Measuring Workforce Productivity Using Total Cost of Workforce
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November 16, 2010
Human Capital Management Institute
Presents:
Measuring Workforce Productivity using
Total Cost of Workforce
Agenda
• Welcome
• Overview
– About HCMI the Workforce Intelligence Consortium
– The Challenge of Measuring Human Capital
• What is Workforce Intelligence?
• Quantifying Total Cost of Workforce
• Q&A
• What’s Next?
2© Human Capital Management Institute 2010
About Human Capital Management Institute
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
3
Workforce Assessment w Strategic Consulting w Training
Best Practices w Workforce Analytics and Planning w Benchmarking
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
© Human Capital Management Institute 2010
Workforce Intelligence Consortium
Workforce IntelligenceConsortium
Universities/ Educators
Thought Leaders
Benchmarking Organizations
Member Companies
HCMI
A partner-driven organization dedicated to quantifying and solving workforce planning and analytics issues
Dr. Jac Fitz-EnzSponsors
What Do We Do?
© Human Capital Management Institute 2010 5
Awareness Action Competence Effectiveness Excellence
QuantifyIntegrate
Predict
The Workforce Intelligence Consortium
accelerates your workforce planning and
analytics competency
Bu
sin
ess
Im
pa
ct
Align HR and business strategy
Create a Center of
Excellence
Utilize benchmark standards
Conduct root cause analysis
Leverage advanced metrics and ROI
analysis
The Challenge of Measuring Human Capital
WorkforceAnalytics
6
Past Present
WorkforcePlanning
DecisionMaking
Historical Workforce
Future Workforce
Current Workforce
Future
Trend Analysis Future ScenariosWorkforce Knowledge
Predictive Analytics
Key performance
Indicators
Workforce Optimization
© Human Capital Management Institute 2010
Workforce Analytics vs. Workforce Planning
The Challenge of Measuring Human Capital
Human Capital Management Institute 7
Va
lue
1978 1985 1995 2007 2010
Workforce IntelligenceConsortium
Predicting
Analyzing
Benchmarking
Measuring
Time
As we move to more advanced analytics over time, we see
greater value
Source: Dr. Jac Fitz-enz
The Challenge of Measuring Human Capital
Compensation
Transfers
New Hire Turnover
Succession Data
Turnover
Training
Recruiting
Em
ploy
ee D
ata
Benefits
Span
of Control
Workforce
Planning
SuccessAdvanced
Analytic
Insights
Complexity of Workforce Data
Employee/Full-Time-Equivalent (FTE)
Jobs/Roles/Skills
Time - Tenure
Compensation ($ vs. Equity)
Frequency of Change
Promotions, Transfers, Hires, Terminations
Jobs/Roles/Skills
Time - Tenure
Measuring the Intangible
Lack of Standards
Lack of Analytic Skills
8© Human Capital Management Institute 2010
• Revenue
• Expenses
• Assets
• Liabilities
What is Workforce Intelligence?
9
Operations &
Business
Financials
• Hiring
• Paying
• Developing
• Engaging
• Retaining
• Diversity
Human Capital
Customer
How do we get from Human Capital to Financialsand deliver actionable data?
• Unit Cost
• Cycle Time
• Quantity
• Quality
• No. attracted
• Conversion rate
• Spend amount
• Margin
• Satisfaction
• Return rate
© Human Capital Management Institute 2010
• What is Total Cost of Workforce (TCOW)?Total of all workforce direct related costs including:– 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? – Workforce is the largest cost (average 70% of operating expenses)
– What gets poorly measured, gets poorly managed
– In growth: budgets, requisitions and position control leave many holes
– In decline: shows how much to cut
– Need for a metric to manage the workforce complexity
Total Cost of Workforce (TCOW)
10Human Capital Management Institute
The Bottom Line – Controlling Workforce Costs
• Existing cost control tools don’t work (Budget?)
– Status quo drives binge (hiring) / purge (layoff) cycles
– Off-shoring/Outsourcing reduces costs but not competition
• How does TCOW Control Costs?
– Set targets to budget, forecast, benchmark or improvement goals
– Link to new hire requisitions, hiring freezes, bonus-incentive payouts
– Benchmark business unit and organizational performance
• TCOW as a % of Revenue or as a % of Total Expenses
• 1% TCOW savings at a Fortune 500™ Co. = $30 million
About Total Cost of Workforce (TCOW)
Human Capital Management Institute
• “Total Cost of Workforce detail is great but I need to drill down to see what is driving costs”
Low - Below Total Wkfce Cost Target
Warning - Limit of Total Wkfce Cost Target
High - Above Total Wkfce Cost Target
Each category shows performance,
tenure and job role detail
Total employees managed and
average cost of workforce
displayed for
each manager.
Total Cost of Workforce: Application
Human Capital Management Institute
The Impact of Workforce Analytics and PlanningHewlett Packard Case Study
About HP:
$120 Billion USD Annual Revenue, 13% Revenue Growth, 300,000+ global employees
Ranked number 9 on Fortune 500 list of America’s biggest revenue producers
Acquisitions:
2008, EDS corp., $22.1 Billion USD revenue, 130,000 employees
2009, 3Com corp., $1.3 Billion USD revenue, 4,600 employees
2010, Palm corp., $1.0 Billion USD revenue, 1,000 employees
1313Human Capital Management Institute
HP Case Study: Inventing the Future Workforce Growth, Reduction and Business Integration:13% growth while saving $500 - $700 Million USD annually
14
• 1-page workforce snapshot report• Workforce planning optimization• Workforce mix (regular, contract, expat)• Location, job and function insights
Productivity
Industry standard definitions Benchmarks Productivity metrics + goals
HR Strategy Quadrants HR Optimization Model Output
• Pay for performance • Link turnover to employee feedback• Shared culture and values
Engagement
Rewards & recognition Employee communication Employee assessments
• Predictive analysis• Cost savings vs. growth analysis• Reduce/re-train outdated skills
Cost
Total cost of workforce Job architecture Productivity vs. cost trade-off
• Current vs. future talent needs
• Rapid hiring of new talent/key skills
• Integrate critical skills and roles
Quality
Talent management Learning & development Staffing requirements
Inte
gra
ted
Bu
sine
ss + T
ale
nt S
trate
gy
Human Capital Management Institute
The Impact of Workforce Analytics and PlanningHewlett Packard Case Study
2000 to 2005: Struggling to Move and Change
“A” Division retrenches Development Engineers
“B” Division is hiring Development Engineers
2006 to Current: Become an Agile Workforce
Adopting Total Cost of Workforce into hiring, budgeting, and workforce planning, HP has been able to:
Be surgical in workforce decision making
Increase mobility and hire only when needed
Simultaneously retrain or layoff obsolete skills while hiring needed new skills
1515Human Capital Management Institute
Where Are You?
Where is your organization on the Workforce Planning and Analytics journey?
© Human Capital Management Institute 2010 16
Assess
• Skills• Capabilities• Systems• Data• Organization
Organize for Success
Assess Current State
Prepare Data and
Measures
Quantify and Predict
Optimize
Organize
• Build a Roadmap• ID Goals• ID and build
skills/resources• Define
governance• Plan service
delivery and measurement
Prepare
• Data• Integrations• ID Key Metrics
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 Do It?
5 Steps to Workforce Intelligence
How Do We Accelerate the Journey?
© Human Capital Management Institute 2010 18
Member-specific
solutions
Industry Expertise
Training and
Education
Tools and Software
Peer Networking
The Workforce Intelligence Consortium can quickly move you from measuring to QIP
• Assessment• “Bring your
issue”• Member-specific
Roadmap
• Experts• Educational
Institutions• Benchmarking
organizations• Proven measures
and standards
• Foundational WFP and analytics
• Advanced education
• ROI Calculator• Workforce
Image Maps• Data integration
blueprint• Next generation
Workforce Intelligence software
• Member forums and communities
• White Papers and knowledge library
Consortium Additional Offerings
The goal of the Workforce Intelligence Consortium is to provide solutions to your specific workforce issues. In some cases, we may work with you to provide additional resources or solutions to achieve this goal.
© Human Capital Management Institute 2010 19
• Center of Excellence guidebook and training
• Span of Control optimizer• Workforce Reorganization
Analysis• Dashboard and Scorecard
Process Development• Advanced Human Capital
Analytics Certification
• Additional Training Advanced WF Analytics Advanced WF Planning KPI and Scorecard Design Talent Management Data Transformation and Standards
Program Timeline
20
Q1 – Q3 2011Current tools , web prototypes,
web data integration, and data load tools released
Q4 2010Consortium
onboarding and education
Q4 2011Web based
application suite (est release 12/11)
Workforce Intelligence Consortium program timeline:
Regular expert, education, and community sessions will be held throughout the year. Next generation tools will be released as defined by the program schedule.
© Human Capital Management Institute 2010
Next Steps
The Workforce Intelligence Consortium educational series continues:
Calculating Human Capital ROI
November 30
1pm CT/11am PT
Register at www.workforceic.com
© Human Capital Management Institute 2010 22
Next Steps:
Human Capital Management Institute 23
Visit www.hcminst.com or www.workforceic.com for more information about tools, services, and the consortium
To schedule a demo of 1st Generation Solutions or to join the Consortium, contact Cheryl Farley, Program Director at
cheryl.farley@hcminst.com
Presenter information: Jeff Higgins, CEO HCMI at jeff.higgins@hcminst.com
Workforce Intelligence Consortium Group
@HCMI
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