Why to Measure Human Capital
Business Executives judge HR strategic role NOT on be the basis of emotions or HR ACTIVITIES but by the IMPACT of their actions on the business, which is always measured in financial terms.
In today’s global economy 4 to 52% of annual operating cost in business organizations goes to human capital management. In an increasingly dynamic environment led by cost-cutting and tight budget justification, the role of human capital is increasingly becoming critical to the organizational success. Shareholders and CEOs measure results. They are interested to know, how the investment in human capital impacts the top and the bottom line of the organization. They expect HR to have rigorous, logical, and principles-based framework for showing connections between human capital investments and organizational success.
Business decisions are 75% data and 25% emotions. Numbers are the universal language of business as the business leaders prefer to take decision on measurable, verifiable, objective data, rather than subjective gut feelings. HR's traditional model of using whimsical opinions and emotions impulses for workforce decision making is woefully inadequate. A key responsibility of HR leaders is to articulate the logical connections between progressive HR practices and firm performance, and demonstrate those connections with data and ratios.
Having ratios and financially analytical measures is imperative for HR for HR growth. Numbers are the language of business as they are expressed in units that directly reflect the bottom line; paving way for financially prudent decisions for workforce management. Some company use legacy metrics like no of people hired, no of training hours or no of employees surveyed which just show the input measures, whereas the business is interested in the output measures like Quality Index of New Hires, Training Transfer to Workplace Index, Succession Readiness Index and Human Capital ROI etc.
Human Capital Management Metrics have thus become differentiator between top class and traditional HR department. It is a vital tool to respond to organizational change initiatives in order to boost employee satisfaction and productivity.