Talking Number$: The Importance of Finance in HR Credibility

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Talking Number The Importance of Finance in
HR Credibility

• By Rich Burton, MBA, PHR
• AVP, Human Capital Management, WSFS Bank

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• When you were born, you cried and the world
  rejoiced. Live your life so that when you die,
  the world cries and you rejoice
• - Cherokee Expression

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Overview

• Some negative perceptions about HR.
• What does HR boil down to?
• Why is it hard to quantify HRs impact?
• Suggested methods to educate people about the
  hard value HR can add.
• The mindset to get into as you search for
  opportunities to do this.

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FastCompany Why we hate HR- excerpts

• at best, a necessary evil
• a dark bureaucratic force that blindly enforces
  nonsensical rules, resists creativity, and
  impedes constructive change.
• "Most human-resources managers aren't
  particularly interested in, or equipped for,
  doing business.
• When HR professionals were asked about the worth
  of various academic courses toward a "successful
  career in HR," 83 said that classes in
  interpersonal communications skills had
  "extremely high value." Employment law and
  business ethics followed, at 71 and 66,
  respectively. Where was change management? At
  35. Strategic management? 32. Finance? Um, that
  was just 2.

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FastCompany Why we hate HR- excerpts

• can readily provide the number of people it
  hired, the percentage of performance evaluations
  completed, and the extent to which employees are
  satisfied or not with their benefits. But only
  rarely does it link any of those metrics to
  business performance.
• no point of view about the future and how
  organizations are going to change.
• discovers things about the business through the
  lens of people and talent. That's an opportunity
  for competitive advantage. In most companies,
  that opportunity is utterly wasted.

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FastCompany Article Why we hate HR - reflecting

• HR execs should be making the most of our, well,
  human resources -- finding the best hires,
  nurturing the stars, fostering a productive work
  environment .HR should be joined to business
  strategy at the hip.
• Compare HR outcomes to meaningful things (non-HR)
• Realize that executives and managers are not
  going to have aha moments about HR on their
  own, we have to provide them!

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Ease of measurement
Source Strategic Human Resource Management,
Third Edition, Jeffrey A. Mello
Finance Controllers Accounting Line
Units Marketing Operations Information
Systems Human Resources
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What is HR?

• designing management systems to ensure that
  human talent is used effectively and efficiently
  to accomplish organizational goals.
• Mathis, Jackson, Human Resource Management (13th
  Edition), McGraw Hill.
• effective and efficient use of human talent to
  accomplish organizational goals.
• SHRM Learning System 2008.
• Wikipedia (on HRM) ....management of an
  organization's most valued assets - the people
  working there who individually and collectively
  contribute to the achievement of the objectives
  of the business.
• Policies, practices, and systems that influence
  employees behavior, attitudes, and performance.
• Noe, Hollenbeck, Gerhart, Wright, Human Resource
  Management (Gaining a Competitive Advantage), 5th
  edition, McGraw Hill.

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The aha moment

• Much of what HR does is to eliminate obstacles to
  performance.
• Creating a better work environment to do what?
  Prevent turnover.
• Employee/Labor Relations
• Benefits
• Payroll/Compensation
• Recruiting and Staffing
• Training and Development
• Safety
• Employee Engagement
• Idea programs
• Tangible opportunity - HR is about increasing
  performance and decreasing turnover!

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Credibility by being tangible!

• We have to show how increased performance and
  decreased (voluntary) turnover is worth
  something!
• Track performance and turnover over time and
  relate it to other (non-HR) things
• We need to correlate them to the companys
  definition of success (often portrayed through
  financial terms).

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Source Strategic Human Resource Management,
Third Edition, Jeffrey A. Mello
Finance is a tool we can use!
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Common Financial Terms

• Asset - Resources of the firm expected to yield
  some future benefit for the company. Can be
  financial, physical, and intangible properties.
• Cost (i.e. labor cost) anything directly tied
  to the production of a product or service
• Expense anything with a dotted line to a
  product or service
• Efficiency Ratio generally speaking cost and
  expenses as they related to income (or sales)
  express as a

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Common Financial Terms

• ROA Net Income/Total Assets how effective our
  assets are being used to produce revenue
  expressed
• ROS Net Income/Total Sales How much profit is
  being produced per dollar of sales expressed
• ROE NET Income/Total Equity How much profit
  is generated per shareholder dollar expressed

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Finance 101 How is HR Relevant?

• HR is definitely an expense.
• Justify the expense!
• Compare it to other positive things and make the
  argument for its impact!
• Quantify the impact of HR through numbers that
  others are more used to hearing!
• Keep performance of human assets high and
  (voluntary) turnover low. Doing this will
• Maximize ROA
• Decrease costs and expenses on the income
  statement.
• Increase accounts receivable on the balance
  sheet.
• Ensure that assets are utilized better.
• Drive sales (hence accounts receivable)

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Finance 101

• Income Statement
• A financial statement that measures a company's
  financial performance over a specific accounting
  period.
• Sales COGS Expenses Taxes bottom line.

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Finance 101

• Balance Sheet
• Summarizes company assets, liabilities
  and shareholders' equity at a specific point
  in time.
• Give investors an idea as to what the company
  owns and owes, as well as the amount invested by
  the shareholders.

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Show you are doing more with less

• Payroll (total of all salaries, wages) compared
  to total company assets
• Assets get off balance sheet (over time)
• Payroll as a of total company operating
  expenses
• Expenses get off income statement (over time)
• HR budget as a of total company operating
  budget
• Obtain from CFO, Controllers, Treasury (over
  time)
• FTEs per HR Associate and Benefit cost as a
  of payroll
• Both measures of efficiency (over time)
• Total HCM budget per Associate over time (measure
  of efficiency)

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Show you are efficient

• Assets per FTE over time
• measure of efficiency (work with managers to
  control staffing levels)
• Profit per FTE over time
• measure of efficiency (control staffing levels)
• Voluntary turnover as a of total turnover over
  time
• making a difference (drive engagement)
• Operating Profit as a of sales
• Efficiency (i.e. 180,000/2,000,000) 9

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Show you are efficient

• Compare ROA, ROE, ROS (i.e. red) to
• Payroll as a of operating expenses (decreasing
  is a good thing) orange
• HCM budget as a of total operating budget
  (decreasing is a good thing) orange
• Voluntary turnover as a of total turnover
  (decreasing is a good thing) orange

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Are you making a difference?

• Measure the before and after state of things
  (i.e. major new initiatives)
• Has ROA, ROE, or ROS increased or decreased (i.e.
  after the rollout of a new training initiative)
• Has efficiency (aka ROA, ROE, ROS) increased or
  decreased (i.e. after the rollout of a new
  performance management initiative)
• Have sales of products or services increased or
  decreased (i.e. after a new policy was put into
  place)

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Possible HR Scorecard

• Associate Engagement Survey

• Vol. Turnover as of Total Turnover

• Training program sales, ROA, ROE, ROS impact

Making a difference!

• HCM Budget as of Total Budget

• FTEs per HR Associate

• Payroll of total company assets

More with less!

• Avg. Performance per unit

• Fiscal Measures

Making a difference!
Connecting it all!
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This can be HARD!
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Recap

• We must constantly show why performance and
  voluntary turnover are so critical in
  organizations
• Relate performance and turnover to cost,
  efficiencies, ROA, ROS, ROE, net income ,
  efficiencies, etc. on your HR scorecard
• Look for positive and negative financial
  correlations with HR initiatives over time.
• Doing this will create more aha moments for
  non-HR decision makers

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• When you were born, you cried and the world
  rejoiced. Live your life so that when you die,
  the world cries and you rejoice
• - Cherokee Expression

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FIGHT FOR THOSE INCHES! Theyre all around
us!Thanks and have a great night!