it can be hard to prove your merit. 

As a result, it’s essential to measure your effectiveness. Relevant indicators demonstrate your contribution to organizational success in a meaningful way. Here we explain how to measure HR effectiveness to illustrate how you improve productivity and increase employee value.  

HR Productivity Indicators

As a cost center, emphasizing cost reduction and performance is crucial. Maintaining a balance between reduced costs and increased effectiveness is key. Otherwise, your department fails to impact your organization’s success. Focusing on how HR’s costs impact performance is the best measurement of productivity.

Don’t simply accept your costs. Instead, monitor them to understand how those costs impact your organization’s ability to meet its business goals. Some examples of how you can impact productivity would be investing in the following:

• Reduction in absenteeism through health-wise programs
• Increasing education to help close skills gaps
• Introducing technology to increase efficiency (in your department and others)
• Creating comprehensive performance review protocols to align with company goals

Reviewing costs and your ROI shows how HR investments serve a purpose. They contribute to productivity and positively impact performance. However, when costs increase for the year, and you either fail to see improvements or, worse, see a reduction in production, you need to rethink your investments. Your goal is to recoup at least 100% of your investment in increased efficiencies and improved productivity.

Predictive Analysis

The right HR analytics software allows you to assess workforce productivity metrics and leverage predictive analysis. If you plan to maintain the same number of people each year, you understand your costs and can effectively understand expenses the following year. For example, if your workforce increases by 25% seasonally, you can plan for those annual increases. Understanding the costs associated with each employee lifecycle, such as onboarding, training, benefits administration, etc., allows you to make data-driven decisions. However, there is more to predictive analysis than this.

Talent-related data allows you to create a high-performing workforce by capturing, tracking, and measuring data with the latest analytics tools. Predictive insights are the best way to improve talent acquisition, employee performance and productivity, onboarding procedures, and career development. Predictive analytics also measure employee progress so you can identify developmental needs or spot the next leaders. You can also improve retention by understanding historic issues contributing to employee churn.

Operational Measures

Operational measures look at your effectiveness and the impact your procedures have on the organization. This data is crucial to decision-making and improving outcomes based on your improvements. Operational metrics answer essential questions, including:

• How many days does it take to hire someone after the initial job posting?
• How much does each new employee cost the organization?
• Are top performers leaving because it takes too long to see a promotion?
• How much does each employee contribute to revenue?
• Who needs more training, has potential, is ready for promotion, or is underperforming?
• How much of your budget is spent on each employee?
• Can you justify the ratio between your HR team and the number of employees?
• Where can you improve efficiencies to reduce your department size and save money?
• What is your attrition rate, and how much does it cost each year?
• How do your timesheets align with your scheduling, i.e., do you tend to be understaffed or overstaffed?

The answers to these questions tell you where you need to improve efficiencies, such as using the proper recruitment channels and automated onboarding to reduce the cost per hire.

Workforce Management KPIs

Team management is also critical to HR performance. You should track the following workforce management key performance indicators (KPIs):

• Business Values Metrics: How does your department improve the net impact of labor costs on the organization’s profitability? Can you reduce staff resources? Are there any productivity improvements you can make?
• Labor Cost Metrics: What is your Total Compensation Spend Rate? How can you improve seasonal labor costs? How can you become more proficient in meeting staffing needs? Where can you improve efficiencies, such as HR self-serve tools to strengthen your team’s productivity?
• Workforce Productivity Metrics: Where is too much time being spent on task performance? Where do you see more efficiencies? How can workforce management tools help in critical areas such as compiling management reports, tracking scheduled time off and absenteeism, employee engagement to improve retention, etc.?
• Compliance Risk Metrics: How effective are your compliance programs? What risks exist? What controls are in place to meet industry standards? What is causing non-compliance? Is compliance addressed at the onboarding stage during training? How can you mitigate risk? What software is available to reduce error-ridden manual processes?

Workforce Management Software is the best way to track these metrics and discover solutions for the areas where KPIs show you are failing.

Access to real-time data tracks the most critical metrics allowing you to make informed decisions. As a result, you improve productivity and become more predictive to avoid common HR challenges.

About the Author

Kayla is the Marketing Manager at Paypro Corporation overseeing all inbound and outbound marketing and sales efforts. She has 7+ years of experience working within the B2B and SaaS based solutions space and thrives on creating messaging and campaigns that introduce products and services to those who need them most.