HR KPI - the use of balanced scorecard metrics in managing human resources

HR is a crucial supporting function whether you have a team of 2 or 2,000 and business managers need to get the very best out of their people if they are to get the very best business performance.  KPI's typically lend themselves to monetary or physical metrics such as dollar value of sales or number of widgets produced by a team or region.  KPI's or balanced scorecard metrics (the two are essentially one and the same) provide management and decision makers with an overview of business performance and software based solutions give a dashboard type presentation that allows users to "drill down" to view performance at the micro level.

Applying KPI's to non-monetary functions such as HR, that do not produce a tangible dollar benefit or a physical item in production still lend themselves to KPI analysis.  We just have to look at what these business units (taking the HR department as the example) are actually producing in terms of training days delivered, staff turnover ratios, sick days taken.  If you view the HR function as producing an indirect benefit to the business operation (which you will do if you are allocating the cost of the HR Department out to operating divisions) then it will follow that simply looking at training days delivered is not a useful measure of contribution to business performance.  Combining training days delivered to the sales force coupled with increases in sales revenue would be a better metric that seeks to represent the correlation between training and improved revenue.

Similarly combining HR metrics with other tangible dollar denominated revenues and expenses can provide a good set of indicators to assess and control the contribution of the HR department to the organization.  Does the implementation of a staff benefit scheme affect employee turnover ?  If employee turnover remains unaffected upon introducing staff medical benefits, then is the continuing expense really worthwhile from a commercial point of view ? 

This leads on to an interesting point with KPI's, particular those used to measure the impact of the HR function on an organizations human resource.  It is simply this, that KPI's will usually prompt more questions than they will in fact answer.  KPI's if properly designed and implemented will advise management and decision makers on what and where something has happened but it is unlikely to say why it has occurred, particularly if you are using raw metrics.  Management will almost always be required to ask more questions before they are able to arrive at a decision on action to take if any. 

KPI's are not only about measuring metrics, they are also about exercising control over activity and expense.  The knowledge that HR are collating data on staff sickness for instance will in itself help reduce unauthorized absences simply by virtue of the fact staff know they are being monitored.  Likewise productivity is likely to increase or be maintained for the very same reason, however skilled use of KPI's can also bring about increased business productivity and profitability but the key issue is knowing what the metric you choose actually is telling you.