Measure the Value of your Human Capital with Human Capital Financial Statements

7/27/2019 Measure the Value of your Human Capital with Human Capital Financial Statements

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April 19, 2011

Human Capital Management Institute

Presents:

Human Capital Financial Statements


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About Human Capital Management Institute

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 humancapital

Transform workforce data into business

intelligence

Provide Tools and Training so HR can

Partner with Finance

2

Workforce Assessment w Strategic Consulting w Training

Best Practices w Workforce Analytics and Planning w Benchmarking

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.

We Bring Financial Discipline, Standards and Rigor to the HR Function



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The Average FORTUNE 500 Company makes a $3

billion annual investment in Human Capital itcannot measure.

- Hewitt Associates

Human Capital Management Institute 3

In most organizations, including large companiessuch as the Fortune 500, total human capital costs,also known as Total Cost of Workforce, average

nearly 70% of operating expenses.- A 2006 SHRM survey of over 700companies including a significant

number of Fortune 500 companies


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History of Accounting and Financial Statements


mid 1800s

Statements of cash

and balance sheets

were relatively

common

1934

Modern financial

reporting and the

development of

Generally AcceptedAccounting

Principles (GAAP)

started with the

Securities and

Exchange

Commission (SEC)

Act of 1934

1938

American Institute of

Certified Public

Accountants (AICPA)

gave the Committee

on Accounting

Procedure (CAP)

responsibility to

issue accounting

standards

1973

Financial Accounting

Standards Board (FASB)

established to improve

standards of financialaccounting and reporting

for the guidance and

education of the public


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Purpose of the Traditional Financial Statement

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 businessFinancial 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


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Human Capital Measures Linked to Financial

Performance

How do we go from Human Capital to Financials with actionable data?

Revenue

Expenses

Profits

Assets

Liabilities

Operations

&

Business

Financials

Recruiting

Training

Mobility

Engagement

Lead/Manage

Retention

Human

Capital

Customer

Days Worked

Cycle Time

Quantity

Quality

Satisfaction

Net Promoters

Price/Margin

Retention

Return rate

Data Integration ModelQuantifying the Talent

Management Life Cycle+

6 Human Capital Management Institute

Recruiting &Hiring

Training

(L & D)

Performance&

Engagement

MobilityCareer Path

Turnover &Retention

Leadership &

Management


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Human Capital Financial Statements (HCF$)

Greater Transparency into an organizations greatest asset: The Workforce

Method to Value Knowledge Capital by measuring the 81% of MarketCapitalization not on traditional financial statements, Intangible/Knowledge Capital

Improved Investment Decisions providing key information, investors can makeinformed investment decisions

Standards in Human Capital Measurement and Reporting Leads to industry andgeographic based Benchmarking capabilities

True Linkage of Human Capital to Financial Results

A Supplement to Traditional Financial Statements, not a substitute


Delivering Value with Human Capital Financial Statements:


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Human Capital Financial Statements (HCF$)


Human Capital Financial Statements answer the following questions:

1. How do you quantify the impact human capital has on financial performance?

2. How do human capital metrics integrate with commonly accepted financial metrics?

3. How do you measure total workforce costs to drive workforce effectiveness and efficiency?

4. How do you quantify value creation across the talent management life cycle?

5. What is the impact of training on profit, productivity and total human capital value?

6. What is the differential human capital value creation of different job roles?

7. How do you measure workforce flow, changes, and growth like a cash flow statement?


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HCMI has developed three unique statements collectively known as Human Capital

Financial Statements for organizations to disclose human capital information:

Human Capital Impact Statement

Workforce Productivity Impact Summary

Total Cost of Workforce Sub-Schedule

Talent Management Impact Schedule

Human Capital Asset Statement

Human Capital Headcount Summary

Human Capital Asset Cost Schedule

Human Capital Training Value-add Schedule

Return on Human Capital Investment Schedule

Total Human Capital Value Schedule

Human Capital Flow Statement Talent and Headcount Flow Summary

Human Capital Job Value Schedule

The Human Capital Financial Statements (HCF$)


Prior Year New Current Year

W or kfo r ce P r im ary C ateg or y H eadcoun t Hires1

%Chg Turnover2%Chg Retirement

3%Chg Subtotal %Chg Promotions

4%Chg Transfers

5%Chg Headcount %Chg

Employees 13,300 1,745 13.1% -510 -3.8% -140 -1.1% 14,395 8.2% 50 0.4% 5 0.0% 14,450 8.6%

-Management & SeniorLeadership 1,250 50 4.0% -10 -0.8% -15 -1.2% 1,275 2.0% 20 1.6% 5 0.4% 1,300 4.0%

- Professional Staff 2,300 292 12.7% -70 -3.0% -50 -2.2% 2,472 7.5% 30 1.3% -2 -0.1% 2,500 8.7%

- Sales Staff 3,000 560 18.7% -150 -5.0% 0 0.0% 3,410 13.7% -25 -0.8% 15 0.5% 3,400 13.3%

- S pe ci a li st s a nd T ec h ni ci a ns 9 0 0 100 11.1% -25 -2.8% -30 -3.3% 945 5.0% 68 7.6% -13 -1.4% 1,000 11.1%

- Skilled Trade Staff 250 25 10.0% -10 -4.0% 0 0.0% 265 6.0% -25 -10.0% 10 4.0% 250 0.0%

- Operations Staff 1,450 225 15.5% -80 -5.5% -20 -1.4% 1,575 8.6% 20 1.4% 5 0.3% 1,600 10.3%

- Service Staff 2,750 308 11.2% -120 -4.4% -25 -0.9% 2,913 5.9% -8 -0.3% -5 -0.2% 2,900 5.5%

- A dm in is t ra ti v e S u pp or t S t af f 9 5 0 110 11.6% -20 -2.1% 0 0.0% 1,040 9.5% -40 -4.2% 0 0.0% 1,000 5.3%

- Laborers and Helpers 450 75 16.7% -25 -5.6% 0 0.0% 500 11.1% 10 2.2% -10 -2.2% 500 11.1%

Contingent Staff 1,700 455 26.8% -150 -8.8% 0 0.0% 2,005 17.9% -50 -2.9% -5 -0.3% 1,950 ####

- Temporary 1,100 235 21.4% -100 -9.1% 0 0.0% 1,235 12.3% -30 -2.7% -5 -0.5% 1,200 9.1%

- Contractors 600 220 36.7% -50 -8.3% 0 0.0% 770 28.3% -20 -3.3% 0 0.0% 750 25.0%

Tot al or Av er ag e W or kfor ce 1 5, 00 0 2 ,2 00 14.7% -660 -4.4% -140 -0.9% 16,400 9.3% 0 0.0% 0 0.0% 16,400 9.3%


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The Human Capital Impact StatementQuantifying Workforce Productivity

Key Metrics: Revenue per FTE

Profit per FTE

Avg. Market Cap. per FTE

Total Cost of Workforce

Human Capital ROI Ratio Return on Human Capital

Investment


Human Capital Impact Statement Summary

Revenue Prior Year Current Year Variance % ChgNet Operating Revenue $1,400,000,000 $1,540,000,000 $140,000,000 10.0%

Total Workforce Headcount (FTE) 15,000 16,400 1,400 9.3%

Revenue per FTE $93,333 $93,902 $569 0.6%

Costs

Total Expenses $1,170,000,000 $1,285,000,000 $115,000,000 9.8%

Total Operating Expense $725,000,000 $795,000,000 $70,000,000 9.7%

Total Cost of Workforce (TCOW) $779,950,000 $861,000,000 $81,050,000 10.4%

TCOW Percent of Revenue 55.7% 55.9% 0.2% 0.4%TCOW Percent of Total Expenses 66.7% 67.0% 0.3% 0.5%

TCOW Percent of Operating Expenses 107.6% 108.3% 0.7% 0.7%

Profit

EBITDA(1) $310,000,000 $340,000,000 $30,000,000 9.7%

Net Operating Profit $143,750,000 $159,375,000 $15,625,000 10.9%

Profit per FTE $9,583 $9,718 $135 1.4%

Productivity and ROI of Human Capital

Total Market Capitalization (2) $2,156,250,000 $2,390,625,000 $234,375,000 10.9%

Average Market Capitalization Value per FTE $143,750 $145,770 $2,020 1.4%

Human Capital ROI Ratio 1.29 1.30 0.00 0.1%

Return on Human Capital Investment 18.4% 18.5% 0.1% 0.4%

TOTAL WORKFORCE PRODUCTIVITY IMPACT: $34,570,000 $41,294,200 $6,724,200 19.5%


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The Human Capital Impact Statement

Advanced metrics at each talent

management life cycle stage:

Workforce Productivity Impact Across

the Talent Management Life Cycle:

11

Recruiting &Hiring

Training

(L & D)

Performance&

Engagement

MobilityCareer Path

Turnover &Retention


Leadership &Management

Talent Management Segment

Prior Year

Productivity

Impact

Current Year

Productivity

Impact

Recruiting and Hiring

Mobility

Leadership and Management

Training

Performance and Engagement

Turnover and Retention

Overall Productivity Impact

10%

# of Qualif ied

Applicants

SupervisorSurvey Score

EmployeeSurvey Score

Percent of Job

Requirements Met

New Hire

SatisfactionSurvey

New Hire High

Performer Rate

25% 20% 25% 20%

New Hire

Turnover

Example Quality of Hire Index

Quality of Hire Index

Internal + External

Best Hire Source

Percent of HighPerformers

Applicant Percent of JobRecommendationsMet

Applicant Percent ofJob RequirementsMet

90 Day New HireTurnover Rate

Total QualifiedApplicants

Total Cost of Workforce

Quantifying the Talent Management Life Cycle

Talent Management

Lifecycle:


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The Human Capital Asset Statement +

Human Capital Flow Statement


Key Assumptions:

1. Workforce Value Increases Over Time Exceptions exist which is why differentiating workforce job roles #3 below is critical

2. The Workforce Create Value Far Greater than its Cost (See Human Capital ROI Ratio and Return on Human Capital Investment)

3. Certain Job Roles Create More Organizational Value than Others (See #1 above, differentiated workforce value is foundational to the Human Capital Asset Statement)

4. Training is More of an Investment than an Expense Therefore it is treated as a capital asset and depreciated in the Human Capital Asset Statement

5. Captures Workforce Total Value Add both annual and accumulated

6. Quantifies the Total Value of the Workforce


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The Human Capital Asset StatementMeasuring Human Capital: an Organizations Most Valuable Asset


Human Capital Headcount Deployed Prior Period% of

Total Current Period% of

Total Variance

Employees 13,300 88.7% 14,450 88.1% 8.6%

- Management & Senior Leadership 1,250 8.3% 1,300 7.9% 4.0%

- Professional Staff 2,300 15.3% 2,500 15.2% 8.7%

- Sales Staff 3,000 20.0% 3,400 20.7% 13.3%

- Specialists and Technicians 900 6.0% 1,000 6.1% 11.1%

- Skilled Trade Staff 250 1.7% 250 1.5% 0.0%

- Operations Staff 1,450 9.7% 1,600 9.8% 10.3%

- Service Staff 2,750 18.3% 2,900 17.7% 5.5%

- Administrative Support Staff 950 6.3% 1,000 6.1% 5.3%

- Laborers and Helpers 450 3.0% 500 3.0% 11.1%

Contingent Staff 1,700 11.3% 1,950 11.9% 14.7%

- Temporary 1,100 7.3% 1,200 7.3% 9.1%

- Contractors 600 4.0% 750 4.6% 25.0%Total Workforce 15,000 100.0% 16,400 100.0% 9.3%

Total Retained Human Capital Value Prior PeriodPercent

of Total Current PeriodPercent

of Total Variance- Management & Senior Leadership $114,085,191 33.5% $122,597,851 31.6% 7.5%

- Professional Staff $47,570,395.54 14.0% $51,871,882 13.4% 9.0%

- Sales Staff $95,688,967 28.1% $114,895,893 29.6% 20.1%

- Specialists and Technicians $3,200,000 0.9% $3,750,000 1.0% 17.2%

- Skilled Trade Staff -$820,000 -0.2% -$1,750,000 -0.5% 113.4%

- Operations Staff $18,141,980 5.3% $20,585,366 5.3% 13.5%- Service Staff $41,025,572 12.0% $45,733,106 11.8% 11.5%

- Administrative Staff -$9,325,500 -2.7% -$10,046,500 -2.6% 7.7%

- Laborers and Helpers -$3,550,000 -1.0% -$4,000,000 -1.0% 12.7%

- Contingent Staff $0 0.0% $0 0.0% 0.0%

Retained Human Capital Value Add (3) $306,016,607 89.8% $343,637,598 88.5% 12.3%

Annual Workforce Productiv ity Impact (4) $34,570,000 10.2% $44,666,667 11.5% 29.2%

TOTAL HUMAN CAPITAL VALUE ADDED (5) $340,586,607 100.0% $388,304,264 100.0% 14.0%


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Human Capital Flow Statement

Provides an exact report by category and critical role of workforce size,gains, losses, tenure and talent level

Breaks down workforce flows across the talent management lifecycle.


2,000 1,626260350 29

547200 311

517

35 302169 426

0

500

1000

1500

2000

2500

3000

3500

4000

BeginningHeadcount

PromoIn

TransferIn

DemotionsIn

ExternalHire

Rehire

PromoOut

TransferOut

DemotionOut

TerminationsOther

InvoluntaryTerm

VoluntaryTerm

Endingheadcount

Human Capital Flow Statement Human Capital Flow Chart


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Case Study: BroadTek Communications



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The Human Capital Impact StatementCase Study: BroadTek Communications


Revenue Prior Year Current Year Variance % Chg

Net Operating Revenue $4,114,540,000 $4,444,560,000 $330,020,000 8.0%

Total Workforce Headcount (FTE) 4,645 4,750 105 2.3%

Revenue per FTE $885,800 $935,697 $49,897 5.6%

CostsTotal Expenses $2,788,752,921 $2,809,406,376 $20,653,455 0.7%

Total Operating Expense $2,262,997,000 $2,377,839,600 $114,842,600 5.1%

Total Cost of Workforce (TCOW) $447,661,952 $467,567,712 $19,905,760 4.4%

TCOW Percent of Revenue 10.9% 10.5% -0.4% -3.3%

TCOW Percent of Expenses 16.1% 16.6% 0.6% 3.7%TCOW Percent of Operating Expenses 19.8% 19.7% -0.1% -0.6%

Profit

EBITDA(1) $1,316,652,800 $1,511,150,400 $194,497,600 14.8%

Net Operating Profit $573,155,422 $680,017,680 $106,862,258 18.6%

Profit per FTE $123,392 $143,162 $19,770 16.0%

Productivity and ROI of Human Capital

Total Market Capitalization (2) $6,304,709,642 $6,800,176,800 $495,467,158 7.9%

Average Market Capitalization Value per FTE $1,357,311 $1,431,616 $74,305 5.5%

Human Capital ROI Ratio 3.96 4.50 0.54 13.5%

Return on Human Capital Investment 128.0% 145.4% 17.4% 13.6%

TOTAL WORKFORCE PRODUCTIVITY IMPACT: $355,630,545 $700,578,523 $344,947,978 97.0%

1

1

2

2

2

33


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Note: All Dollars in Thousands Data for 2009 and 2010 Fiscal Years KPI = Key Performance Indicator FTE = Full Time Equivalents

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

ClearTel RayFi BroadTek

Revenue per FTE

Profit per FTETotal Cost of Workforce per FTE

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400


Revenue per FTE

Profit per FTETotal Cost of Workforce per FTEProductivity Gain(Loss) per FTE

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Human Capital ROIRatio

Return on HumanCapital Investment


The Human Capital Impact StatementCase Study: BroadTek Communications

1

2

3

2010 Financial KPIs 2009 - 2010 KPI Variance

2009 2010 Productivity Variance


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The Human Capital Asset StatementCase Study: BroadTek Communications


Human Capital Headcount Deployed Prior PeriodPercent

of Total Current PeriodPercent

of Total VarianceEmployees 4,395 94.6% 4,535 95.5% 3.2%

- Management & Senior Leadership 610 13.1% 615 12.9% 0.8%

- Professional Staff 1,310 28.2% 1,405 29.6% 7.3%

- Sales Staff 730 15.7% 805 16.9% 10.3%

- Specialists and Technicians 515 11.1% 530 11.2% 2.9%

- Skilled Trade Staff 115 2.5% 105 2.2% -8.7%- Operations Staff 210 4.5% 210 4.4% 0.0%

- Service Staff 550 11.8% 560 11.8% 1.8%

- Administrative Support Staff 250 5.4% 220 4.6% -12.0%

- Laborers and Helpers 105 2.3% 85 1.8% -19.0%

Contingent Staff 250 5.4% 215 4.5% -14.0%

Total Workforce 4,645 100.0% 4,750 100.0% 2.3%

Step #1: Measure Changes in Workforce Headcount Total Employees

Sales Staff and Service Staff = Core Workforce

Administrative + Laborers and Helpers = Non-Core Workforce

Step #2: Quantify Differential Value of High vs. Low Value Add Roles Core Job Roles add Greater Value

Critical Job Roles add Greater Value


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Measuring Critical Job RolesCase Study: BroadTek Communications

19

Low Value Add High Value Add

Roles that are administrative in

nature

Roles thatdo not make

decisions

Typically easier to outsource

Roles thatestablish strategy

Roles thatmake critical

decisions that impact the

business

Roles thatmanage a team or

key business processes

Non Core

Core

Roles that are revenue generating

Roles that are key to bringing in

future revenue

Roles that are customer facing

Roles thatdirectly support revenue

generation / or manage cost

Roles that indirectly supports

revenue generation

Roles that are notcustomer facing

22.5%

48.5% 23.5%

6.5%


54.5%

2009 2010

18.5%

2009 2010

21.5% 4.5%

2009 20102009 2010


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Linking Productivity to FinancialsExample: Workforce Category and Job Group

Sales

Professional

Operations

Workforce

Category

Job Group

Sales Manager

Sales Engineer

Consultant

Developer

Call Center Rep

Workforce Metric

Revenue per FTE

Customer Satisfaction

Engagement, Billable

Days, TrainingInvestment per FTE

Engagement,

Performance Rating

% of 1st

Calls Resolved,Customer Satisfaction

Key Business

OutcomeRevenue

Revenue, Customer

Retention

Productivity, Profit,Cost

New Product ROI,

Cost

Unit VolumeOutput



21/27

Linking Performance and Productivity by Job Role

Performance Productivity

21

AlwaysNot Sure Typically

Sales Positions

Customer Service


2X

Accountant 1X

3X+


22/27

Human Capital ROI Ratio Impact MatrixX = Human Capital ROI Ratio Multiplier. Example 1.2 Human Capital Ratio * 1.0X = (1.0 * 1.2 or 1.2)

22

Typical Job Category Impact*

Job

Importance

Employee Performance Level

Critical

Low

Low High

3.0X

Stars

5.0-10.0X

4.0X

4.0X

Good

Average

High

3.0X

2.0X1.0X.5X.25X

1.0

1.0X

3.0 X

1.0

1.0

.5X

2.0X

1.0X

Important

Okay

2.0X

.7X

.7X

.7X

1.0 1.0X

2.0X

1.0X

*Relative Impact and Importance of a job

role or job category varies considerably

by industry, region and business model

Primary Workforce Category

Top Management Important to Critical

Sales Staff Average to Critical

Service Staff Average to Critical

Professional or Executive Staff Average to Critical

Operations Staff Average to Critical

Specialist & Technicians Average to Critical

Administrative Support Staff Low to Average

Laborers & Helpers Low to Average

Typical Job Importance Level



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Workforce Image Map (WIM)A Story of 2 Technology Companies (Software)


Which Company has the most High Value Add Job Roles? Co. A vs. Co. B3,700 vs. 3,450

74% vs. 69%

Primary Workforce

Category

Total

Workforce

Tech Co. A

Total

Workforce

Tech Co. B

Top Management 50 50

Management 550 550

Sales & Marketing Staff 1,250 3,000

Product Research and

Development Staff850 100

Consulting, Training & Service

Staff1,200 300

Other Professional Staff 300 300

Call Center Staff 350 0

Administrative Support Staff 200 200

Contingent Workforce 250 500

Softwa re Tech Co

Comparison Total5,000 5,000

Tech Company A Headcount Tech Company B Headcount

Too much of any one Category Creates an Unsustainable Imbalance


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Introducing Workforce Intelligence Consortium


Evaluate the financial impact of

workforce decisions

Identify ROI for Engagement, High

Performance, Internal Mobility,

Time to Productivity/ Profitability

and more

Utilize the advanced Cost of

Turnover calculator

Employ a comprehensive data

blueprint

Leverage defined standards andmetrics that create meaningful

output

Implement data disciplines to

ensure reliable metrics and

measures

Optimize the Total Cost of

Workforce by industry

Model Industry Specific Issues forProductivity, Skills, capabilities,

performance, tenure, and training

Evaluate your Organizations Most

Critical Job Roles: Measure and

Predict the Impact of Changes and

ROI

Identify and solveworkforce challenges that

impact bottom line results

Comprehensive integrationof workforce, customer, and

financial data

Optimize workforce costs

and conduct advanced

workforce analytics and

planning

Quantify Integrate Predict

A partner-driven organization dedicated to translating insights into

actionable workforce management technology with industry-specificcontent

www.workforceic.com
http://www.workforceic.com/http://www.workforceic.com/


25/27

Next Steps:


For more information about HCMI and the Human Capital

Metrics HandbookTM, visithttp://www.hcminst.com/hcmi.html

For inquiries about the Workforce Intelligence Consortium,

contact Cheryl Farley, Program Director [email protected]

Presenter information:

Jeff Higgins, CEO HCMI [email protected]

Workforce Intelligence Consortium

Group@HCMI
http://www.hcminst.com/hcmi.htmlmailto:[email protected]:[email protected]:[email protected]:[email protected]://www.hcminst.com/hcmi.html


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Question and Answer



27/27

Thank you


Measure the Value of your Human Capital with Human Capital Financial Statements

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