The HR function must evaluate its contribution because all features of the organization, such as sales, revenues, quality, and productivity, reflect employees’ management systems established within the company. By analyzing the performance of the HR function, the company can track the influence it has on people and their behavior, attitudes, aspirations, and results. The results of the HR metrics and critical indicators can suggest ways for improvements and adjustments that should be introduced to contribute to the success of the business. The HR function can be measured by several main business metrics, such as efficiency, effectiveness, and impact. Time-per-hire and cost-per-hire belong to efficiency indicators that evaluate the resources needed by the HR function. The employee productivity rate shows the implications of the effectiveness of people management. Higher revenues indicate the business impact HR function has. People management practices should be tied to the strategic goals of the organization to guarantee that there are aligned.
Service Level Agreements (SLAs) and Key Performance Measures (KPIs) help HR function to estimate its performance. SLAs usually refer to defined measurements of the service delivery from the contractor. KPIs indicate the performance of companies against their business objectives. SLAs are typically measured by the client and the vendor that performs specific services. KPIs can be measured internally or by the customer and the contractor if it is established in the agreement for the provision of the services. Both indicators can estimate the efficiency and effectiveness of a business. However, sometimes they can create a bias towards goals that have to be achieved. Thus, the HR function should monitor and assess the operational processes.
Staff surveys are an excellent way to evaluate the HR function and employees’ performance. Staff surveys can enhance retention rates in the organization, decrease absenteeism, improve productivity and profitability. To conduct staff surveys properly, HR should preserve anonymity, introduce incentives for response completion, and implement adjustments. Benchmarking with other organizations also shows the performance of HR. Quantitative and qualitative metrics that are gathered by other organizations are the essential grounds for comparison. Without them, the standard for the HR function is not defined and can be misinterpreted. For instance, if one company has an absenteeism rate of 60%, the fault in the HR function can only be discovered if the results are compared against similar organizations. Thus, benchmarking is one of the most crucial methods to estimate HR.
Return on Investment (ROI) is usually associated with business investments and financial results that are extracted from business activities. Nevertheless, the measured contribution of the HR function to ROI can prove that the worth of people management systems. ROI in HR is calculated by dividing net revenue by the spending on salary and other benefits. In challenging economic situations, when the company aims to fire additional staff, the HR function can prove its performance by the evaluation of the ROI contribution created by human resources employees.
There are essential tools that help the organization to present HR metrics, such as a “balanced scorecard” or “HR dashboard.” A balanced scorecard represents the financial results of a business, but HR should also understand numbers to assess the performance of the organization. We need to understand the balanced scorecard to see the issues presented in the organization. HR dashboard shows real-time data on the functioning of people management and metrics. It is claimed that companies that use balance scorecards and HR dashboards are two times likely to align perfectly their HR function with strategic goals. The organization can base its HR dashboard on the developed metrics from other dashboards and scorecards to prove its performance.