Translating HR metrics into business results: how to talk to management in the language of numbers

Metrics alone do not provide enough information to make decisions. Only when we put different metrics together, logically linking them to the processes we are trying to analyze, do they become tools for analytics.

Why you need HR metrics

Even well-chosen metrics may not be enough to talk to the business. It often happens like this: an HR specialist comes to a business, shows the metrics, and says, "We have a problem here." The business responds: "Yes, we have a problem. But there's no budget to solve it."

Typically, "no budget" doesn't mean that the business doesn't actually have the money. If the company really doesn't have money, it means it's on the verge of bankruptcy, and then HR issues aren't a priority. But if the problem is not so global, and the business still says "no budget" - it means that the financial benefits of implementing your HR project are not obvious to it.

The more costly a problem is to a business, the more likely it is to want to address it. For example, indicating that staff turnover is 30% will sound alarming, but not alarming enough for a business to start addressing the issue and investing money in a solution.

However, a clearer picture can be painted:

• 3 million in turnover losses;
• If you raise wages, you can cut that loss by a factor of three, to one million.
• To do this, we need to raise salaries by one and a half million.

Now it is already a potentially attractive project with a profit of half a million - it is important to show the business the data that it can operate with and build into its processes.

Classification of HR metrics

Strategic Metrics

Strategic metrics are directly related to business results. These are metrics that show the impact on revenue or profit.

In terms of revenue, it could be labor productivity or staffing. The logic is simple - revenue is the number of people multiplied by the useful product each of them produces. So it's important to track whether we have those people (staffing) and how well they are performing (labor productivity).

In terms of profit, there are two options - we either increase revenue or reduce costs. The ratio of these two gives us the profit the company can expect to make. Here it makes sense to look at payroll as a proportion of revenue, costs per employee, and other such metrics.

Operational Metrics

The problem with strategic metrics is that they do not appear immediately - the effect of our actions on these values cannot be seen instantly. When the effect becomes visible, it may be too late - although we may be able to fix the strategy in the future, a particular project may already have failed.

That's why we need operational metrics that help us understand whether we are moving in the right direction and whether we can achieve our strategic goal. For example, if a business is actively growing and we need to staff a team quickly, the strategic metrics here are the staffing and labor productivity of newcomers.

In turn, operational metrics to control the process include:

• job closing rate;
• the number of candidates entering the funnel;
• recruitment funnel conversion;
• performance of the onboarding program;
• interim results of new hires.

How to implement HR metrics in the company?

To generate the necessary metrics, you should ask yourself six key questions:

1. What task does the business have?
2. What should employees do to fulfill this task?
3. What is the current situation, what can prevent the fulfillment of the task?
   To answer this, we analyze: the state of the labor market, HR processes, the availability of adaptation programs, whether there are those responsible for onboarding newcomers, how recruitment is organized.
4. What is the task of HR, what HR processes can help the business?
5. What indicators allow you to track results?
   At this stage, formulate strategic and operational metrics.
6. What baseline data do we need?
   This question is extremely important - you can come up with great metrics and then realize that the company simply doesn't have the data to calculate them. Therefore, it is imperative to:

• understand what raw data is needed;
• correlate the idea of an analytics system with the capabilities that are available right now;
• if something critical is missing, think about how to start collecting that data.

In such conditions it is difficult to talk about labor productivity growth. The HR service, having analyzed the turnover rate, determines that it is functional - it is not rare and valuable specialists who leave, but employees who can be found on the market. However, due to high turnover rate, constant training of newcomers creates heavy loads on the adaptation system.

In this case HR should focus on the following aspects: fast recruitment and adaptation program organized as efficiently as possible, with minimal load on experienced employees and quick introduction of newcomers to normal performance.

How to work effectively with HR-metrics

Companies face three main groups of difficulties when working with HR metrics.

The first group is data problems:

• data is missing;
• data is stored in different systems;
• when combining data from different sources, they are not consistent with each other;
• human error when manually entering data into Excel (information is lost, overwritten or forgotten).

The second group is methodological problems.
They arise when the company has not initially agreed on how to calculate certain indicators. For example, when calculating the turnover rate (the number of dismissed employees by the average number of employees), questions arise: whether to take the average or the average number of employees, whether to take into account only voluntary dismissals or all dismissals.

When the methodology is not harmonized, difficulties arise when comparing data between departments within a company, with data for previous periods if the calculation methodology has changed, and with the indicators of other companies if they think differently.

The third group - lack of competencies.

The competencies required for HR-analytics include two groups of skills:

If a company is focused on data-driven decision making - this is already a good start for an HR analytics system. To ensure high quality data, it is recommended to:

1. think about the data architecture for specific goals and objectives;
2. create a single data source;
3. automate data collection;
4. implement regular quality control and data audits;
5. develop a company-wide culture of working with data.

Questions and Answers (FAQ)

What are the different types of HR metrics?

There are two main types of HR metrics. Strategic metrics are directly related to business results - they show the impact on revenue (labor productivity, staffing) or profit (share of FTE in revenue, cost per employee). Operational metrics help track whether we are on track to achieve strategic goals - for example, for a staffing goal, this could be job closing rate, recruitment funnel conversion, onboarding rates.

How often should HR metrics be tracked?

The frequency of tracking depends on the type of metrics. Operational metrics require constant monitoring, as they allow you to identify problems and adjust processes in a timely manner. For example, if the turnover rate is high, it is important to monitor the recruitment funnel, the speed of closing vacancies and the results of adaptation on a daily basis. Strategic metrics are usually analyzed less frequently (annually, quarterly), as they show long-term results and trends.

What are the most common mistakes made when using HR metrics?

The main mistakes are related to three aspects. First, data problems - when data is stored in different systems, is not harmonized with each other or contains errors due to human error. Secondly, methodological problems - when a single methodology for calculating indicators is not agreed upon, which makes it impossible to make a correct comparison. Third, incorrect interpretation of metrics - when indicators are analyzed in isolation from business objectives or are not translated into financial terms when dialoguing with the business.