How valuable is HR? Can we put a financial metrics to it? If HR manages to do so, the CEO will certainly see more value in the function and evaluate HR on its financial impact and business goals.
What do HR managers need to do?
1. Identify the HR activities, which the CEO may find crucial for business goals. A survey involving executives will help identify factors that help the organisation and its departments run more smoothly, satisfy customers and earn profits.
2. Improve the effectiveness of these activities to not only increase revenue and profit but also reduce expenses.
3. Develop credible metrics to measure the financial impact of HR activities. It is important to demystify these metrics by reading up on the topic and networking with other HR professionals to find out how their organisations use them. Also, it’s important to provide information that enables better business decisions and not just numbers —metrics that matter most should rise to the surface.
Here are some ways in which HR has successfully impacted the finance in companies:
1. Effective orientation
A new and effective employee orientation process is a great cost saver. If new employees spend less time in orientation, it will allow them to start productive work sooner. In an organization, when the new recruits spent 25 per cent less time in orientation, it added 90 hours to their work. In addition, an effective and crisp orientation meant fewer mistakes made by the new hires in the first month.
Potential cost saving: 10–20 per cent
2. Employee Safety
An effective safety programme can bring down the number of accidents, safety violations and injury-related days off. If accidents, injuries and incidents can be brought down by 50 per cent, it would mean a significant drop in the number of leaves.
Potential cost saving: 10–15 per cent
3. Pre-employment screening
A company successfully implemented job skill and temperament tests, and standardised exit interview questions. It also started a low-cost staff recognition programme. As a result, it’s cost per hire decreased by 15 per cent over a period of six months, saving the company significantly in terms of recruitment and administrative costs.
Potential cost saving: 15–20 per cent