The department is constantly under pressure to

The human resources function in business generates costs but rarely generates any revenue. In this lesson, you will learn how human resources metrics are used to analyze the human resources function within an organization.

Overview of Human Resources Metrics

Amanda is the human resources manager of Allied Manufacturing. The HR department at Allied Manufacturing generates costs but does not generate any revenue. Because of this, Amanda’s department is constantly under pressure to demonstrate its value to the organization. She has been tasked with the challenge of justifying the amount of money that the company spends on the human resources function. Amanda will use human resources metrics as a tool to justify the expenses that her department incurs.Human resources metrics are different measurements that are used to show the value that the human resources function provides to the organization. These measurements demonstrate how effective the efforts of the human resources department are to the overall success of the organization.

Types of Human Resources Metrics

There are three types of human resources metrics:

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  1. Metrics that measure the effectiveness of the human resources function
  2. Metrics that measure the efficiency of the human resources department
  3. Metrics that measure the effectiveness of the employees within the organization

Measuring the Effectiveness of Human Resources

Amanda uses these metrics to measure how well her human resources department is performing their tasks. The goals for these metrics are usually set by company management. The human resources department then monitors these metrics to ensure that they are meeting or exceeding their goals. Some of the more common effectiveness metrics include:

  • Turnover rate, which measures how often employees leave the company and need to be replaced
  • Absentee rate, which measures how many unscheduled absences are taken by employees
  • Employee morale, which measures the level of satisfaction that employees have with their jobs and with the company

Measuring Efficiency

Amanda uses these metrics to measure how well her human resources department is using their resources. The metrics compare the value that the human resources function adds to the company with the cost that the function incurs.

Some of the more common efficiency metrics include hiring costs, which measure how much money it costs to hire and train a new employee as well as benefits costs, which measure how much money it costs to provide benefits including health, dental and paid time off for employees. Time to hire metrics measure the amount of time that it takes the human resources department to recruit and hire a new employee.

Measuring Employee Effectiveness

Amanda uses these metrics to measure how effectively employees are generating revenue as compared to the costs they incur. Although the human resources function doesn’t have full control over this situation, their actions can impact employee training, motivation and morale. Some of the common employee effectiveness metrics include employee return, which measures how much revenue each employee generates as compared to the costs each employee generates, as well as promotion rate, which measures how many employees receive promotions throughout the organization.

Additionally, defect rate measures the effectiveness of employee training by looking at how many measurable mistakes are made by each employee.

Lesson Summary

Since the human resources department at Allied Manufacturing doesn’t produce any revenue, there needs to be a way to justify the costs incurred by the function. This justification comes in the form of human resources metrics. These are different measurements that are used to show the value that the human resources function provides to the organization. The three types of human resources metrics include:

  1. Metrics that measure the effectiveness of the human resources function
  2. Metrics that measure the efficiency of the human resources department
  3. Metrics that measure the effectiveness of the employees within the organization
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