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Workforce Analytics & Small Business
Approaching your workforce as numbers and transactions is something that many new business owners are not comfortable with, myself included. No matter how robotic and heartless this is portrayed in movies, owners who take advantage of analysis through metrics create better working environments and, if leaders are good decision makers, it can increase employee satisfaction that can reduce employee turnovers.
By all means, treat your employees as people. Lead your people. And leading people right means taking necessary and appropriate decisions.
Business development is a continuous process. With data, businesses can keep up with the everyday challenges of businesses. Development and improvement rely on benchmarks, and what better way to monitor progress with data. It is difficult to improve on what you can't measure.
The Importance of Human Resource Analytics
While workforce analytics has been around for a long time, small business owners don't seem to catch up with it. It is not seen as a top priority.
Managing human resource should be treated like any other resource like finances and inventory. As what comes to managing, it is necessary to create metrics to monitor the performance of your staff and make necessary corrections when possible.
Since small business owners are usually the ones managing their business, it is best to keep metrics at a minimum. What you'll find below are the important ones that serve as a starting point for your workforce analysis.
If you're here for the formulas, I've listed them below, but if you want to get in-depth into each metric (which I highly recommend), keep reading after the list below:
- Recruiting Metrics
- Cost Per Hire = total recruiting costs / total # of new hires
- Time to fill:
- Time to fill = # of days to fill a position from job opening to job offer acceptance
- Average Time to fill (ATF)= sum of Time to fill / total # of employees
- Productivity and Performance Metrics
- Revenue per Employee = total revenue / total # of employees
- Absence Rate = (# of absences /( # of employees * # of working days)) * 100
- Business-Specific Quantitative Output = output being measured / time frame
- Workforce Cost Metrics
- Average Salary = sum of salaries / total # of employees
- Cost of Benefits as % of Revenue = (total benefits / total revenue) * 100
- Employee Satisfaction Metrics
- Job Satisfaction = (sum of employee survey scores / (survey perfect score * # of answered surveys)) x 100
- Compensation Satisfaction = (number of satisfied employees / total number of employees) x 100
- Work-Life Balance = (number of satisfied employees / total number of employees) * 100
List of Workforce Analytics Formula
Recruiting Metrics
Recruiting is the process of finding and hiring the best candidate to fill a specific position in your business. To keep things at a minimum, we're focusing only on two metrics that I think every business owner should know, Cost per Hire and Time to fill.Even though I've listed only two metrics, it doesn't mean that recruitment is the least priority in your workforce analytics. There are many more things that should be taken into consideration when hiring the best people in your company. To get the best out of your hire, you need to create relationships with your staff. Recruiting should be treated as the start of employee engagement instead of ending it there.
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Cost per Hire
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- Advertising and marketing expenses
- Background checks and eligibility to work expenses
- Employee referral awards/ payments
- Pre-hire health screens
- Pre-screening fees
- Third-party agency fees
- Internal overhead for government compliance
- Non-labor office costs
- Recruiting learning and development
Cost per Hire is the amount spent on recruiting employees. It measures your recruiting, hiring and onboarding costs. Insights from this metric can optimize your recruitment process and efforts. While it is best to keep a low cost per hire, different industries' and company cultures' cost per hire can affect the bottom line.
Costs associated with this are interview costs (the number of interview hours, office supplies such as paper), job hiring costs, pre-hire training costs, employee referral bonuses and signing bonuses.
SHRM lists the costs that are taken into account when computing for cost per hire. Below is a list of recruiting costs that are I find relevant to small businesses:
External Costs:
To make the best use of the Cost per Hire metric, categorize your Cost per Hire by source, job position, position level, and/or department.
Take note that recruiting efforts for an executive-level position will be vastly different from an entry-level position. It is important to know that merging the data of Cost per Hire for executive-level position and entry-level position will skew your metric.
Formula:
Example:
Number of hires: 7
Cost-per-hire = (External costs + Internal costs) / # of new hires
Cost-per-hire = (2,320 + 5,000 + 3,000 + 3,300 + 2,500 + 3,000 + 750 + 1,500 + 2,000) / 7
Cost-per-hire = 23,370 / 7
Cost-per-hire = $3,338.57
The average cost per hire for an entry-level position is $3,338.57
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Time to Fill
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Time to Fill is the number of days it takes for a position to be filled. It is the number of days when the initial job opening has been posted until the date the candidate accepts your job offer.
Similarly, to cost per hire, insights from the hiring cycle can help you optimize your recruitment efforts. It gives you an idea of how long it will take you to hire and replace employees.
Ideally, time to fill should be shorter for entry-level positions and longer for specialty jobs or senior-level positions. Also, different industries will have a different time to fill averages. It is best to know your time to fill industry average and use it as a benchmark when planning your hiring process.
A long time to fill value might mean that candidates go through an obstacle that makes it difficult to move forward. It may also suggest that your hiring process is slow.
Formula:
Example:
Average time to fill for an entry-level position:
ATF = (12 + 24 + 33 + 15 + 19) / 5
ATF = 20.6 days or 21
Average time to fill for a cook position:
ATF = (24+33) / 2
ATF = 28.5 days or 29
Average time to fill for a waiter position:
ATF = (15 + 19) / 2
ATF = 17 days
The average time to fill for an entry-level position is 21 days.
The average time to fill for a cook is 29 days.
The average time to fill for a waiter position is 17 days.
As you may have noticed, the number of days is rounded-up for computations that have a decimal value. An average time to fill with a decimal value is misleading as what we are measuring is the number of days it takes to fill a position, regardless of time of day.
Productivity and Performance Metrics
Like all other metrics, productivity and performance metrics will help you monitor your staff without the need of being on-site. While these metrics measure productivity, these can be used to gauge employee engagement. An engaged workforce leads to a more productive workforce.-
Revenue per Employee
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Revenue per Employee measures the financial productivity of employees for the company. Different business models and different organizational structures will make the ideal standard revenues per employee for each industry different. For example, a banking business will rely more on human capital than a manufacturing business.
Revenue per Employee can also be used to analyze market saturation, employee compensation, and employee saturation in your company. It can also be used to analyze cost metrics to justify workforce costs.
It is not advisable to break this down by category because doing so might appeal to a bias where positions that aren't generating any direct income will seem like they don't have monetary value.
Formula:
Example:
Total revenue for 2017: $2,892,928
Total # of employees: 24
Revenue per Employee = $2,892,928 / 24
Revenue per employee in 2017 is $120,538.66.
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Absence Rate
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Absence Rate measures the rate of absences of employees. Absence Rate can help monitor the engagement of workers since engaged workers are more likely to stay with their employers.
Employees who take more than the required number of days can be a sign of a troubled employee. Now there are a lot of reasons why employees don't show up at work. It can be because of genuine reasons such as a high fever or a dental appointment, or it can be calling in sick because they don't like the work environment or there is no balance between work and life.
Formula:
Example:
Absence Rate = (3 + 2 + 4 + 0 + 3)/5
Average days absent is 2.4 days.
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Business-Specific Quantitative Output
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Business-specific quantitative output is used to monitor the output of your employees. Measuring this will help you know when you need to expand or reduce your workforce to do a specific task.
Different industries will have various quantitative outputs. A call center business will measure the volume of inquiries per hour while a cafe will measure the number of cups of coffee served per hour.
Although quantitative output is listed under a workforce metric, this metric is also under operations. Which means improvement in systems can improve outputs. This metrics is best used when you have a benchmark for your yield per time frame.
Formula:
Example:
The average number of coffees served per hour by baristas is 35.
The average number of calls is eight calls per hour.
Workforce Cost Metrics
Workforce costs measure the amount of spending on human capital. These costs include anything from recruitment, training and development, salaries, and all analysis needed to monitor human capital cost.
Depending on the industry, 70% of expenses in most companies is spent on their workforce. Because of this, it is essential to monitor these costs.
Depending on the industry, 70% of expenses in most companies is spent on their workforce. Because of this, it is essential to monitor these costs.
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Average Salary
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Salaries are fixed regular payments that are paid to employees who do a specific job. These payments are usually paid weekly, bi-weekly, or monthly.
Average salaries are often broken down by job level, department or position.
Factors that influence salaries include workload, supply/demand, cost of living, and government regulations.
Formula:
Example:
Average salary for entry-level:
Ave. Salary = (18,000 + 19,500 + 20,000 + 25,000 + 28,000) / 5
Ave. Salary = (110,500) / 5
Ave. Salary = $22,100.00
Average salary for Managerial position:
Ave. Salary = (122,000 + 81,000 + 61,000) / 3
Ave. Salary = $88,000.00
The average salary for manager level is $88,000.00 while the average salary for an entry-level is $22,100
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Cost of Benefits & Compensation as Percentage of Revenue
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- Professional Development
- Retirement benefits
- Long-term disability
- Employee Assistance Plans
- Life and AD&D
- Health and Dental
- Employee perks such as
- Workplace wellness program
- transportation reimbursements
- Free food
- Employee Discounts
Employee benefits and compensations are amounts that employees receive indirectly or directly. These can be of monetary value such as travel and transportation allowances or in the form of non-monetary value such as a workplace wellness program or free food.
Most small businesses forget to add employee compensation to their employee costs and only focus on salaries and wages. It is easy to lose money when you're not tracking every expense your company makes.
On the other hand, knowing what your expenses are on your workforce can help develop your business. While some employee compensations are government regulated, knowing how much is spent on your workforce can help you and your employees appreciate the value of your human capital.
Some costs that should be computed in your employee compensation and benefits:
Formula:
Example:
Total Revenue: $1,577,320.00
Benefits as % of Rev. = ((39,028.01 + 89,496.00 + 43,168.23 + 4,920.00 + 21,000.00 + 62,956.00 + 6,023.00) / 1,577,320.00) * 100
Benefits as % of Rev. = (266,591.24 / 1,577,320.00) * 100
Benefits as % of Rev. = 0.169 * 100
Benefits as % of Rev. = 16.9%
Average cost of benefits was 3.7% of revenue.
Employee Satisfaction Metrics
Employee Satisfaction will show how satisfied your employees are. Employee surveys will give you insights into what matters most to your workforce. It gives you an idea of your workforce environment and culture.Measuring employee satisfaction is not as straightforward as it may seem because many factors contribute to how employees feel about your business. As I noted earlier, recruitment isn't the end of employee engagement, but the start of it. Creating a culture of engaged employees starts by building relationships. And an engaged workforce correlates with better productivity.
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Job Satisfaction
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Job satisfaction measures the satisfaction of employees when it comes to working in general. This may include different points that employee satisfaction account for such as the difficulty of work, work tools, work pressure, and co-workers.
An employee that is not equipped with the skills, knowledge, and tools to do his job, may result in a low job satisfaction score.
Formula:
Example:
Survey Total Perfect Score = 350
JS = ((46 + 36 + 39 + 19 + 47 + 22 + 30) / 350) * 100
JS = (239 / 350) * 100
JS = 0.6829 * 100
JS = 68.29%
Average employee job satisfaction is 68.29%.
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Compensation Satisfaction
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Compensation satisfaction is the percentage of your human capital that is satisfied with compensation. The formula for Job Satisfaction that focuses on the survey score can be used here. Since compensation satisfaction is subjective and complex, we focus more on the number of satisfied employees.
Compensation satisfaction includes employee benefits such as employee salaries, employee benefits, discounts, and other compensations stated in Cost of Employee Compensation as Percentage of Revenue.
Formula:
Example:
Number of Employees = 25
CS = ((19 + 19 + 10 + 13 + 18 + 25) / 150) * 100
CS = (104 / 150) * 100
CS = 0.6933 * 100
CS = 69%
69% of employees say they are satisfied with compensation.
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Work-Life Balance
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- Time used for work when not at work (commuting, out-of-the-office emails, etc.)
- Personal Growth
- Spiritual Growth
- Self-care
- Time for family
- Time for friends
- Hobbies
- Workload
- Relationship with co-workers and supervisors
Work-life balance is the time and energy of employees between work and other aspects of a person's life.
A work-life balance is different for everyone. It is a subjective matter. This makes creating a work-life balance environment that is suitable for everyone challenging.
Work-life balance will help acknowledge your business culture and will help you identify which employees are suitable for your business.
Here are things that you should consider when measuring your work-life balance:
Formula:
Example:
Number of Employees = 25
WLB = ((21 + 19 + 22 + 13) / 100) * 100
WLB = (75 / 100) * 100
WLB = 0.75 * 100
WLB = 75%
75% of employees say they enjoy work-life balance.
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