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Presents: Calculating Human Capital ROI

November 30, 2010

Human Capital Management Institute

Agenda
Welcome Overview
About HCMI the Workforce Intelligence Consortium
The Challenge of Measuring Human Capital

What is Workforce Intelligence? Quantifying Human Capital ROI Q&A Whats Next?

Human Capital Management Institute 2010

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:
Specialized in HR analysis & measurement Deep expertise in Workforce Analytics & Planning Board made up of CFOs and HR heads Over 40 years of experience

What We Do:
Measure the immeasurable in human capital Transform workforce data into business intelligence Provide Tools and Training so HR can Partner with Finance

Workforce Assessment w Strategic Consulting w Training Best Practices w Workforce Analytics and Planning w Benchmarking
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Workforce Intelligence Consortium


A partner-driven organization dedicated to quantifying and solving workforce planning and analytics issues

Member Companies
HCMI

Sponsors

Thought Leaders
Dr. Jac Fitz-Enz

Workforce Intelligence Consortium


Universities/ Educators Benchmarking Organizations

What Do We Do?
Quantify Integrate Predict
Leverage advanced metrics and ROI analysis Conduct root cause analysis Create a Center of Excellence Utilize benchmark standards

The Workforce Intelligence Consortium accelerates your workforce planning and analytics competency
Business Impact

Align HR and business strategy


Awareness

Action

Competence

Effectiveness

Excellence
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Human Capital Management Institute 2010

The Challenge of Measuring Human Capital


Workforce Analytics vs. Workforce Planning

Past
Historical Workforce
Trend Analysis

Present
Current Workforce
Workforce Knowledge

Future
Future Workforce
Future Scenarios

Predictive Analytics

Key performance Indicators

Workforce Optimization

Workforce Analytics

Decision Making
Human Capital Management Institute 2010

Workforce Planning
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The Challenge of Measuring Human Capital


Complexity of Workforce Data
Employee/Full-Time-Equivalent (FTE) Jobs/Roles/Skills Time - Tenure Compensation ($ vs. Equity) Advanced Analytic Insights Workforce Planning Success

Lack of Standards Frequency of Change


Promotions, Transfers, Hires, Terminations Jobs/Roles/Skills Time - Tenure

Compensation Span Transfers Benefits of Control Turnover Succession Data New Hire Turnover

Training
Recruiting

Lack of Analytic Skills Measuring the Intangible

Human Capital Management Institute 2010

Employee Data

What is Workforce Intelligence?


How do we get from Human Capital to Financials and deliver actionable data? Human Capital
Hiring Paying Developing Engaging Retaining Diversity

Financials Operations & Business


Unit Cost Cycle Time Quantity Quality Revenue

Customer
No. attracted Conversion rate Spend amount Margin Satisfaction Return rate

Expenses Assets Liabilities

Human Capital Management Institute 2010

Calculating Human Capital ROI


What is Human Capital ROI?
Net operating profit impact of each dollar invested in human capital or total cost of workforce
(Total Operating Revenue (Total Expenses Total Cost of Workforce))

Total Cost of Workforce

TCOW should include:


Total costs of employees

All contingent headcount

Human Capital Management Institute

The Workforce Quantifier ROI Calculator


The Workforce QuantifierTM is a scenario-based modeling tool designed to help organizations increase productivity, drive cost savings, and forecast human capital value. It incorporates organization specific financial and workforce assumptions to identify value creation and cost savings opportunities for human capital programs and interventions. Human capital delivery areas that can be modeled include: Compensation and Benefits Recruiting and Hiring Productivity and Performance Turnover Engagement and Training Mobility

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The Workforce Quantifier ROI Calculator


Why use the Workforce QuantifierTM?
Finance organizations have been using standard net present value (NPV), return on investment (ROI), and internal rate of return (IRR) templates and calculation models for decades No such calculator exists today to quantify or support data driven decision making for the workforce

It generates value creation, financial cost, and ROI information from the fewest possible data inputs with
Scenario specific projection variables The ability to analyze the entity and the designated position group

The option to override key calculated cost to match desired or known values

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The Workforce Quantifier ROI Calculator


Increase Productivity
Project Information Workforce Assumptions
Project Information
Organization or Entity Name: Project Name: Industry: Company Name Business Intelligence Technology

Drive Cost Savings


Financial Assumptions
Tax Rate: Discount Rate: Forecast Years: Analysis Year: 50% 15% 5.0 2009

Forecast Human Capital Value


Position Analysis
Position or Job Group: Business Unit or Division: Job Function or Specialty (if applicable): Job Category (EEO Category): Programmer Analyst Technology Products IT Professional Staff

Workforce Assumptions and Future Projections


Beginning of Period FTE (e.g. January 1): End of Period FTE (e.g. December 31): Average Organization Tenure in Years: Total Annual Salary Increase Costs: Annual Workforce Productivity Improvement: Projected Annual Workforce Growth Rate: Projected Average Annual Salary Increase: Projected Average Annual High Performer Salary Increase: Projected Annual Inflation or Cost of Business Rate:

Entity *
4,900 5,100 5.0 $9,750,000 1.0% 9.0% 3.0% 5.0% 3.0%

Position **
490 510 5.0 $1,275,000 1.0% 9.0% 3.0% 5.0% 3.0%

Business, Financial Inputs and Projections


Net Revenue (Current Annual): Total Expenses (Current Annual): Net Operating Profit (Current Annual): Revenue per FTE (Current Annual): Profit per FTE (Current Annual): Projected Annual Net Revenue Next Period: Projected Annual Net Operating Profit Next Period: Projected Annual Revenue per FTE Next Period: Projected Annual Profit per FTE Next Period: Projected Annual Net Revenue Growth Rate: Projected Annual Net Operating Profit Growth Rate:

Entity *
$1,000,000,000 $750,000,000 $125,000,000 $200,000 $25,000 $1,100,000,000 $140,000,000 $206,398 $26,269 10.0% 12.0%

Position **
$0 n/a $12,500,000 $200,000 $25,000 $14,000,000 $26,269 10.0% 12.0%

Position Analysis Financial Information

Compensation and Benefits Recruiting and Hiring

Average Base Salary: Average Total Compensation: Average Benefits Cost as a Percent of Salary: Total HR Department & Function Costs: Total Benefits Costs: Total Cost of Salaries: Total Compensation Cost: Total Cost of Workforce:

Compensation and Benefits Data

$65,000 $80,000 33.3% $20,000,000 $108,333,333 $325,000,000 $400,000,000 $528,333,333

$85,000 $100,000 33.3% $2,000,000 $14,152,500 $42,500,000 $50,000,000 $66,152,500

Total Period External Hires: Total Period Internal Hires: Total Period Recruiting Costs: Total Orientation and Onboarding Costs: Total Period Recruiting and Onboarding Costs: Total Positions Hired or Filled: Average External Recruiting Cost per Hire: Average Internal Recruiting Cost per Hire: Average Orientation and Onboarding Cost per Hire: Total Cost per Hire: Internal vs. External Hire Total Compensation Cost Differential: External Cost per Hire Adjustment Factor:

Recruiting and Hiring Data

900 360 $5,500,000 $500,000 $6,000,000 1,260 $5,711 $1,000 $556 $4,365 $2,000 $0

100 40 $911,111 $55,556 $966,667 140 $8,711 $1,000 $556 $8,651 $10,000 $3,000

Total Period Terminations: Total Period Voluntary Terminations: Total Period New Hire Terminations: Total Period High Performer Terminations: Total Cost of Turnover per Departure: High Performer Cost of Turnover per Departure: Overall Turnover Rate: Voluntary Turnover Rate: New Hire Turnover Rate: High Performer Turnover Rate: Overall Total Turnover Costs: Overall High Performer Turnover Costs: Cost of Turnover Adjustment Factor:

Turnover Data and Cost Impact

700 600 200 70 $15,810 $40,654 14.0% 12.0% 22.2% 9.1% $11,064,534 $2,845,809 $0

90 80 30 20 $27,270 $73,890 18.0% 16.0% 30.0% 16.3% $2,454,167 $1,477,794 $0

Turnover and Costs

Productivity and Performance

Beginning of Period High Performer FTE (e.g. January 1): End of Period High Performer FTE (e.g. December 31): Active High Performers Hired Internally (Promotions + Transfers): Active High Performers Hired Externally: Return on Human Capital Investment: High Performers percent of Workforce: Percent of High Performers Hired Externally: Percent of High Performers Hired Internally: High Performer Productivity Differential:

Productivity and Performance Data

Average Employee Engagement Score (Input as Percent of 100): Percentage of Highly Engaged Employees (Input as Percent of 100): Total Annual Training Costs: Total Percent of Workforce Trained Annually: Average Training Cost per Employee Trained: Revenue Growth Associated with Improved Employee Engagement Score: Revenue Growth Associated with Highly Engaged Employees:

Employee Engagement and Training Data

75.0% 20.0% $10,000,000 80% $2,451 0.5% 5.0%

74.0% 20.0% $1,200,000 90% $2,614 0.5% 10.0%

Engagement and Training Mobility

760 775 475 300 23.7% 15.4% 5.9% 9.3% 10.0%

120 125 60 65 18.9% 24.5% 12.7% 11.8% 25.0%

Total Period Promotions: Average Promotion Cost as a Percent of Salary: Total Period Transfers and Moves: Average Transaction Cost per Promotion, Transfer or Move: Promotion Rate (Percent of Workforce): Mobility Rate (Internal Transfers + Promotions + Demotions): Total Annual Promotion Salary Increase Costs: Total Annual Internal Mobility Transaction Costs:

Mobility Data

530 10.0% 1,000 $500 10.6% 20.0% $3,445,000 $765,000

50 12.0% 200 $500 10.0% 40.0% $510,000 $125,000

1st Year Value

5 Year Value
Entity * $2,227,140 $2,032,721 $561,114 $649,525 $7,603,934 $734,955 $3,357,805 $17,167,193 $11,180,708 Position ** $954,898 $927,728 $186,534 $2,361,979 $1,325,474 $141,683 $335,781 $6,234,077 $4,034,124

Projected Costs and Impact

Projected Costs and Impacts Summary


Entity Current Workforce Cost Percent of Revenue: Entity Year 5 Workforce Cost Percent of Revenue: Entity Total Cost of Workforce CAGR: Entity 5-Year Total Cost of Turnover: Entity Total Cost of Turnover CAGR: Position 5-Year Total Cost of Turnover: Position Total Cost of Turnover CAGR:

Entity * / Postion ** 52.8% 59.2% 12.5% $70,139,309 9.2% $20,725,960 19.3%

Projected Savings and Value Creation Summary


Value Creation per Cost Savings per Cost Savings per Value Created per Cost Savings per Cost Savings per Cost Savings per 1% 1% 1% 50 1% 1% 1% Increase in High Performers: Decrease in High Performer Turnover Rate: Training and Mobility Retention Impact: Positions Filled Internally: Decrease in Overall Turnover Rate: Increase in Highly Engaged Employees: Increase in Overall Employee Engagement:

Entity * $236,740 $325,235 $88,516 $100,076 $1,191,753 $115,225 $500,000 $2,557,545 n/a

Position ** $61,178 $73,890 $22,088 $435,685 $206,782 $21,515 $50,000 $871,137 n/a

ROI and Value Creation

Total Value Creation:


Financial Net Present Value (NPV) at 15% Discount Rate:

Data Input

Calculated Field

Scenario Field

Quantify Financial Impact of Workforce Interventions


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Human Capital Management Institute 2010

The Workforce Quantifier ROI Calculator

Calculating Human Capital ROI demonstration

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How Do We Do It?
5 Steps to Workforce Intelligence
Assess Current State Organize for Success Prepare Data and Measures Prepare Data Integrations ID Key Metrics Quantify and Predict Optimize

Assess Skills Capabilities Systems Data Organization

Organize Build a Roadmap ID Goals ID and build skills/resources Define governance Plan service delivery and measurement

Execute Quantify value, ROI, and costs Predict and forecast Model workforce

Take Action Value opportunities Cost savings Policy or process changes Continuous improvement opportunities

How Do We Accelerate the Journey?


The Workforce Intelligence Consortium can quickly move you from measuring to QIP

Assessment Bring your issue Member-specific Roadmap

Industry Expertise
Experts Educational Institutions Benchmarking organizations Proven measures and standards

Foundational WFP and analytics Advanced education

Tools and Software


ROI Calculator Workforce Image Maps Data integration blueprint Next generation Workforce Intelligence software

Member forums and communities White Papers and knowledge library

Memberspecific solutions

Training and Education

Peer Networking

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Program Timeline

Workforce Intelligence Consortium program timeline:


Q4 2010 Consortium onboarding and education Q1 Q3 2011 Current tools , web prototypes, web data integration, and data load tools released Q4 2011 Web based application suite
(est release 12/11)

Regular expert, education, and community sessions will be held throughout the year. Next generation tools will be released as defined by the program schedule.

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Question and Answer

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Next Steps:
For more information about the Workforce QuantifierTM, visit http://www.hcminst.com/workforce_roi_calculator.html For inquiries about the Workforce Intelligence Consortium, contact Cheryl Farley, Program Director at
cheryl.farley@hcminst.com
Presenter information: Jeff Higgins, CEO HCMI at jeff.higgins@hcminst.com Grant Cooperstein, Senior Consultant and Principal at grant.cooperstein@hcminst.com

Workforce Intelligence Consortium Group

@HCMI
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Human Capital Management Institute

Thank you

Human Capital Management Institute

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