Measuring the financial impact of HR: Defining and controlling the areas where HR adds cost and value
| Date | 01 January 2007 |
| DOI | https://doi.org/10.1108/14754390780000954 |
| Published date | 01 January 2007 |
| Pages | 28-31 |
| Author | Alice Snell |
| Subject Matter | HR & organizational behaviour |
28 Volume 6 Issue 2 January/February 2007
S WITH ANY MODERN business
discipline, HR has to demonstrate to the
board its value as a strategic business
function. However, while sales figures and
procurement data sit comfortably on the
financial spreadsheet, traditional HR activities haven’t
always been quite so accountable.
The following article provides an overview of the
costs related to managing human capital and the
opportunities available to the HR function for cost
reduction and improved corporate performance, as
validated by the Taleo Research division of talent
management solutions company Taleo.1
Calculating HR expenditure
All organizations today are driven by people – 57
percent of the US gross domestic product (GDP) is
spent on workforce-related expenditures.2This makes it
the most significant portion of spend for most
organizations. Understanding where the investments
are made, what form such investments take, the
economics of their impact and how to best optimize
these resources, are the keys to unlocking hidden value.
In a recent global survey of chief financial officers,
only eight percent of 602 respondents believed that
their HR department managed human capital
“extremely well,” yet the economic impact of talent
acquisition and mobility on an organization is
enormous.3
Conducting step-by-step analysis
To control costs, businesses need to understand the full
economic impact of each candidate, from their first
day on the job, to reaching full productivity.
Performing a comprehensive step-by-step analysis of
talent acquisition will reveal any hidden costs and the
broader economic impact, as well as identify fresh
opportunities for improvement and better returns from
the corporate workforce.
Following these four steps will help you control
some of the most substantial HR costs you’re likely to
encounter:
1. Accelerate the hiring process.
2. Reduce high turnover.
3. Avoid exposure to legal implications.
4. Cut the costs of temporary work.
1. Accelerate the hiring process
The most familiar categories of corporate spend on
talent acquisition include internal labor costs and
expenses. Labor costs can be divided into direct talent
management costs (labor directly tied to the HR
department) and indirect (labor used in the process,
but not directly through the HR department, such as
hiring managers and the procurement department)
talent management and acquisition costs.
Talent acquisition expenses include:
A
Measuring the
financial
impact of HR
Defining and controlling the areas
where HR adds cost and value
Using the case-study examples of Dow and
UnitedHealth Group and a selection of research
papers,Alice Snell, vice president of Taleo Research,
explores the ways in which you can help control HR’s
financial burden. She highlights four key areas where
HR can cut costs: by accelerating the hiring process,
reducing high turnover, avoiding exposure to legal
implications and cutting the costs of temporary work.
by Alice Snell,Taleo Research
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