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How to Build a Bridge Between Finance and HR

© Human Capital Management Institute

Thursday, Feb 5 2015

About Human Capital Management Institute

© Human Capital Management Institute 2

Workforce Assessment ▪ Strategic Consulting ▪ Training

Best Practices ▪ Workforce Analytics and Planning ▪ Benchmarking

- 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

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.

Human Capital Metrics HandbookTraining and Advisory Support• Workforce Analytics Training• Workforce Planning Training• Custom onsite training

HCMI Products & Services

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620+ Metrics and

Detailed Definitions

Data Integration Blueprint

Workforce Analytics Assessment

Analytic Consulting On-Demand

Analytics COE and Roadmap Design

Statistical Prediction

Correlation Coefficient ( 0-1)

Factors Leading to Increased Turnover

Job Title or Position

Dissatisfaction With Compensation

High vs. Low Turnover Manager

Commute Distance

Driver #3

Driver #2

Driver #1

.50

.33

.27

.02

Low

Turnover Impact

High

Turnover

Impact

Some

Turnover

Impact

.11

Work Location

Number of Jobs in Last 3 Years .70

Hired Through Employee Referral .19

Initial Reports & Analysis

Data Gathering

First Good Metrics

HR Data Warehouse

Drill-down, standard reportsScenario Analysis

External Benchmarking

Context for decisions

Data

Driven Decision

Making!

Turnover, Headcount, Hiring

HRIS system data

COE Formation

Data Errors

HR Analytics Mandate

HR Standards EstablishedLost HR

Credibility

HR data/systems Assessed

HR Data Cleansed historical data scrubbed

Bus. Units

Reject

Analysis

Data Errors

Historical data

still bad

1st Analytics Study

Advanced Analytic Studies

HR Analysis Validated

Integrated HR Databases

COE Launches Training Courses

Bus. Units Demand

more

Analytics journey steps

Setbacks along the way

Journey path and goal

CONSULTING SERVICES

Integrated Dashboard

DASHBOARDSPRO

TECHNOLOGY SOLUTIONS

Human Capital Financial Statements• Human Capital Impact Statement• Human Capital Asset Statement• Human Capital Flow Statement

Workforce Quantifier™ ROI Calculator• ROI of Workforce Decisions• Cost of Turnover, Cost per Hire

Workforce Planning• Link Workforce and Financial Metrics• Forecast Skills, Costs, Talent and

Productivity

Job Framework Mapping• Integrated Taxonomy 15,000+ jobs• Map Critical Job Roles

Span of Control Optimizer™ Tool• Benchmark and Optimize Spans • Optimize Management Layers

Career Path Quantifier• ROI of Career Path• Build, Buy or Lease Talent Analysis

$$$ Financial Impact

Metrics

Data Blueprint

Predictive Modeling

TRAINING & SUPPORT

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Why Build a Bridge between HR and Finance?

• They (Finance) just don’t get it

• They see people as numbers

• They say ‘No’ to every HR project

• Training is critical to our business

• Talent is key long term success

• We need to invest in talent

• They (HR) just don’t get it

• Warm and fuzzy doesn’t pay the bills

• HR can’t show a real business case

• Training is critical to our business

• Talent is key long term success

• We need to invest in talent (we just don’t know how much)

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What HR Thinks What Finance Thinks

The Real Issue: HR and Finance speak fundamentally different Languages

Why Build a Bridge between HR and Finance?

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So we just need to teach Finance to speak HR, Right?Wrong!

• What is the Language of Business?

• What does Management Care About Most?

• What is HR is most afraid to talk about?

Quick Quiz:

Okay, so now what?

Money

Money

Money

Information Technology Financial Analysis Human Resources

Critical Contributions

Expert knowledge spot issues & opportunities

Recommend interventions and solutions

HR expertise to evaluate findings

Liaise with HR function and organization

Ensure HR compliance and governance

Interpretation of analytic insights and conclusions

Prepare workforce reports & analysis

Liaise with Finance function

Financial modeling for ROI, cost savings

Turn data into fact-based decision tools

Validate assumptions, data, and analysis

Identify business data requirements

Access to workforce data

Systems knowledge (where to get data)

Systems thinking (i.e., solution design, report design)

Automation ability (repeatable process)

Database construction, data management

Identify issues for investigation & hypotheses for root causes

Sell findings and business case ROI

Support analytic storytelling

Drive change management and communication

Lead interventions and changes to workforce and HR policies & practices

Bring analytic rigor to workforce analysis

Apply statistical, root cause analysis (i.e. statistical or six sigma skills )

Define metrics & data report standards

Use Finance experience to validate analysis t findings

Make complex analysis clear and compelling

Pull data from systems for analysis

Identify/implement system changes to improve processes and data quality

Build, establish, or populate databases

Liaise with IT organization

Address IT data security issues

Execute IT governance recommendations

Critical Contributions

Core Competencies

Critical Contributions

Core Competencies Core Competencies

Why HR and Finance (+IT) Need Each Other

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Keystones in the HR to Finance Bridge

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1. Ask the right questions

2. Use Finance methods to show gaps and how people are truly more asset than cost

3. Know the business what “KPIs” drive it

4. Use a business case for any HR project or strategic decision

5. Use metrics and analytics to quantify workforce and talent

KPI = Key Performance Indicator

#1 Asking the Right Questions

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What If you could answer the following?

1. What is our workforce productivity?

2. What size and cost of workforce can we afford?

3. Is quality of hire (i.e. “Top Talent”) better than cost per hire?

4. Is it better to build, buy or rent talent?

5. Are leaders effectively managing human capital? What is a good leader worth?

#2 Using Finance Methods and Language to Make Your Point

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1. Use the language of business $$$

• What is our Total Cost of Workforce(TCOW)? Where do we track that?

• If headcount goes down, does that mean TCOW goes down?

2. Headcount

• If Finance knows better than HR, how do we count people on leave?

3. Principle of Materiality: “is 1% really enough to care about”

4. Budget

• Where did we budget for unplanned turnover (i.e. voluntary)?

5. Capital vs. expense (buy a computer or run training?)

Using Finance Rules to Make Your PointThe Purpose of Traditional Financial Statements

Financial Statements as used by existing stakeholders

But they leave out the company's most valuable asset: The Workforce. Oops!

Stakeholder Use

Company LeadershipTool for business decision making that may affect an organization’s continued operations and annual report to stockholders

Prospective Investors Assess the success and viability of investing in a business

Financial Institutions (banks and other lending companies)

Decision to lend to a company or extend debt securities

Government Entities (tax authorities)

Verify information accuracy for legal, tax and audit purposes

Vendors who extend credit Assess business creditworthiness

Media and the General Public Measuring success, branding, other reasons

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CEO’s often State “Our People Are Our Most Valuable Asset

Measurement Trick #31

Measurement Best Practices:1.Metrics that are actionable

2.Metrics that identify, quantify, and clarify issues across the employee cycle

3.Metrics that link to business results

4.Metrics to capture leading versus lagging indicators

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#3 Know the BusinessKey: Know How Workforce Talent Links to Business Strategy

• Business Strategy is in the Annual Report or Strategic Plan• Workforce Strategy, KPI Metrics, HR Strategy are there if you know where to look

Return on Invested Capital

Sales Growth

Customer Service

Excellence

Build Workforce

Talent & Skills

Raise Workforce Productivity

Control Workforce Cost

Raise Workforce Productivity

Engage/Retain Talent

Build Talent Pipeline

Business Strategy

Workforce Strategy KPI Metrics

Total Cost of Workforce (% of Revenue)

Revenue/Profit per FTE

Management Span of Control

High Performer Turnover Rate

Employee engagement scores (NPS*)

Customer satisfaction Scores

Customer up-sell rates

Customer service training KPIs

(* NPS = Employee Net Promoter Score)

Internal Hire Rate

HR Strategy & HR Activities

Training for service excellence

Training to build internal talent in

key roles

Customize pay based on service +

job criticality

Recruiting for Top Talent Internally and Externally

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Customer Service Focus

Talent Management, Performance,

Potential

Human Capital ROI Ratio

Return on Human Capital Investment

Quality of Hire Index

#4 Building a Business CaseWhat to Include

1. Compelling Questions– Ask the Right Questions

2. Objective Measures and Facts– Historical Data, Key Metric Indicators, Segmented Data

3. Powerful Visuals Charts– Chart(s) that Show Insight (i.e. Story) and Drive Action

4. Use Qualitative Story Telling– “Two of our Top 3 Salespeople came from other industries”

5. Link to Business Impact (ROI/Cost/Profit)– The Cost Savings is a range of $1.0 to $3.0 Million

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#4 Components of a Business Case

1. A Business Need or Imperative “Why”

– A clear problem/opportunity or question(s) to be answered

2. Quantitative Analysis “What”

– Current state assessment

– Alternatives Evaluated, (include ‘do nothing’)

– Cost Benefit Analysis or ROI “What do we get”

3. Risks

– List key risks that impact the business (“What if we do nothing”)

4. Timing, Resources, Process

– “When”, include roadmap or project plan (show 90 day deliverables)

– “How”, process to be used (e.g. GE’s six sigma process)

– “Who”, document who will do it (champion, oversight, partners)

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#5 Using AnalyticsFitz-enz “Levels of Analytics”

- Prescriptive “Actionable” If-Then Analytics

- Workforce Planning + Financial modeling(HCF$)

- Workforce planning, scenario modeling

- Multivariate statistical modeling

- Statistical regression analysis

- Forecast Leading(predictive) Indicators

- Trend reports

- Metric scorecards

- Ad-hoc reporting

- Transaction and count reports

Level 1 Descriptive

Level 2 Predictive

VALUE

Level 3 Prescriptive

Contact Information and Upcoming Events

Jeff Higgins, CEO – Jeff.Higgins@hcminst.com

www.hminst.com

Workforce Intelligence Consortium Group

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Pasadena, CA: www.hcminst.com/training

Workforce Analytics Training – Feb 24-25, 2015

Workforce Planning Training – Feb 26-27, 2015

25% off Training Discount Code = HB25

@HCMI