Calculating Human Capital ROI

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November 30, 2010

Human Capital Management Institute

Presents:Calculating Human Capital ROI


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Agenda

Welcome Overview

About HCMI the Workforce Intelligence Consortium The Challenge of Measuring Human Capital

What is Workforce Intelligence? Quantifying Human Capital ROI Q&A Whats Next?

2 Human Capital Management Institute 2010


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About Human Capital Management Institute

HCMI Background:

Specialized in HR analysis &measurement

Deep expertise in Workforce Analytics &Planning

Board made up of CFOs and HR heads

Over 40 years of experience

What We Do:

Measure the immeasurable in humancapital

Transform workforce data into businessintelligence

Provide Tools and Training so HR canPartner with Finance

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Workforce Assessment w Strategic Consulting w Training

Best Practices w Workforce Analytics and Planning w Benchmarking

The Human Capital Management Institute (HCMI) was founded on the belief that organizations can andmust, find better ways of measuring their investments in human capital. Our vision of the future is one inwhich human capital measurement and information is as integral to business decision making asfinancial information is today.

We Bring Financial Discipline, Standards and Rigor to the HR Function

Human Capital Management Institute 2010


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Workforce Intelligence Consortium

WorkforceIntelligence

Consortium

Universities/Educators

Thought Leaders

BenchmarkingOrganizations

MemberCompanies

HCMI

A partner-driven organization dedicated to quantifying andsolving workforce planning and analytics issues

Dr. Jac Fitz-Enz Sponsors


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What Do We Do?

Human Capital Management Institute 2010 5

Awareness Action Competence Effectiveness Excellence

Quantify Integrate

Predict

The WorkforceIntelligence Consortium

accelerates your workforce planning and

analytics competency

B u s i n e s s

I m p a c t

Align HR andbusinessstrategy

Create aCenter of

Excellence

Utilizebenchmark standards

Conduct root cause analysis

Leverage advancedmetrics and ROI

analysis


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What is Human Capital ROI?

Net operating profit impact of each dollar invested in human capital or totalcost of workforce

(Total Operating Revenue (Total Expenses Total Cost of Workforce))Total Cost of Workforce

TCOW should include:

Total costs of employees All contingent headcount

Calculating Human Capital ROI

9Human Capital Management Institute


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The Workforce Quantifier ROI Calculator


The Workforce Quantifier TM is a scenario-based modeling tool designed to helporganizations increase productivity, drive cost savings, and forecast human capitalvalue. It incorporates organization specific financial and workforce assumptions toidentify value creation and cost savings opportunities for human capital programsand interventions.

Human capital delivery areas that can bemodeled include:

Compensation and Benefits Recruiting and Hiring Productivity and Performance

Turnover Engagement and Training Mobility


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Why use the Workforce Quantifier TM?

Finance organizations have been using standard net present value (NPV), return oninvestment (ROI), and internal rate of return (IRR) templates and calculationmodels for decades

No such calculator exists today to quantify or support data driven decision making

for the workforce It generates value creation, financial cost, and ROI information from the fewest

possible data inputs with Scenario specific projection variables

The ability to analyze the entity and the designated position group The option to override key calculated cost to match desired or known values


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Project Information Financial Assumptions Position Analysis

Organization or Entity Name: Tax Rate: Position or Job Group:Project Name: Discount Rate: Business Unit or Division:Industry: Forecast Years: Job Function or Specialty (if applicable):

Analysis Year: Job Category (EEO Category):

Workforce Assumptions and Future Projections E nti ty * P os iti on * * Business, Financial Inputs and Projections E nti ty * P os iti on * *Beginning of Period FTE (e.g. January 1): 4,900 490 Net Revenue (Current Annual): $1,000,000,000 $0End of Period FTE (e.g. December 31): 5,100 510 Total Expenses (Current Annual): $750,000,000 n/aAverage Organization Tenure in Years: 5.0 5.0 Net Operating Profit (Current Annual): $125,000,000 $12,500,000Total Annual Salary Increase Costs: $9,750,000 $1,275,000 Revenue per FTE (Current Annual): $200,000 $200,000Annual Workforce Productivity Improvement: 1.0% 1.0% Profit per FTE (Current Annual): $25,000 $25,000Projected Annual Workforce Growth Rate: 9.0% 9.0% Projected Annual Net Revenue Next Period: $1,100,000,000Projected Av erage Annual Salary Increase: 3.0% 3.0% Projected Annual Net Operating Profit Next Period: $140,000,000 $14,000,000Projected Av erage Annual High Performer Salary Increase: 5.0% 5.0% Projected Annual Revenue per FTE Next Period: $206,398Projected Annual Inflation or Costof Business Rate: 3.0% 3.0% Projected Annual Profit per FTE Next Period: $26,269 $26,269

Projected Annual Net Revenue Growth Rate: 10.0% 10.0%Compensation and Benefits Data Projected Annual Net OperatingProfit Growth Rate: 12.0% 12.0%Average Base Salary: $65,000 $85,000Average Total Compensation: $80,000 $100,000 Turnover Data and Cost Impact Average Benefits Cost as a Percent of Salary: 33.3% 33.3% Total Period Terminations: 700 90Total HR Department & Function Costs: $20,000,000 $2,000,000 Total Period Voluntary Terminations: 600 80Total Benefits Costs: $108,333,333 $14,152,500 Total Period New Hire Terminations: 200 30Total Cost of Salaries: $325,000,000 $42,500,000 Total Period High Performer Terminations: 70 20Total Compensation Cost: $400,000,000 $50,000,000 Total Cost of Turnover per Departure: $15,810 $27,270Total Cost of Workforce: $528,333,333 $66,152,500 High Performer Cost of Turnover per Departure : $40,654 $73,890

Overall Turnover Rate: 14.0% 18.0%Recruiting and Hiring Data Voluntary Turnover Rate: 12.0% 16.0%Total Period External Hires: 900 100 New Hire Turnover Rate: 22.2% 30.0%Total Period Internal Hires: 360 40 High Performer Turnover Rate: 9.1% 16.3%Total Period Recruiting Costs: $5,500,000 $911,111 Overall Total Turnover Costs: $11,064,534 $2,454,167Total Orientation and Onboarding Costs: $500,000 $55,556 Overall High Performer Turnover Costs: $2,845,809 $1,477,794Total Period Recruiting and Onboarding Costs : $6,000,000 $966,667 Cost of Turnover Adjustment Factor: $0 $0Total Positions Hired or Filled: 1,260 140Average External Recruiting Cost per Hire: $5,711 $8,711 Employee Engagement and Training DataAverage Internal Recruiting Cost per Hire: $1,000 $1,000 Average Employee Engagement Score (Input as Percent of 100): 75.0% 74.0%Average Orientation and Onboarding Cost per Hire: $556 $556 Percentage of Highly Engaged Employees (Input as Percent of 100): 20.0% 20.0%Total Cost per Hire: $4,365 $8,651 Total Annual Training Costs: $10,000,000 $1,200,000Internal vs. External Hire Total Compensation Cost Di fferential: $2,000 $10,000 Total Percent of Workforce Trained Annually: 80% 90%External Cost per Hire AdjustmentFactor: $0 $3,000 Average Training Cost per Employee Trained: $2,451 $2,614

Rev enue Growth As soci ated wi th Improv ed Empl oy ee Engagement Score: 0. 5% 0. 5%Productivity and Performance Data Revenue Growth Associated with Highly Engaged Employees: 5.0% 10.0%Beginning of Period High Performer FTE (e.g. January 1): 760 120End of Period High Performer FTE (e.g. December 31): 775 125 Mobility Data

475 60 Total Period Promotions: 530 50Active High Performers Hired Externally: 300 65 Average Promotion Cost as a Percent of Salary: 10.0% 12.0%Return on Human Capital Investment: 23.7% 18.9% Total Period Transfers and Moves: 1,000 200High Performers percent of Workforce: 15.4% 24.5% Average Transaction Cost per Promotion, Transfer or Move: $500 $500Percent of High Performers Hired Externally: 5.9% 12.7% Promotion Rate (Percent of Workforce): 10.6% 10.0%Percent of High Performers Hired Internally: 9.3% 11.8% Mobility Rate (Internal Transfers + Promotions + Demotions): 20.0% 40.0%High Performer Productivity Differential: 10.0% 25.0% Total Annual Promotion Salary Increase Costs: $3,445,000 $510,000

Total Annual Internal Mobility Transaction Costs: $765,000 $125,000

Projected Costs and Impacts Summary Entity * / Postion ** Projected Savings and Value Creation Summary Entity * Position ** Entity * Position **Entity Current Workforce Cost Percent of Revenue: 52.8% Value Creation per Increase in High Performers: $236,740 $61,178 $2,227,140 $954,898Entity Year 5 Workforce Cost Percent of Revenue: 59.2% Cost Savings per Decrease in High Performer Turnover Rate: $325,235 $73,890 $2,032,721 $927,728Entity Total Cost of Workforce CAGR: 12.5% Cost Savings per Training and Mobility Retention Impact: $88,516 $22,088 $561,114 $186,534Entity 5-Year Total Cost of Turnover: $70,139,309 Value Created per Positions Filled Internally: $100,076 $435,685 $649,525 $2,361,979Entity Total Cost of Turnover CAGR: 9.2% Cost Savings per Decrease in Overall Turnover Rate: $1,191,753 $206,782 $7,603,934 $1,325,474Position 5-Year Total Cost of Turnover: $20,725,960 Cost Savings per Increase in Highly Engaged Employees: $115,225 $21,515 $734,955 $141,683Position Total Cost of Turnover CAGR: 19.3% Cost Savings per Increase in Overall Employee Engagement: $500,000 $50,000 $3,357,805 $335,781

Total Value Creation: $ 2, 55 7, 54 5 $ 87 1, 13 7 $ 17 ,1 67 ,1 93 $ 6, 23 4, 07 7Financial Net Present Value (NPV) at 15% Discount Rate: n/a n/a $ 11 ,1 80 ,7 08 $ 4, 03 4, 12 4

1st Year Value 5 Year Value

Company NameBusiness IntelligenceTechnology

Programmer Analyst Technology ProductsIT

Professional Staff

50%15%5.0

2009

Active High Performers Hired Internally (Promotions + Transfers):

1%

1%1%

501%

1%1%

Project Information

Recruiting andHiring

Productivity andPerformance

Projected Costsand Impact

FinancialInformation

Turnover andCosts

Compensation andBenefits

Workforce Assumptions

Mobility

Engagement andTraining

ROI and ValueCreation

Position Analysis

Data Input Calculated Field Scenario Field

IncreaseProductivity

Forecast Human CapitalValue

Drive Cost Savings

Quantify Financial Impact of Workforce Interventions



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Calculating Human Capital ROIdemonstration



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Assess

Skills Capabilities Systems Data

Organization

Organize forSuccess

AssessCurrent State

Prepare Dataand

Measures

Quantify andPredict

Optimize

Organize

Build a Roadmap ID Goals ID and build

skills/resources

Definegovernance Plan service

delivery andmeasurement

Prepare

Data Integrations ID Key Metrics

Execute

Quantify value,ROI, and costs

Predict andforecast

Model workforce

Take Action

Valueopportunities

Cost savings Policy or process

changes Continuous

improvement opportunities

How Do We Do It?

5 Steps to Workforce Intelligence


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How Do We Accelerate the Journey?


Member-specific

solutions

IndustryExpertise

Trainingand

Education

Tools andSoftware

PeerNetworking

The Workforce Intelligence Consortium can quickly move you frommeasuring to QIP

Assessment Bring your

issue Member-specific

Roadmap

Experts Educational

Institutions Benchmarking

organizations Proven measures

and standards

FoundationalWFP andanalytics

Advancededucation

ROI Calculator Workforce

Image Maps Data integration

blueprint Next generation

WorkforceIntelligencesoftware

Member forumsandcommunities

White Papersand knowledgelibrary


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Program Timeline

16

Q1 Q3 2011Current tools , web prototypes,

web data integration, and dataload tools released

Q4 2010Consortium

onboarding and education

Q4 2011Web based

application suite(est release 12/11)

Workforce Intelligence Consortium program timeline:

Regular expert, education, and community sessions will be held

throughout the year. Next generation tools will be released asdefined by the program schedule.



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Next Steps:


For more information about the Workforce Quantifier TM , visit http://www.hcminst.com/workforce_roi_calculator.html

For inquiries about the Workforce Intelligence Consortium ,contact Cheryl Farley, Program Director at

[email protected]

Presenter information:Jeff Higgins, CEO HCMI at [email protected]

Grant Cooperstein, Senior Consultant and Principal at [email protected]

Workforce Intelligence ConsortiumGroup @HCMI
http://www.hcminst.com/workforce_roi_calculator.htmlmailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.hcminst.com/workforce_roi_calculator.html


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Documents

Calculating Human Capital ROI