Analysing human resource performance

Managers require an objective, unbiased way to measure the performance of personnel. The firm needs to be able to see several things:

• Is the workforce fully motivated?
• Is the workforce as productive as it could be?
• Are the personnel policies of the business helping the business to meet its goals?

It is not possible to measure these things directly. Instead, a series of indicators are used which can show the firm if its personnel policies are contributing as much to the firm as they should.

There are to main performane indicators used to measure the effectiveness of a personnel department. They are:

• Labour productivity 
• Labour turnover.

Calculating labour productivity 

Compares the number of workers with the output that they are making.

Output per period / No. employees per period. 

Any increase in the productivity figure suggests an improvement in efficiency. The importance of productivity lies in its impact on labour costs per unit. Higher productivity leads to lower labor costs per unit. And therefore leads to greater competitiveness both here and against international rivals.

Employee costs as a percentage of turnover

Another way to look at the impact of productivity on the finances of a business is to calculate staff costs as a % of sales revenue. This would help show how serious might be the impact of inefficiency. 

Measuring labour turnover

This is a measure of the rate of change of a firm's workforce. It is measured by the ratio:

(No. staff leaving the firm per year / average number of staff) x 100.

As with all business data, it is best to find comparitive data, either from a rival business or how the figure has changed over recent years, and then to loof for the reasons behind the data.

Factors affecting labour turnover

If the rate of labour turnover is increasing, it may be a sign of dissatisfaction within the workforce. If so, the possible causes could be either internal to the firm or external.

Internal causes 

Internal caouses of an increasing labour turnover could be:

• A poor recruitment and selection procedure, which may appoint the wrong person to the wrong post. If this happens, then eventually the misplaced workers will wish to leave to find a post more suited to their particular interests. 
• Ineffective motivation or leadership, leaing to workers lacking commitment to this particular firm.
• Wage levels that are lower than those being earned by similar workers in other local firms. If wage rates are not competitive, workers are likely to look elsewhere to find a better reward for doing a similar job.

Factors affecting labour turnover 

External causes 

• More local vacancies arising, perhaps due to the setting up or expansion of other firms in the area
• Better transport links, making a wider geographical area accessible for workers. New public transport systems enable workers to take employment that was previously out of their reach.

Consequences of high labour turnover

Negative effects:

• costs of recruiting replacements
• cost of trainig replacements
• time taken for new recruits to settle into the business and adopt the firm's culture
• loss of productivity while the new workers leaen the new ways of working (reach peak on the learning curve).

Positive effects:

• new workers can ring new ideas and enthusiasm to the firm
• workers with specific skills can be employed rather than having to train up existing workers from scratch
• new ways of solving problems may be identified by working with a different perspective, whereas existing workers may rely on tired and trusted techniques that have worked in the past.

Labour retention = (staff not leaving in past year / average no. staff employed in the year) x 100.

Poor productivity with a high labour turnover might suggest poor management in the workplace. For the most effective comparisons, good maagers analyse the figures to identify:

• changes over time
• how the firm is performing compared with other similar firms (benchmarking)
• performance against targets, such as a 20% improvement on last year.

Each of these comparions will tell the firm how it is performing in relation to a yardstick. This will indicate to the firm where it is performing well and where it may have a problem. The firm must then investigate carefully the reasons for its performance before it can judge how well its personnel function is operating.