Financial Acumen for HR Part 2

Financial

Acumen for

HR part II

A CTR Business Acumen

Webinar

Jeff Higgins, CEO Human Capital Management Institute

June 24, 2015

Logistics for Todays Webinar

PowerPoint and recording will be available to CTR members within 48 hours on the Members Resource Center page at the website Nonmembers will receive PPT by email within 48 hours

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Human Capital Management Institute 3

Our Speaker Jeff Higgins Chief Executive Officer

Human Capital Management Institute

Jeff is the CEO of the Human Capital Management Institute, a driving force in Workforce analytics at leading companies who transform workforce data into a source of value creation via planning and predictive modeling. With his unique combination of experience as both a senior HR executive and former CFO, Jeff helps organizations around the world rapidly advance their analytics & workforce planning journey. He is a regular speaker at HR events, a member of the Human Capital Institute National Advisory Council on Talent Leadership, a founding member of the PwC Saratoga Institute advisory council on metrics, and a member of the Center for Talent Reporting Board of Directors.

About Human Capital Management Institute

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:

World leading tools/methodology

100+yrs experience Analytics & Planning

Deep Finance & HR expertise

Advisory Board CFOs and HR heads

What We Do:

Measure the immeasurable in human capital

Full service tools, consulting & training

Transform workforce data into intelligence

Tools so HR can make the business case

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.

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Value Creation in Todays Marketplace


Intangible Capital Value

Tangible Assets/Value

Human Capital = employee knowledge, training, productivity, experience, culture, leadership, development, performance, creativity, etc.

Are we managing the right things or just measuring what we know how to measure?

Measures are well established for modern Finance as a Decision Support Science

Hard to Measure

Easy to Measure

Market value driven by factors not on a balance sheet

Intellectual or Human Capital

vs.

The Why of Traditional Financial Statements

Financial statements are used by many different stakeholders

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

Stakeholder Use

Company Leadership

Tool for business decision making that may affect an organizations 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)

Ascertain the propriety and accuracy of information for legal, tax and audit purposes

Vendors who extend credit Assess the creditworthiness of the business

Media and the General Public Variety of reasons


Oops!

The Future of Talent = Analytics Attraction, Development, Retention and Performance

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The Most Important Metrics for Human Capital

Source: Deloitte Global Human Capital Trends 2015

Gap = Importance vs. Capability


Key Financial Acumen Elements

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1. Speaking the language of business

2. Appreciating vs. depreciating Assets

3. Materiality: Is it really enough to care about

4. Return on Investment (aka cost vs. benefit)

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

Measurement Trick #18 Words not Action

Measurement Best Practices: 1. Great Metrics are actionable

2. Metrics should identify, quantify, and clarify talent issues

3. Metrics should link to business results

4. Metrics should be leading versus lagging indicators


Okay We Speak the Language, Now What?


In Speaking the Language of Business, $$$ be sure to include both the positive ($$ benefits, ROI) and negative (costs).

When it comes to Materiality, less than 10% is generally considered immaterial and 1% certainly is!

For Appreciating (land, fine art), vs. Depreciating Assets (computers, most everything else), ask the right question, where does talent fit?

Capital vs. Expense, again using questions is powerful. Where are people vs. computers?

ROI is a natural element in a business case, our main focus.

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

Success Advanced

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 in HR

Lack of Analytic Skills

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Asking the Right Questions


What If you could answer the following?

1. Which workforce HR metrics link to business results?

2. What is our workforce productivity?

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

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

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

SHOW ME THE MONEY!


15% productivity gain and lower costs ($55.0 Billion Package Delivery Co. )

Predicting sales stars pre hire

{$1.0 Billion Bank}

ROI of sales training {$2.0 Billion Retail Co.}

Location optimization for talent growth

{ West Coast Regional Bank}

Employee engagement to revenue impact {$1.0 Billion public Airline}

40% voluntary turnover reduction {public, financial services co.}

ROI of internal vs. external hires {public bank}

$1.1 Billion Annual

$264 Million Annual $1.1 million per sales person

$250 Million Annual $250k per Salesperson

$200 Million 10 years

$96 Million Annual $5 per flight premium

$12 Million Annual

$6 Million Annual

A Strategic Approach to Analytics

Keys to Success:

Formalize Workforce Strategy Shared Strategy across HR

Find the Right Key Metric Indicators

Create Data/Reporting Standards

Build Analytics Skills, Create Focus

Integrate Disparate Datasets (BI or HRIS systems)

Strong Processes and Tools Governance/Oversight

Build/buy analysis tools

Analytic Answers to Key Questions

Change Management/Adoption

Resources

Tools

Metrics & Standards

Data

Workforce Strategy

Data Integration

Repeatable Process

Capability Knowledge

Introduction

Sample Company: Project Steps and Key Deliverables for Business Case

Workforce Assessment

HR Analytics Roadmap

Business Case and

Presentation

Step 1 Step 2 Step 3

Foundational Standards

Recommendations to Gap Current vs.

Future State

Risks and Challenges

Strengths, Opportunities

Path to Rapid Analytics Excellence

Workforce and Business Strategy

Linkage

Avoid Common Pitfalls

Identify Quick Wins

Analytics Imperative

Key Human Capital Questions

Identified

ROI Opportunities

Workforce Financial Linkage

Core

Example: Business Case for Workforce Analytics Orange Health

Orange Health Analytics Imperative: Analytics is a Source of Competitive Advantage

The bigger the workforce cost, the bigger the potential value creation

Leading organizations are leveraging workforce analytics and Big Data

Delaying leaves longstanding questions and problems unresolved

Analytics Value Proposition: Links to and drives productivity and superior cost control

Enables leadership, engagement and key success driver optimization

Delivers workforce standards for data-driven decisions

Builds HR credibility, improves data accuracy

Mitigate Human Capital Risks: Turnover impact on growth and satisfaction

Defining Quality of Hire to hire strong talent

Leaderships impact on workforce productivity

Identify critical roles that impact patient satisfaction and outcomes


What to Include in a Business Case

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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Main Components of a Business Case

1. A Business Need or Imperative (Why?) A defined problem/opportunity or question(s) to be answered

2. Quantitative Analysis (What?) Current state assessment

Alternatives evaluated (be sure to include do nothing)

Cost benefit analysis or ROI (what do we get?)

3. Risks List key risks what you miss out on (address what if we do nothing?)

4. Timing, Resources, Process When - include roadmap or project plan (must have 90-day deliverables)

How - the process to be used (e.g., GEs six sigma process)

Who - document who will do it (champion, oversight, partners)


Introduction


Sample Business Case in a Dashboard

#1. Question) What is our Quality of Hire? Are we hiring better talent? #2. + #3. Clear data with trend and impactful chart #4. Written comments with critical insights + predictions #5. Clear financial impact and ROI

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#2

#2. #3.

#5 #4.

#4. #1

Workforce Analytics Roadmap: Drugstore Drug Store Retail Summary Milestones

Combined Focus: Center of Excellence

Research and Analytics Group

Service Delivery Group

0 6 Months 6 12 Months 12 18 Months 18 24 Months

Foundation and Metrics

Data Standards

Report Design

Communication Plan

Data Gathering

Project Scoping

Resources: 2 3 FTE

Analytics: 40%, Service: 60%

Internal Resources, Analytics Training

FTE Recommendation Include Existing Staff

Advanced Reporting

Launch Initial Pilot Project

Dashboards and Scorecards

Quantify ROI Linkage Interventions

Optimize and Evaluate

Workforce Planning

Resources: 6 10 FTE


Internal Resources, Consulting Support FTE Recommendation Include Existing Staff

Advanced Modeling

Tools

Resources: 3 5 FTE


Additional Staffing, Consulting Support

FTE Recommendation Include Existing Staff

Resources: 4 6 FTE


Internal Resources, Consulting Support FTE Recommendation Include Existing Staff

Data Segmentation

Workforce Plan

Milestone Summary Component

Systems and Technology Solution roadmap includes the addition of additional data sets and analytics (Modules) over the next 12 to 24 months. These modules include: Learning; Competency / Succession Planning ; Benefits; Absence; Assessments and Finance


Case Studies

Case Study: Business Case Summary for Workforce Analytics ROI

Resources and Systems: Total Investment = $700k - $900k Launch Service Delivery and Analytics (CoE) per Roadmap Resource Plan

- Total FTE = 3-5 staff for 2014, Estimated Annual Investment = $300k - $500k * - Focus on Optimal Skills Profile (Storytelling, Quantitative, Blend of HR and Finance)

Systems Investment = Executive Workforce Analytics Tool, 2014 Investment = $400k **

Estimated Cost Savings and Value Creation Opportunities = $20mm $40mm Engagement Revenue Linkage, Estimated Annual Value = $15mm - $30mm

- Achieve 10% gain for bottom 25% of stores (assumes 10% gain = 0.5% - 1.0% revenue impact) ***

Reduce Key Role Turnover, Estimated Annual Cost Savings = $5mm - $10mm per Role

- Reduce store manager turnover by 10% (e.g., move from 20% to 18%)

- Average Cost of Turnover = $5k - $10k

Estimated Workforce Analytics Center of Excellence ROI: $19mm ****


* Note: Includes estimated cost of existing staff dedicated to Workforce Analytics. ** Initial cost of 400k for EWA Tool (ongoing annual costs = 300k). Staff costs not included. May be part of larger bundled Aon Hewitt costs. *** Assumes a 0.5% - 1.0% increase across 25% of 2012 FY Revenue **** Lower range estimate used for ROI calculation, estimated return in excess of 2,000%.

Case Studies

Sample: Identified Human Capital Risks

High Turnover Business Impact Risk

Growth Risk (delays finding/replacing high impact roles)

Service Level Risk (low tenure = engagement challenges, constantly re-learning basics)

Attracting Key Talent Risk

Challenges in Hiring (i.e., IT, engineers, sales people )

Failures in Selecting Best Fit Talent (failure to find/hire successful high impact roles)

Stagnant Productivity Risk

Workforce Cost Pressure vs. Value Proposition (i.e., pay/benefits/hours/career)

Leadership and Development Risks

Front-Line Leadership Mediocrity (i.e., leaders who are just good enough vs. highly engaged leaders who get more from their team)

Gaps in Manager Accountability cannot link supervisors to negatives (i.e., turnover, low engagement, absenteeism) vs. positives (i.e., talent scouts, motivators, mentors)


Core

End of Part 2 Contact Information:


Jeff Higgins, CEO [email protected]

For more information on products and services:

www.hcminst.com

SOLVE Software Human Capital Training and Financial Statements Consulting

Human Capital Workforce Data Workforce Metrics Handbook Integration Blueprint Planning

Workforce Intelligence Consortium Group

@HCMI


Learn More about TDRp

Learn more and get implementation guidance at www.CenterforTalentReporting.org

Introduction to TDRp whitepapers

Over 600 measures

More than 70 sample statements and reports

Guidance on implementation

Workshop and webinar registration

Contact for more information:

Dave Vance: [email protected]

Peggy Parskey: [email protected]

March 10, 2015 Talent Development

Reporting principles CTR

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Accelerate Your Mastery

26 Talent Development Reporting principles CTR

Webinars Intro to TDRp (7/14)

Implementation CSFs (8/12) REVISED

Implementation Guidance (8/18) REVISED

Senior Leaders (7/15) NEW

Website Tour (7/16) NEW

Whats New in 2015 (7/23) NEW

Accounting Basics (6/22) NEW

Financial Acumen (6/24) NEW

Planning, Estimating, and Forecasting (7/22) NEW

Data Gathering Considerations (8/11) NEW

The Six HR Processes (9/24) NEW

TDRp Basics Workshops October 21-22 Denver

Custom workshops and coaching available

1 or 2-day workshops on site NEW

Certification Individuals

Vendors providing software products employing TDRp

Business Acumen Resources

Conclusion

PowerPoint and Recording will be available to CTR members on Members Resource Center page on website within 48 hours.

PowerPoint will be sent to nonmembers within 48 hours

Contact Andy Vance [email protected] if you have any difficulties

Talent Development Reporting principles CTR

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Questions?


Appendix


Best Practices of HR Analytics Programs

Focus on solving business issues first before HR issues

Find the talent you need to execute

Focus on questions rather than answers or available data

Aim small; seek out quick wins (define formulas, publishing KPIs, etc)

Integrate workforce data to business data (financial, customer, operations etc..)

Tell a complete story:

Quantitative with strong numbers

Visual with powerful visual charts

Qualitative with a story and real world examples from the business


Financial Acumen for HR Part 2

Documents

Transcript of Financial Acumen for HR Part 2