Staff Matters Newsletter January/February 2001
Benchmarking in Human Resources:
Ask the right questions
By Steve O'Connor

While these queries may be interesting, they are not really important. Some of the questions that are important to human resource professionals have to do with measuring the efficiency of their departmental operations. One of the best ways to do this is benchmarking. Robert Grossman, in his article, Measuring Up: Appropriate Metrics Help HR Prove Its Worth, in the January 2000 issue of HR Magazine, references the research done in this area by the Saratoga Institute and William Brown, PhD. Saratoga has identified 10 key human capital metrics that can serve as measurable benchmarks for cost efficiencies.

1. revenue factor — revenue divided by total FTE (the FTE number should include regular and contingent employees)
2. voluntary separation rate — voluntary separations divided by headcount
3. human capital value added — revenue minus human resource operating expenses (expenses should include both compensation and benefits cost)
4. human capital return on investment — revenue minus operating expenses minus human resource expenses divided by human resource expenses (this is a ratio of dollars spent on pay and benefits to an adjusted profit figure)
5. total compensation revenue percent — compensation and benefit costs divided by revenue (if you monitor pay and benefits in comparison to revenue per employee, you can see the return on your investment)
6. total labor cost revenue percent — compensation, benefits and other labor costs divided by revenue
7. training investment factor — total training costs divided by headcount
8. cost per hire — advertising and agency fees, employee referrals, travel, relocation, recruiter pay and benefits divided by operating expenses
9. health care cost per employee — total cost of health care benefits divided by total employees
10. turnover costs — cost to terminate plus cost per hire plus vacancy cost plus learning curve loss

In addition to the Saratoga Institute’s metrics, the Bureau of National Affairs Inc. in Washington, DC, in conjunction with the Society for Human Resource Management, recently released their annual Human Resource Activities, Budgets and Staffs 1999-2000 report (SHRM-BNA Survey No. 65). Among their survey findings are three national measurements that constitute critical human resource benchmarks.

• median human resource staff ratio per 100 employees = 1.0 for all employers and 0.7 for health care

• human resource budgets as a percentage of operating budgets = 0.9 for all employers, 0.8 for health care

• median human resource cost per employee = $787 for all employers and $547 for health care

These questions and their answers are important measures to assist human resources in positioning itself as a strategic business partner in health care organizations. Another question that isn’t particularly important but one that plagues me is, if an IRS agent and a telemarketer were both drowning and you could only save one of them, would you go to lunch or read the paper?

Sidebar:

Benchmarking is keeping track of the costs related to the core services of a department and comparing them to either your own history or some national standard. By doing this, it is possible to justify staffing levels, calculate budget projections and demonstrate cost efficiency.