The HR is an important and crucial part of any organization. Every organization defines the HR a little differently. I will assume that the HR deals with recruiting employees, employee retention, course management, and, of course, wages.
I apologize for the fact that this post deals with only the tip of the iceberg of the tasks of the HR. I will be happy if you send me more KPI so that I can integrate them into this post.
The HR as a department in an organization offers services to other parts of the organization. That’s why the HR KPI does not necessarily reflect the HR department, but it reflects on the whole organization.
1. Employee turnover
Short description: the number of employees that left the organization (in a given period) divided by the number of employees that the organization plans to hold. If the organization has a standard number of employees, we can use that. If not, we can use an average number of employee (the number of employees at the beginning and end of the period divided by 2).
Who uses it (importance): higher management (high), factory management (high), unit management (medium)
Description: employee turnover usually costs the organization a lot of resources:
- new employees require training and at the time of training we pay the salary and usually don’t get full output, or sometimes any output
- new employees are expected to make much more mistakes than experienced employees. Sometimes the mistakes cost money, sometimes they consume other employees’ time
- managerial time: every new employee needs the attention of his manager to make sure that he is properly trained, the manager needs to make sure that the new employee fits the organization. Every new employee requires much more managerial time than an experienced employee.
- recruiting costs: we need to have a system that looks for good candidates, assess them, and take a lot of managerial time to interview them.
Many organizations invest a lot in improving the hiring process and spend a lot of money on employee retention. The result of those processes is improving the employee turnover.
What’s the difference between employee retention and employee turnover?
Let’s use an example. We have an organization of 10 employees. One of the employees decides to leave. We hire a new employee who after 2-3 months turns out not to be a good fit. We let him go and hire someone else. The new employee works very well, but after 6 months decides to leave and we need to hire someone else.
Our employee retention = 90% since 9 out of 10 people still work at the company.
Our employee turnover = 70% since we have 3 people leaving on top of 10 who work at the company.
The organization trained 3 employees. It spent a lot of time spent on training and paid salaries to less productive employees. That’s why I consider the employee turnover to be the most important HR KPI.
2. Employee turnover – production/R&D only
Short description: the same KPI with filter on production
Who uses it (importance): higher management (high), factory management (high), unit management (medium)
Description: the general turnover is important for looking over all the employees. But usually the organization needs lo look closely at a specific section of the company. In production organizations this section is the production. The production makes the money for the company. If we do not have people at the machines, we will not produce and will lose money. If we spend a lot of time training, we will have more defects and less output. In an R&D organization we have the same problem. If we look only at the core of the R&D, we will find smart people who might go to other organizations. R&D in this type of organization is equivalent to production. If we don’t have experienced people in place, we will have a longer development cycle and more bugs in the products we develop.
3. Days of absence – general and production only
Short description: absence days divided by all working days (holidays not included)
Who uses it (importance): higher management (high), factory management (medium), unit management (low)
Description:
Employees’ absence days are important because:
- they cost the organization money
- the organization loses output through the days of absence
- days of absence might be the result of dissatisfied employees.
Absence days are not holidays. It might be sickness, work injuries, or any other reasons why the employees stay at home. In this KPI we are looking at trends, not absolute values.
The following graph shows the actual absence days in the lower part and the % of absence days of full-time available days. The percentage allows us to overcome months with fewer days or holidays.
And now only production:
We can retrieve a lot of data from the graphs. We can see that the absence days started to rise in June 2016. We can also see that the reason for the rise were work injuries, but from September till December the rise came from sick days. The reason might be that the fall starts in September. We can compare the data to last year’s data and see whether this is the problem. If we are in a worm climate, we need to look for other reasons that cause such an increase in sick days.
4. Average Employee Seniority
Short description: an average of employee seniority in years
Who uses it (importance): higher management (medium), factory management (medium), unit management (low)
Description: average employee seniority represents the “age” of the organization. Higher number represents a tendency of employees to stay in the organization. In theory if everyone stays, we will have an increase of 1 every year. When this KPI goes down, that represents a tendency to leave the organization (or in the good case, they leave for pension). This KPI is important because it gives more weight to experienced people who leave.
The turnover KPI gives a lot of weight to the number of people who left the organization, while the seniority KPI gives weight to how experienced those people were. If we look at the example that I gave in the turnover KPI, we will see a 30% turnover, which is a high number. However, in the seniority KPI we will see many changes, since the people who left were “young” in the organization.
5. Employees turnover – Time analysis
Short description: analysis of turnover by time and initiator
Who uses it (importance): higher management (medium), factory management (medium), unit management (low)
Description: high employee turnover is considered an organizational problem. If people get fired a lot, we either have a managerial problem or a problem in the recruiting process (we hire the wrong people). If we have too many people who resign, we need to consider that our organization has a big problem keeping the employees. That is why we put both figures on the same graph. When we add the time factor, we can see when the problem started.
When we look at the figure, we easily see that until May 16 we had about 6% turnover and by the end of the year we had 16.9% turnover. Looking at the stack bars we see that many people were fired in Jun 16. Two months after that more people started to resign. Without being in the organization we can understand what happened there.
The figure is a monthly time analysis, but you can also do a quarterly or half-yearly figure, depending on the size of your organization.
6. Wages cost + Wages cost per output unit
Short description: the overall cost of wages vs. the wages cost divided by output unit
Who uses it (importance): higher management (high), factory management (high), unit management (low)
Description: when an organization is growing, we have an increase in salary due to increase in the number of employees and growing salaries. We will also produce more output. In order to keep costs low we need to monitor the increase in wages vs. the cost per unit. The purpose of this KPI is to make the connection between wages and units produced.
We can see in this figure that since Q1-2016 we have a small increase of wages every quarter, with an overall increase of 1 million per quarter. But the cost per production unit went down from $14.9 per unit to $13.8. That means that in terms of wages we can explain the increase in wages. Now let’s filter out only the production section and see what we get:
This figure tells us whether the production became more effective or not. By filtering out all the other departments we filter out the increase in salaries of higher management, the sales team, and every nonproduction personnel. As we can easily see, the increase in production wages is going up at a steady rate, but we keep bringing down the cost per unit produced in terms of wages. That is very important, because it means that we are becoming more effective.
7. Hours per output unit
Short description: all human hours invested, divided by output unit
Who uses it (importance): higher management (high), factory management (high), unit management (low)
Description: all human hours divided by output unit such as tons, square meters, thousands of units, number of line codes, whatever the organization considers to be output. We look at 2 KPIs – one that includes all employees and one that only includes the direct personnel responsible for production. The second figure should go up and down in relation to the output needed. That is not always true due to a change in product complexity and different work agreements.
This type of KPI removes the noise created by increase in salaries which the previous KPI is affected by.
The general figure shows us whether the organization expands and more and more human hours are loaded on 1 output unit.
Another way to look at this KPI is looking at a yearly scale, where we can see the big difference.
That is it for now.