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SHRM Module 4

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SHRM Module 4

prepare SHRM

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LICENSE AGREEMENT FOR SHRM HRMPTM LEARNING SYSTEM STUDENT

MATERIALS

By using these SHRM HRMP™ Learning System student materials (the ―Materials‖), the user
(―User‖) hereby agrees as follows:

(i) That the Society For Human Resource Management (SHRM) is the exclusive
copyright owner of the Materials.

(ii) Provided that the required fee for use of the Materials by User has been paid to
SHRM or its agent, User has the right, by this License, to use the Materials solely for his/her
own educational use.

(iii) User has no right to make copies, in any media, of the materials, or to sell, or
sublicense, loan, or otherwise convey or distribute these materials or any copies.
Module 4: Measurement
Acknowledgements .................................................................................................................... vi
Welcome to the SHRM HRMP™ Learning System ................................................................. viii
Getting Started ...................................................................................................................... viii
SHRM HRMP™ Learning System Structure .......................................................................... ix
Learning System Development ............................................................................................. xii
Information About Certification ........................................................................................... xiii
HR Certification Institute HRMP™ Knowledge Base .......................................................... xiv

Section 4.1: Basic Measurements for Organizational Management .........................................2

Introduction ..................................................................................................................................3
Introduction to Measures, Metrics and Analytics ........................................................................4
Introduction to KPIs and Performance Measures ........................................................................6
Key Performance Indicators .................................................................................................... 7
Quality Improvement Methods and Analysis ...............................................................................9
Quality Standards .................................................................................................................... 9
Quality Improvement Theories and Methods ........................................................................ 10
Capturing, Analyzing and Presenting Data ........................................................................... 14
Benchmarking ........................................................................................................................ 19
Theory of Constraints ............................................................................................................ 22
Dashboard Indicators ............................................................................................................. 22
Practice Questions ......................................................................................................................24

Section 4.2: HR Measurement and Evaluation .........................................................................28

Introduction ................................................................................................................................29
Understanding Research Terms and Techniques .......................................................................30
Inductive and Deductive Reasoning ...................................................................................... 30
Primary and Secondary Research .......................................................................................... 32
Research Process ................................................................................................................... 33
Quantitative and Qualitative Data Analysis .......................................................................... 36
Reliability and Validity ......................................................................................................... 48
Metrics for Human Resource Management and Evaluation ......................................................50
Frequently Used HR Metrics ................................................................................................. 51
Other Common Operational HR Metrics............................................................................... 54
Evaluating HR’s Strategic Contributions ...................................................................................58
Financial Metrics ................................................................................................................... 59
Performance Metrics.............................................................................................................. 64
Workforce Planning Metrics ................................................................................................. 67
Cultural Considerations ......................................................................................................... 77
Measuring Employee Engagement .............................................................................................78
Introduction ........................................................................................................................... 78
Employee Surveys ................................................................................................................. 79
Employee Focus Groups ........................................................................................................ 81
Results Analysis and Interpretation ....................................................................................... 83
Feedback to the Organization ................................................................................................ 84
Practice Questions ......................................................................................................................86

Section 4.3: Establish and Administer a Performance Management System ........................92

Introduction ................................................................................................................................93
Goals, Roles and Expectations ...................................................................................................94
Organizational Values and Goals .......................................................................................... 94
Creating a Shared Definition of Performance Standards....................................................... 95
Performance Management Process ........................................................................................ 96
Business Results and Employee Growth ............................................................................... 98
Organizational Support .......................................................................................................... 99
Individual Performance Appraisals ..........................................................................................100
Establishing Performance Goals .......................................................................................... 101
Individual Development Plans............................................................................................. 114
Practice Questions ....................................................................................................................115

Section 4.4: Measurement Technology ....................................................................................120

Introduction ..............................................................................................................................121
Technological Factors.......................................................................................................... 121
Utilizing Technology for HR Measurement and Metrics.........................................................122
Technology Integration........................................................................................................ 122
Enterprise Resource Planning (ERP) Systems .................................................................... 124
Human Resource Information Systems (HRIS) .................................................................. 125
Practice Questions ....................................................................................................................129
Bibliography .............................................................................................................................133
Index .........................................................................................................................................135
Acknowledgements
SHRM acknowledges its volunteer leaders and project team members for their valuable
contributions to the SHRM HRMP™ Learning System:

Lead Subject Matter Experts

Mary MacDonald Lorelei Carobolante, GPHR, SCRP, SGMS
Global HR Professional, Retired Global and Intercultural Communication
Bonita Springs, Florida Design Consultant
President & CEO, G2nd Systems®
San Diego, California

Subject Matter Experts

Oluwafunke Amobi, MBA, ACIPD Peyman Dayyani, MBA, CIPD, SPHR,

General Manager GPHR
Organisation and Talent Development Vice President of Organizational
MTN Nigeria Communications Limited Development and Human Capital (CHRO),
Lagos, Nigeria Mobile Communication Company of Iran
(MCCI)
Akin Ayoola Tehran, Iran
Chief Human Resource Officer
Oando Plc Geoff De Lacy, FAICD, FloD, FAHRILife
Lagos, Nigeria Director, Polaris Consulting
Melbourne, Australia
Pablo Caffe
Senior Manager, Human Resources, Univeg Almiro dos Reis Neto
Expofrut S. A. President, Franquility
Rio Negro, Argentina São Paulo, Brazil

Kendal Callison, MBA, GPHR Brian J. Glade, SPHR, GPHR

Callison & Associates LLC Managing Director, Global Strategy and the
Kirkland, Washington Americas Region
Association of Executive Search Consultants
Laura Lea Clinton, GPHR (AESC)
Workforce Transition Advisor New York, New York
CARE USA
Atlanta, Georgia Gregory Komarow, GPHR, SPHR
Director Compensation & Benefits,
Cleveland Clinic – Abu Dhabi
Abu Dhabi, United Arab Emirates
Subject Matter Experts (continued)

Jerry Liao, MBA Craig Tao Rong

Chairman of International Affairs HR General Manager
Committee Maersk Line Shipping
Chinese Human Resource Management Shanghai, China
Association (CHRMA)
Taipei, Taiwan, R.O.C. Lav Kumar Shelat
Group Vice President HR
Jean-Louis Mutte, GPHR Avantha Group
Managing Director Gurgaon Haryana, India
Amiens School of Management, France
Amiens, France Antony Thomas
Senior Management/Director Across South
Oliver Nnona East Asia/Middle East
Principal Consultant Dubai, United Arab Emirates
Profiliant Development Resources Ltd.
Lagos, Nigeria Linda Wan, Ph.D.
Senior Regional Consultant
Rolf Philipp Roesen Development Dimensions International
International HR Director Europe, Asia- Taiwan
Pacific & Japan Taipei City, Taiwan
Illumina Cambridge Ltd.
Lausanne, Switzerland Judith A. Wierman
Director & Senior HR Global Business
Partner Nalco Company
Naperville, Illinois

Program Development Team

Brian Dickson Dave Lord
Chief, Organizational Programs & Strategic Instructional Designer
Partnerships Society for Human Resource Management
Society for Human Resource Management (SHRM)
(SHRM) Alexandria, Virginia
Alexandria, Virginia
Tiffany Pryor
Matthew Konetschni Manager, Curriculum Development
Director, Development and Training Society for Human Resource Management
Society for Human Resource Management (SHRM)
(SHRM) Alexandria, Virginia
Alexandria, Virginia
Cornelia Springer, CAE
Instructional Design, Consultant
ePath Learning, Inc. Real Time Process Solutions, LLC
New London, Connecticut Lorton, Virginia
Module 4: Measurement

Welcome to the SHRM HRMP™

Learning System
Welcome to the SHRM Human Resource Management Professional
(HRMP)™ Learning System! This learning system represents a significant
investment in your career. Whether you are using these materials to prepare for
the HR Certification Institute’s HRMP certification exam or to advance your
professional development, you will find that it is comprehensive and easy to use.

The HRMP certification exam was developed by the HR Certification Institute to

meet the needs of human resource (HR) professionals throughout the world while
adopting a universal perspective with respect to the HR discipline. These
materials and the certification exam address HR management principles that
transcend geographical boundaries.

The SHRM HRMP Learning System is intended to cover the Knowledge Base assessed by the
HR Certification Institute examination. The system’s contents may not compare exactly to the
exam and there will be some content in the exam that is not included in the learning system.
SHRM makes no claim that the use of this material guarantees passage of the HR Certification
Institute examination.

Getting Started
 You have already purchased and obtained this module through the Online
Learning Center. Note that the complete SHRM HRMP Learning System is
comprised of four modules.
 Be sure to familiarize yourself with the Online Learning Center
(https://www.epathcampus.com/SHRM/onlinelearningcenter/login/) where
you can find all modules purchased to date, as well as additional learning
aids, practice tests, e-flashcards and case studies. If you have not already

© 2011 SHRM viii

Module 4: Measurement

done so, take the Online Learning Center Orientation by clicking on the
corresponding link.
 First, go to the Practice Tests on the Online Learning Center and take the
Test Your Knowledge – Readiness Test. This will help you determine
how to focus your study.
 Next, carefully read and study this module, Module 4: Measurement.
Return to the Online Learning Center as directed in the module.
 When finished with this module, take the Module 4 Practice Test on the
Online Learning Center, and use the flash cards and case studies for
additional practice.
 When ready, take the HRMP Certification Practice Test on the Online
Learning Center.
 Purchase and study additional SHRM HRMP Learning System modules
as needed.

The learning system offers many features that allow you to learn in the way you
feel most comfortable.

SHRM HRMP™ Learning System Structure

This SHRM HRMP Learning System is not a textbook; it is a learning process.
By using all of the available materials and resources, you will be well versed in
the four domains that comprise the HR Certification Institute’s Knowledge Base.

The SHRM HRMP Learning System consists of a set of modules based on the
four domains in the HR Certification Institute’s HRMP Knowledge Base. In the
following table, the percentages represent the proportion of HRMP certification
test questions that are based on the domains.

SHRM HRMP Learning System HR Certification Institute’s Knowledge

Modules Base Domains

Module 1: HR as a Business Leader HR as a Business Leader (32%)

Module 2: People Development and People Development and Talent

Talent Management Management (29%)

Module 3: HR Service Delivery HR Service Delivery (23%)

Module 4: Measurement Measurement (16%)

Learning System Modules

Each section in the SHRM HRMP Learning System modules begins by stating
the behaviors, skills and knowledge from the Knowledge Base addressed in that
section.

In addition to the content, each module contains a variety of helpful tools,

including:
 Practice questions to help check your understanding of the content as you
progress.
 A bibliography that provides a list of print and Internet resources related to
the content.
 An index that quickly directs you to essential topics.
 Terms defined in the glossary display as blue text the first time the term is
used in a section.

 Icons that call your attention to specific content. These icons appear as
follows:

Indicates important content to which you should pay special attention.

Links to a website or suggests an additional reading source for a topic.

Directs you to other portions of the SHRM HRMP Learning System (such
as other modules and sections).

Directs you to the Online Learning Center.

Indicates practice questions to check your understanding of the content as

you progress through a module.

Online Learning Center

As a purchaser of a SHRM HRMP Learning System module, you have access to

the Online Learning Center at:

https://www.epathcampus.com/SHRM/onlinelearningcenter/login/

This website provides a variety of resources:

 Supplementary materials
 Full HRMP knowledge base
 Case studies
 Online and printable glossary
 E-flashcards

 Practice tests
o Test your knowledge – readiness test
o Practice test for each module (with individual item feedback)
o HRMP© certification practice test

Be sure that you use all of the SHRM HRMP Learning System components.
Together, the components help you learn and retain key content and prepare
for the certification exam.

Make use of the Online Learning Center at:

https://www.epathcampus.com/SHRM/onlinelearningcenter/login/

Learning System Development

The SHRM HRMP Learning System materials were developed by The Society
for Human Resource Management (SHRM) using the HR Certification Institute’s
Knowledge Base as a guide. Other than providing the Knowledge Base, the HR
Certification Institute had no role in the development of the learning system.

SHRM assembled a development team to create this learning system. The

development team included:
 SHRM staff
 Subject matter experts (SMEs) from around the world
 An instructional development firm that includes content and software
developers
 Editing and word-processing specialists

Each team member brought a special perspective and talent to the development
effort.

Revisions to the materials are regularly scheduled to ensure that the learning
system content is updated as the HR profession changes.

© 2011 SHRM xii

Module 4: Measurement

Information About Certification

Many of you have already made the decision to take the HRMP certification
exam. Others may be considering whether certification is valuable at this point in
their career. There are many reasons to consider certification:
 Professional certification establishes credibility. Earning the HRMP
credential shows that a person has mastered the HR Knowledge Base and
has remained current on HR developments through the recertification
process.
 Certification recognizes professional achievement. It is a visible reminder
to co-workers and senior managers of the holder’s expertise.
 Certification elevates the status of the HR profession. As the number of
certified HR professionals grows, so does the status and prestige of the
certification.
 Certification allows you to make a greater contribution to your
organization’s success. The knowledge and visibility you gain provide you
with an opportunity to make a difference in your organization.

From a practical standpoint, there are other individual advantages:

 Certification provides a sense of personal satisfaction by undertaking and
succeeding in a difficult endeavor.
 A highly valued certification gives you a distinct advantage in the job
market. Similarly, when you are hiring, certification gives you an extra
measure of confidence in a candidate.
 Certification moves with you as you change organizations and careers.

© 2011 SHRM xiii

Module 4: Measurement

HR Certification Institute HRMP™ Knowledge Base

At the foundation of the learning system materials and the HR Certification

Institute exam is a Knowledge Base. This Knowledge Base represents the HR
Certification Institute’s most recent study of the HR profession expressed as
behaviors, skills and knowledge required to fulfill human resource
management responsibilities that are universal and transcend global
boundaries.

For your convenience, the Knowledge Base for Module 4: Measurement is

provided on the following pages. The full Knowledge Base is available on the
Online Learning Center
(https://www.epathcampus.com/SHRM/onlinelearningcenter/login/) and the
HR Certification Institute’s website (http://www.hrci.org).

Module 4 Knowledge Base

Below are the behaviors, skills and knowledge required for mastery of content
related to Module 4: Measurement. The percentage after the heading represents
the percentage of questions on the HRMP exam based on the Knowledge Base
domain defined by the HR Certification Institute.

Module 4: Measurement (16%)

Purpose Statement for Measurement:

HR professionals should possess a combination of behaviors, skills and

knowledge that encourage and support the establishment of individual and
organizational performance metrics, and that use the results of these metrics to
improve employee performance and increase the value of the organization.

© 2011 SHRM xiv

Module 4: Measurement

Important behaviors for measurement:

01. Establish and review results of an employee performance management system

02. Establish and analyze HR metrics as they relate to the organization’s goals (for example,
employment statistics, return on investment [ROI] of HR activities, employee satisfaction
surveys, productivity data, organizational analysis)

03. Connect individual and team performance to organizational measures of success and report
the metrics to management

04. Establish and manage key performance indicators (for example, outsourcing data, cost per
hire, HR measurement tools [scorecards] and trend analyses)

Important knowledge and skills for HR measurement:

01. Quantitative metrics (for example, the numbers of employees lost or gained and recruiting
statistics)

02. Qualitative measures (for example, information from employee surveys)

03. Performance management processes (for example, help management establish and
communicate goals throughout the organization; review performance)

04. Managerial statistics (for example, mean, median, mode)

05. Financial metrics (for example, ROI, cost per hire, internal rate of return)

06. Operational metrics (for example, measures of production, service measures, customer
satisfaction)

07. HR measures (established measures and benchmarks)

08. Preparing metrics for different audiences (for example, providing and interpreting
information to the executive management team or to a group of employees)

09. Basic measurements for organizational management (for example, a set of goals and
measures that the company has established [dashboard indicators])

10. Using technology to calculate and effectively present metrics (for example, enterprise
resource planning system [ERP], desktop software, HRIS)

11. Capturing, analyzing and presenting data

© 2011 SHRM xvi

4.1: Basic Measurements
for Organizational
Management
This section covers the following information from the
Knowledge Base:

Behavior: 04. Establish and manage key performance indicators (for example,
outsourcing data, cost per hire, HR measurement tools
[scorecards] and trend analyses)

Skills & Knowledge: 09. Basic measurements for organizational management (for
example, a set of goals and measures that the company has
established [dashboard indicators])

11. Capturing, analyzing and presenting data

Source: HR Certification Institute

Section 4.1: Basic Measurements for Organizational
Management
Introduction ....................................................................................................................................3

Introduction to Measures, Metrics and Analytics ......................................................................4

Introduction to KPIs and Performance Measures ......................................................................6

Key Performance Indicators .........................................................................................................7

Quality Improvement Methods and Analysis .............................................................................9

Quality Standards .........................................................................................................................9
Quality Improvement Theories and Methods .............................................................................10
Capturing, Analyzing and Presenting Data ................................................................................14
Benchmarking ............................................................................................................................19
Theory of Constraints .................................................................................................................22
Dashboard Indicators ..................................................................................................................22

Practice Questions ........................................................................................................................24

Module 4: Measurement Section 4.1: Basic Measurements for Organizational
Management

Introduction
A measurement system that tracks results and informs strategic development is an
important part of any organization’s strategic planning process. Without metrics
and measurement information, it is difficult to know what has worked and what
has not worked.

Figure 1-1. What Gets Measured Gets Done

HR professionals typically have several areas of responsibility with respect to the

use of measurement and evaluation information. HR professionals must:
 Provide organization-wide and appropriate training on the purpose and use
of key metrics and measurement tools.
 Provide measurement reports and supply data required for organization-
wide assessment.
 Assist the organization in analyzing and interpreting measurement
information.
 Create and implement specific programs that directly address the
measurement and evaluation of HR-specific programs and initiatives.

As strategic business partners, HR professionals have the opportunity to provide

increased value to the organization through the establishment and administration
of measurement, metrics, analytics and reporting systems.
 Key performance indicators (KPIs) to assess the overall performance of the
organization

 Rigorous methodology for accurately measuring the productivity of all

major HR functions:
o Strategic management
o Workforce planning and employment
o Human resource development
o Compensation and benefits
o Employee and labor relations
o Risk management

This section begins an exploration of measurement by presenting the following

topics:
 Introduction to measures, metrics and analytics
 Introduction to organizational KPIs and performance measures
 Quality improvement methods and analysis
 Capturing, analyzing and presenting data

Introduction to Measures, Metrics and

Analytics
First consider the definition of the terms measure, metrics and analytics as defined
in the Society for Human Resource Management (SHRM) course titled
Introduction to HR and Workforce Analytics.

Measure
 The process of collecting and tabulating data
 The products of measurement are numerical such as…
o headcount, cost of employee benefits, sales revenue

To engage in measurement, HR needs access to certain data in order to organize

that data into metrics.

Metrics
 A performance parameter based on two or more measures
 It describes:
o Past outcomes such as turnover
o Process performance such as time and cost
o Example: revenue per employee, which is derived from total revenue
and employee headcount

Analytics

Converting a metric into a decision-supporting insight.

Figure 1-2: Measure, Metrics and Analytics

Introduction to KPIs and Performance

Measures
Key performance indicators (KPIs) are measures of business performance. They
are also known as business or performance metrics, measures, ratios, or simply
performance indicators.

In his book, Key Performance Indicators, Developing, Implementing and

Using Winning KPIs (Parmenter 2010), David Parmenter states that: ―KPIs
represent a set of measures focusing on those aspects of organizational
performance that are the most important for the current and future success of the
organization.‖

Parmenter emphasizes the crucial link between the business model and the
strategic planning cycle by summarizing a 12-step model for developing and
using KPIs as shown in Figure 1-3.

Figure 1-3. 12-Step Model for KPI Development

Key Performance Indicators

Key performance indicators and performance measurements developed and used
by organizations vary by the industry type and by the processes or functions being
measured. A small number of example processes and key performance indicators
are shown in Figure 1-4.

Process or Function Example Key Performance Indicators

 Revenue per employee
Finance and accounting
 Profit per employee
 Profit per customer
 Average production costs of items
 Average collection period
 Earnings per share
 First-call resolution rate
Customer service
 Number of compliments
 Number of complaints
 Percent of satisfied customers
 Average response time to resolve complaint
 Cost per resolution
 Average training days/costs per employee
Human resources
 Percent of HR budget spent on training
 Talent retention percentage
 Average time/cost to recruit
 Percent of employees receiving regular performance
reviews
 Employee benefit costs as a percent of labor costs

Figure 1-4: Example KPIs (continued to next page)

Process or Function Example Key Performance Indicators

 Amount of availability
Information technology
 Average incident response time
 Number of unplanned outages
 Amount of network bandwidth used
 Number of software licenses used
 Percent of IT budget of total revenue
 Average production costs of items
Manufacturing
 Defects per million opportunities
 Schedule adherence
 Equipment availability
 Maintenance costs as a percentage of manufacturing
costs
 Average time to procure
Procurement
 Cycle time of purchase order
 Number of payable invoices without purchase order
 Number of emergency purchases
 Percent of on-time deliveries
 Average cost of bid procedure
 Market share
Sales and marketing
 Opportunity success/win rate
 Number of sales lost
 Average sales revenue per sales person
 Sales productivity ratio

Figure 1-4: Example KPIs (concluded)

Quality Improvement Methods and

Analysis
An understanding of quality improvement theories and methods is an important
prerequisite for understanding HR measurement. This topic presents an overview
of current quality improvement theories and methods.

Quality Standards
International Organization for Standardization (ISO)

There have been a number of methods for determining quality in organizations

used in recent years. The International Organization for Standardization (ISO) is
the world’s largest developer of international standards. The goals of ISO are to
provide:
 A common basis for continuous improvement
 Defect prevention/variation and waste reduction
 A starting point for a closer working relationship among suppliers

The main purpose of ISO is to enhance trade among countries. Using ISO
standards means that organizations can develop products and services that are
widely accepted internationally. This means that organizations using ISO
standards can compete in many more markets around the world.

For more information about ISO, go to http://www.iso.org/iso/home.html.

Quality Improvement Theories and Methods

Quality assurance, customer satisfaction and continuous improvement are key
objectives for organizations that provide products and services. Over the past
thirty years, several quality-related concepts and methods have been introduced
and used by organizations to more systematically and continuously improve the
quality of their customer value proposition (CVP).
 Systems Theory
 TQM (Total Quality Management)
 Six Sigma
 Lean Six Sigma

Systems Theory

The systems theory is common in organizational development and used to achieve

quality. A system is composed of interacting parts that work together to achieve a
goal. A system is meant to accept inputs, process them and produce outputs.

According to the systems theory, organizations need to understand the

relationship between input, process and output and the environment in which
they occur. This understanding will help the organization improve their
processes, making them more efficient and cost-effective.

Total Quality Management (TQM)

Total quality management (TQM) is a strategic, integrated management system

used to achieve customer satisfaction that involves all managers and employees. It
uses methods to continuously improve an organization’s processes. Such a system
can provide the following benefits:.
 Find and eliminate problems that interfere with quality.
 Identify customer(s) and satisfy their needs.
 Eliminate waste.

 Encourage pride and teamwork.

 Create an environment that encourages creativity.

The total quality management philosophy varies somewhat among the three
experts who popularized the theory’s concept and strategies for achieving total
quality:

W. Edwards Deming

W. Edwards Deming was the American pioneer who took his 14-point program
for managing productivity and quality to Japan in 1950, where he found a
receptive audience. Japan’s award for excellence in quality, the Deming Prize, is
named after him.

Joseph M. Juran

Juran defined quality as ―fitness to use,‖ which emphasizes the reliability of a

product or service for its users. The Juran Trilogy® incorporates quality planning,
quality control and quality improvement.

Philip B. Crosby

Like Deming, Crosby devised a 14-point program for quality management. To

these points, he added four quality absolutes: a definition of quality, a prevention
system (rather than appraisal of quality), a performance standard (zero defects)
and the measurement of quality (the cost of nonconformance).

TQM is closely associated with the Japanese continuous improvement concept

known as Kaizen. Kaizen is a Japanese business philosophy advocating the need
for continuous improvement in quality, technology, processes, company culture,
productivity, safety and leadership.

Six Sigma

Six Sigma is a strategy that identifies and removes the causes of defects and errors
in manufacturing and business processes. This strategy originated in the 1980s

and uses data and facts to measure performance of a process or a product. Six
Sigma targets three main areas.
 Improving customer satisfaction
 Reducing cycle time
 Reducing defects

Figure 1-5. History of Six Sigma

Six Sigma is well suited to manufacturing, but it is increasingly used in financial

industries, health care, government, public education and other environments.
Here are some examples.
 A hospital system studied variations and made improvements in patient
care practices, patient costs and hospital utilization. Other areas of focus
were billing errors, excess inventory, excess overtime and employee
turnover.
 A debt collection agency gathered historical information and solved
process problems which improved debt collection rates.
 The HR function of a service agency reduced the cycle time of recruitment,
the payroll processing cycle, the number of employees working on
weekends and employee attrition.

To achieve Six Sigma, a process must not produce more than 3.4 defects per
million opportunities. A Six Sigma defect is defined as anything outside of

customer specifications; a Six Sigma opportunity is the total number of chances

for a defect.

Six Sigma uses two processes, DMAIC and DMADV.

 DMAIC (an acronym formed by define, measure, analyze, improve,
control) is an improvement system for existing processes defined by
specifications and looking for incremental improvement.
 DMADV (an acronym formed by define, measure, analyze, design, verify)
is an improvement system used to develop new processes or products at
Six Sigma quality levels.

Lean Six Sigma

Lean Six Sigma is a strategy that eliminates waste and improves process flows.
Lean focuses on resource optimization through logistical coordination and
inventory minimization. The difference between Lean Six Sigma and Six Sigma is
as follows:
 Lean Six Sigma is about eliminating waste, taking time out of processes
and creating better flow.
 Six Sigma is a business strategy built around the concept that organizations
gain a competitive edge by reducing variations and thus defects.
Eliminating variations is a long and involved process.

To decide whether to use Lean Six Sigma or Six Sigma tools, look at the types of
business problems that need to be solved.

Lean Six Sigma tools are more appropriate if the following business problems
exist:
 There seems to be a lot of waste.
 There is a need to minimize inventories and redundancies.
 There is a need to improve work flows.
 There is a need to speed up processes.
 There are human mistakes.

Six Sigma tools are more appropriate if the following business problems exist:
 There are quality issues.
 There is too much variation.
 There are complex problems.
 There are challenging root cause identifications.
 There are numerous technical considerations.

For more information on Six Sigma, go to:

www.isixsigma.com/sixsigma/six_sigma.asp.

Additional information on the integration of Lean Six Sigma and Six Sigma can
be found at Lean Six Sigma Black Belt Handbook, Villanova University, 2009.

Capturing, Analyzing and Presenting Data

Improvement efforts begin with understanding the problem. In some cases, the
problem may be evident and can be easily fixed while in other cases, the problem
may involve many business functions and input from thousands of employees.
The tools outlined below are often used to help gather and analyze data for
improvement initiatives.
 Process-flow analysis
 Cause-and-effect diagram
 Histogram
 Scatter diagram
 Pareto chart
 Gantt chart
 PERT chart

The following paragraphs describe each of these tools in detail.

Process-Flow Analysis

A process-flow analysis (or flowchart) is a diagram of the steps involved in a

process. This diagram shows a process and its outputs. Figure 1-6 illustrates an
example process flow for the assembly of a pen.

Figure 1-6. Process Flowchart

Cause-and-Effect Diagram

A cause-and-effect diagram (or Ishikawa diagram or fishbone diagram) maps the

factors that affect a problem or a desired outcome. HR professionals use cause-
and-effect diagrams to explain employee turnover or to better understand a
process failure. Figure 1-7 shows an example cause-and-effect diagram.

Figure 1-7. Cause-and-Effect Diagram

Histogram

A histogram is a graph that shows how a single type of measurement is

distributed. The data is represented by rectangles of varying heights. Figure 1-8 is
an example of a histogram.

Figure 1-8. Histogram

Scatter Diagram

A scatter diagram shows possible relationships between two variables. For

example, an HR professional wants to find out if there is a relationship between
years of education and amount of income. The years of education are placed on
one axis and the amount of income on the other. On the scatter diagram example

in Figure 1-9, data points are shown along an imaginary diagonal line. Education
level and the amount of income are rising together. The scatter diagram makes it
easy to see points or conditions that do not fall near this line.

Figure 1-9. Scatter Diagram

Pareto Chart

A Pareto chart is a vertical bar graph where the bar height shows the frequency or
effect of causes. The Pareto principle, which states that 80 percent of effects come
from 20 percent of causes, is a popularization of this analysis. Figure 1-10 is an
example Pareto chart.

Figure 1-10. Pareto Chart

Gantt Chart

The Gantt chart is also known as a horizontal bar chart, a milestone chart or an
activity chart. The Gantt chart graphically displays steps in a project in order by
start date, and plots their expected duration with start and end points. Each
activity includes the amount of work required to proceed from one point in time to
another. Gantt charts are used to plan a project or to monitor the progress of a
project. Figure 1-11 shows an example of a Gantt chart.

Figure 1-11. Gantt Chart

Program Evaluation and Review Technique (PERT) Chart

A program evaluation and review technique (PERT) chart is a project

management tool used to schedule, organize and coordinate tasks in a project. It is
generally used for very large, complex projects.

A PERT chart presents a graphic illustration of a project. Circles or rectangles

represent project milestones and are linked by arrows to show the sequence of the
tasks. When building the PERT chart, two inputs are required:
 Tasks required to complete the project
 Sequence of the tasks

Figure 1-12 is an example PERT chart. Tasks that must be completed in sequence
(A, B, C, E and F) are called dependent or serial tasks. The series of tasks that
take the longest time to complete are referred to as the critical path (that is, these

tasks are crucial). For the whole project to be completed on time, critical path
tasks must be completed on time. The path B-D-E is not critical because the total
number of weeks to complete it is four, compared to B-C-E, which requires seven
weeks. Task D is referred to as a parallel or concurrent task.

Figure 1-12. PERT Chart

Benchmarking
Benchmarking is the process of measuring key performance indicators that can
be compared across organizations. Benchmarks are useful because they provide
insights about the way other organizations manage similar functions. An
organization can benchmark data for almost any aspect of its operation.

Benchmarking involves two organizations that have previously agreed to share

information about their processes or operations. This is shown in Figure 1-13.
Any organization has the right to retain information considered private. The
companies may or may not be competitors.

Figure 1-13. Benchmarking

The benchmark you use must be comparable to the function or situation you are
assessing. For example, turnover can be determined differently among
organizations and among branches or subsidiaries within an organization.

The industry and the number of employees in an organization can impact

human capital metrics. When comparing your organization to others, be sure that
the other organizations are in similar industries and have similar employee
numbers.

Kinds of Benchmarking

Organizations choose to compare themselves to other organizations for many

different reasons. The benchmarks are based on a wide range of factors, from
energy use to research and development expenditures. The following describes
various kinds of benchmarking.
 Internal benchmarking: When comparisons are made inside the
company.
 Competitive benchmarking: When comparisons are made against
competitors.
 Industry benchmarking: When the organization’s standards are compared
to the standards of other organizations in the same industry.
 World-class benchmarking: When the organization’s level of
achievement is compared to the achievement of the best organizations in
the world regardless of industry (Hindle 2008).

HR Benchmarking

Benchmarking can be applied to the HR function. Figure 1-14 lists examples of

HR performance measures that may be helpful for an organization to benchmark.

Benchmark Examples
 Pay and social costs as a  Turnover rate
percentage of operating expense  Turnover cost
 Cost per hire  Time to fill jobs
 Return on training investment  Human value added
 Health care costs per employee

Figure 1-14. HR Benchmark Examples (Society for Human Resource Management 2006)

In some situations, you will need to gather or exchange comparison data quickly.
Informal benchmarks provide a useful initial measure. For example, social
networks and Internet platforms allow people around the world to post questions
and to get answers quickly and easily. Informal benchmarks are less exact, but
they are often faster and less expensive..

There is a difference between benchmarking and competitive analysis.

Competitive analysis compares a product from an organization with a
competitor’s product. Characteristics and prices of both products are compared.

Benchmarking not only compares price and characteristics but may also compare
additional factors such as how the product is designed, the development process
and how the product is distributed.

Benchmarking Limitations

Benchmarking is a difficult process that demands commitment for success.

Consider the following limitations before deciding to benchmark:
 Availability of competitors that are suitable for comparison
 Difficulties in comparing data
 Constraints in resources such as time, money and expertise
 Resistance from staff (Business Performance Improvement Resource 2011)

Theory of Constraints
An idea related to TQM is the theory of constraints (TOC), a systems
management philosophy intended to help organizations continually achieve their
goals. TOC was developed by Eliyahu M. Goldratt and described in his book, The
Goal (Goldratt and Cox 2004). Goldratt made specific applications for TOC
solutions in the areas of operations, supply chain/logistics, finance and
accounting, project management, and marketing and sales.

Theory of constraints is based on the premise that the rate of goal achievement is
limited by at least one constraining process. By increasing the flow through the
constraint, the overall throughput can be increased.

TOC concentrates improvement efforts on the component most capable of

producing the most positive impact on a system. An organization would measure
and identify the weakest link in the system and determine whether it is a physical
constraint or a policy-related constraint. Then, it would improve the utilization of
the constraining component and adjust the rest of the system to enable the
constraint to operate at maximum effectiveness, and thus no longer be a
constraint.

If the constraint has been eliminated and is no longer constraining the system’s
performance, the organization repeats the TOC steps, looking for the next process
step that is constraining performance. If the constraint has not been eliminated,
the organization takes whatever action is needed to eliminate it. This may involve
major changes and financial investments.

Dashboard Indicators
Once KPIs have been determined and measured, and metrics have been derived,
the information must be presented in a timely fashion to be the most useful to the
organization. Information technology allows for a computerized dashboard.

A computerized dashboard is a user interface that organizes and presents

information in a way that is easy to read and interpret. It is called a dashboard
because it often resembles an automobile’s dashboard.

A dashboard arranges information in a visual fashion that allows the user to view
and compare data.

Figure 1-15 shows an example dashboard from the Oracle system.

Figure 1-15. Dashboard

More detailed information regarding technology tools and trends in HR

measurement can be found in Section 4.4: Measurement Technology.

Practice Questions

Directions: Choose the best answer to each question.

1. Which one of the following would not be considered a key performance indicator?
a. Percentage of HR budget spent on training
b. Organization business model
c. Percentage of customer issues resolved in the first phone call
d. Revenue per employee (or FTE)

2. Assume you are responsible for establishing and managing key performance indicators for
your organization. What would be your first step?
a. Selecting team-level performance measures
b. Developing the reporting framework at all levels
c. Marketing the KPI strategy to all employees
d. Obtaining senior management commitment

3. Which Six Sigma process would the organization use to develop a new product?
a. DMAIC
b. DMADV
c. Six Sigma Green Belts
d. Six Sigma Black Belts

4. Which one of the following tools would be best for analyzing and presenting data about
the relationship between years of education and amount of income?
a. Cause-and-effect diagram
b. Histogram
c. Gantt chart
d. Scatter diagram

5. Once KPIs have been determined and measured, and metrics have been derived, what tool
is the best for presenting the information?
a. Dashboard indicators
b. Gantt chart
c. Flow chart
d. Theory of constraints

Practice Question Answers

1. b (p. 7)
2. d (p. 6)
3. b (p. 13)
4. d (p. 16-17)
5. a (p. 23)

This section covers the following information from the Knowledge

Base:

Behaviors: 02. Establish and analyze HR metrics as they relate to the

organization’s goals (for example, employment statistics, return
on investment [ROI] of HR activities, employee satisfaction
surveys, productivity data, organizational analysis)

Skills & Knowledge: 01. Quantitative metrics (for example, the numbers of employees lost
or gained, and recruiting statistics)

02. Qualitative measures (for example, information from employee

surveys)

05. Financial metrics (for example, ROI, cost per hire, internal rate of
return)

06. Operational metrics (for example, measures of production, service

measures, customer satisfaction)

07. HR measures (established measures and benchmarks)

11. Capturing, analyzing and presenting data

Source: HR Certification Institute

Section 4.2: HR Measurement and Evaluation
Introduction ..................................................................................................................................29

Understanding Research Terms and Techniques .....................................................................30

Inductive and Deductive Reasoning ...........................................................................................30
Primary and Secondary Research ...............................................................................................32
Research Process ........................................................................................................................33
Quantitative and Qualitative Data Analysis ...............................................................................36
Reliability and Validity ..............................................................................................................48

Metrics for Human Resource Management and Evaluation ...................................................50

Frequently Used HR Metrics......................................................................................................51
Other Common Operational HR Metrics ...................................................................................54

Evaluating HR’s Strategic Contributions ..................................................................................58

Financial Metrics ........................................................................................................................59
Performance Metrics ..................................................................................................................64
Workforce Planning Metrics ......................................................................................................67
Cultural Considerations ..............................................................................................................77

Measuring Employee Engagement .............................................................................................78

Introduction ................................................................................................................................78
Employee Surveys ......................................................................................................................79
Employee Focus Groups ............................................................................................................81
Results Analysis and Interpretation ............................................................................................83
Feedback to the Organization .....................................................................................................84

Practice Questions ........................................................................................................................86

Module 4: Measurement Section 4.2: HR Measurement and Evaluation

Introduction
The 2009 Society for Human Resource Management (SHRM) report on future
workplace trends identified the following trend related to human capital
measurement and HR metrics:

Figure 2-1. Trend in Human Capital Measurement and HR Trends (Society for Human Resource
Management 2009)

One significant trend is the continued effort to create a formal and standardized
definition of the practice of HR. This effort requires HR professionals to identify
and formalize a core group of universal HR principles and practices that are not
confined to any one nation or jurisdiction. An example of this trend is the course
material you are currently studying. Another example is SHRM’s effort to establish
an HR-specific series of ISO standards that can be applied worldwide (Society for
Human Resource Management 2011). All these efforts support the increasing
objectivity and professionalism associated with the practice of HR worldwide.

This section continues to explore the following topics related to the details of HR
measurement and evaluation:
 Research terms and techniques
 HR management and evaluation metrics

 HR’s strategic contributions related to measurement and metrics

 Measuring employee engagement

The section begins with an in-depth review of research terms and techniques.

Understanding Research Terms and

Techniques
HR can conduct its own research or use the research of others to support its
metrics. Any research that HR uses must be based on accurate measurements and
conclusions.

Measurements are good only if reliable methods are used to collect and analyze
the data. The main concepts in data research and analysis are:
 Inductive and deductive reasoning
 Primary and secondary research
 Experimental research process
 Quantitative and qualitative analyses
 Reliability and validity

Inductive and Deductive Reasoning

Inductive and deductive reasoning are processes for analyzing data. Both types of
reasoning are useful in some ways and limited in others. Figure 2-2 illustrates the
different approaches used in inductive and deductive reasoning.

Figure 2-2. Inductive and Deductive Reasoning Processes

Inductive Reasoning

Inductive reasoning starts with a specific observation and moves to a broader

conclusion. It involves two steps:
 Look at a series of specific observations.
 Design a rule that explains a pattern in the observations.

For example, an HR professional can gather data about a group of newly hired
employees who are high performers. Most of the employees also speak more than
one language. The HR professional induces that, for this job, the ability to speak
more than one language is a good indicator of future success. The success of
inductive reasoning depends on the sample size and randomness, which are
discussed later in this section. In this example, a larger sample of new hires from
different organizations could produce a different pattern of data.

Deductive Reasoning

Deductive reasoning starts with a general observation and moves to a narrower

conclusion. It also involves two steps:
 Start with a general or universal statement that is accepted as true.
 Apply the premise to a new situation to make a prediction or improve your
understanding

For example, research at one organization shows that managers who exercise high
levels of control have workers with lower morale. An HR professional observes
that a particular manager is very controlling. The HR professional deduces that
the organization will find lower morale in this manager’s department. The success
of deductive reasoning depends on the reliability of the starting premise.

Wherever possible, an organization’s procedures should be expressed using

inductive reasoning. In contrast, an organization’s policies should be expressed
using deductive reasoning. Taken together, the two methods explain the how and
the why of an organization’s workplace rules.

Primary and Secondary Research

Primary research involves data that the HR professional gathers directly for
evaluation. Secondary research uses data that is gathered by others and reported in
various sources. Data from secondary research must be examined for relevance
and validity.

Methods of primary and secondary research are listed in Figure 2-3.

The choice to use primary or secondary research depends on the question and on
practical limitations. For example, some questions are very specific and can be
answered only by primary research. Other questions are too broad to be tested
within a confined work environment and can be answered only by secondary
research.

Primary Research Secondary Research

 Experimental  Second-hand reports
 Pilot projects  Historical data (for example, HR
 Surveys and questionnaires records and census records)
 Interviews (exit, individual and  Purchased data (for example,
panel) compensation surveys)
 Focus groups  Professional journals, books and
 Direct observation other media
 Testing  Benchmarking and best-practices
reports

Figure 2-3. Sources of Primary and Secondary Research for Evaluating HR Effectiveness

Research projects can combine primary and secondary research. For example, if
an organization wants to understand how recent technological changes have
affected supervisory managers, primary research could include the following.
 Focus groups of a cross section of managers
 Questionnaires sent to all managers
 Observation of several managers as they perform their daily tasks

Secondary research could include the following.

 Articles about similar experiences in other organizations
 Demographic data from government census reports

Research Process
Experimental research uses the scientific method to work with variables and
examine the results. Note that non-experimental research does not include
variables. Instead, behavior is observed, measured and analyzed. Scientific
research tries to be as objective as possible.

The HR professional can use the scientific method to discover the factors that
attract people to their jobs, encourage them to stay at their jobs and motivate them
to perform well at their jobs.

Five steps are included in the scientific method as indicated in Figure 2-4.

Figure 2-4. The Scientific Method

Step 1: Problem Analysis

Problem analysis means carefully defining the problem you are investigating.
 Example:

Sales figures are decreasing for all stores at a large organization. Employees
receive no sales training during this financial crisis. The HR professional should
conduct a brief internal survey to collect data from employees regarding why they
think sales figures are decreasing.

Step 2: Hypothesis Formulation

Hypothesis formulation means describing the problem with a hypothesis. A

hypothesis is a specific, testable prediction that is derived from a theory and
describes a relationship between two variables.
 Example:

The HR professional makes the following testable hypothesis. After one year,
sales will increase more in stores where sales training is provided compared to
stores where sales training is not provided.

Step 3: Experimental Design

In an experiment, the researcher controls and manipulates parts of the research

environment to measure the effect of each variable. A well-designed experiment
helps us determine the causes that have the largest influence.
 Example:
All stores in the organization are divided into two similar and comparable
groups according to their sales turnover and size. In Group 1, store
employees receive sales training. In Group 2, store employees receive no
sales training.

Step 4: Data Collection

Data consists of unanalyzed facts and figures. This data becomes information
when it is placed into a useful context (as with scientific research). Data may be
qualitative or quantitative. The difference between qualitative data and
quantitative data is discussed below.
 Example:
After one year, the sales turnover of both groups of stores is measured and
compared.

Step 5: Data Analysis

The success of data analysis depends on the effort put into the first four steps.
Data analysis may be qualitative or quantitative. The difference between
qualitative data analysis and quantitative data analysis is discussed below.
 Example:
Data analysis shows that after one year, Group 1--the group of stores with
sales training--has better sales turnover.
This brief internal survey helped HR promote more sales training for
Group 2. The survey also helped HR develop a sales training philosophy
for the entire organization.

Quantitative and Qualitative Data Analysis

Quantitative and qualitative data analyses depend on the kind of data that is used
and how the data is collected. Quantitative analysis is based on a limited number
of data points that are easily measured. Qualitative analysis is based on research
that uses open-ended interviewing (meaning that the expected answers are not
limited to a specific set of outcomes).

Many parts of an organization use only quantitative data analysis. The HR

department may be different from other parts of the organization, because it often
uses both quantitative and qualitative data analysis.

Quantitative Analysis

Quantitative analysis uses a limited number of measurements to collect numerical

data. The use of statistics helps the HR professional with the following tasks:
 Interpret the collected data.
 Accomplish the desired research objectives.
 Provide a cost-benefit analysis.
 Communicate the results of the project.

Statistical methods used to interpret research data include descriptive statistics

and inferential statistics. We will discuss descriptive statistics first.

Descriptive Statistics

Descriptive statistics condense and summarize large amounts of data for quick
understanding.
 Charts and graphs
 Frequency distributions and table
 Measures of central tendency
 Measures of variation
 Measures of association

Charts and Graphs

Showing data on a chart or graph lets the researcher see the distribution of the
data. Examples include pie charts, bar charts and graphs. Figure 2-5 shows a pie
chart.

Figure 2-5. Pie Chart

Figure 2-6 shows a bar chart.

Figure 2-6. Bar Chart

The histogram is a type of bar chart that was described in more detail in Section
4.1: Basic Measurements for Organizational Management.

Frequency Distributions and Tables

Frequency distributions and tables can be used to sort data. A frequency

distribution is a listing of grouped data from lowest to highest. Figure 2-7 shows
an example of a frequency distribution and table showing the number of people
who receive a particular salary.

Salaries Number of
People

55,000 2

60,000 1

65,000 2

70,000 5

75,000 1

Figure 2-7. Frequency Distribution Table

Measure of Central Tendency

There are three measures of central tendency:

 The mean is the average score or value.
 The mode is the value that occurs most frequently.
 The median is the middle point above and below which 50 percent of the
scores are positioned.

 Example:
Look at the data shown in Figure 2-8. There are 15 scores for a total of 155
points.

Figure 2-8. Example 1 of Measure of Central Tendency

The mean is the most common measure of central tendency. The mean is
calculated by adding all the data values and then dividing by the number of
values. The calculation in Figure 2-8 shows a mean of 10.33 based on the data in
Figure 2-9.

Figure 2-9. Calculation of Mean

Figure 2-10 shows a graphical representation of the mean, median and mode for a
positively skewed distribution. In this distribution, most of the data values are at
the lower (left) end of the scale.

Figure 2-10. Example 2 of Measure of Central Tendency

The mean for salary data can be calculated as an unweighted average or as a

weighted average. The unweighted average (also known as the raw average) gives
equal weight to every salary in the survey. Other factors, such as the number of
people who receive each salary, are not considered. The unweighted average is
used when organizations provide only the average salary data rather than actual
salaries. The weighted average (also known as the weighted mean) considers the
number of people who receive each salary.

Figure 2-11 shows the salary data for unweighted and weighted average figures.
The unweighted average is 65,000 (325,000 divided by five average salaries
provided by the organization). The weighted average is 65,909 (725,000 divided
by 11 salaries).

Number of Annual Total

Incumbents Salary Salary

2 55,000 110,000

1 60,000 60,000

2 65,000 130,000

5 70,000 350,000

1 75,000 75,000

Totals: 11 325,000 725,000

Figure 2-11. Salary Data for Unweighted and Weighted Average Figures

The mean is simple to calculate. However, problems can occur if there are very
few data values. For example, an organization provided a training program that
was rated by only five employees. If four employees rated the training program as
1 (indicating poor) and one rated it as 10 (excellent), the mean rating would be
2.8. This is not the best measure of the perception of the training. In this case, the
mode, or the value that occurs most frequently, gives more information. In our
example, four out of the five data values are 1, indicating that most employees did
not find the training effective.

Another problem occurs with a large number of data points that include extreme
scores. For example, an organization provided a training program that was rated
by 500 employees. Most of the employees rated the program as 7 on a 10-point
scale. However, some of the ratings were very high and a few ratings were very
low. In this case, the median is the most useful. The median is the score that lies
directly in the middle of the values. To find the median, the data are listed in order
like the ascending order shown in Figure 2-9. The total number of data points are
counted (500) and then divided by two. The median is between data values 250
and 251 and is close to a rating of 7.

Quartiles and percentiles are also used to measure central tendencies. Quartiles
and percentiles show how groups of data related to each other (also called
dispersion). Organizations use quartiles and percentiles to determine whether they
lead, lag or match the external market. For example, Figure 2-12 shows the range
for one job grade as reported in a salary survey.

Figure 2-12. Quartiles

Measures of Variation

Measures of variation show how much the data differ from the central tendency
values. In our training example above, employees’ rating of the training program
show a large variation, with some very high rating and some very low ratings.
This variation could indicate that some employees were insufficiently prepared
for the training. Measures of variation include:

 Range is the distance between the highest and lowest scores. The range is
calculated as the highest score minus the lowest score.
Example:
The data 10, 11, 12, 68, 69 and 70 yield a range of 60 (70 minus 10).

 Percentile is a point in a distribution that has a given percentage of cases

below it.
Example:
If you take a test and are in the 68th percentile, you scored better than 68
percent of all test takers.
 Standard deviation shows how much the scores are spread out from the
mean. A normal distribution of data indicates that most of the examples are
close to the mean and only a few of them are very high or very low.
Normally distributed data have graphs that look like the bell curve in

Figure 2-13. A large standard deviation tells you that the data are diverse,
while a small standard deviation tells you that the data are close together.
HR professionals frequently use standard deviations to show performance
rating distributions. Mathematically, for a normal distribution, one
standard deviation (or sigma) is defined as the range for which 68.2 percent
of the data are contained in the limits defined by the mean plus or minus
one sigma.

Figure 2-13. The Theoretical Normal Distribution

Measures of Association

Measures of association show how two or more factors (variables) are related. For
example, income can be related to education level and amount of air pollution can
be related to the incidences of respiratory disease.

Measures of association include:

 Scatter diagrams show the relationship between data items using X and Y
axes. These diagrams will be discussed later in this section.
 Correlation is a measure of the relationship between two variables. The
correlation coefficient is measured on a scale that varies from +1 through 0
to –1. When one variable increases as the other increases, the correlation is
positive. When one variable decreases as the other increases, the
correlation is negative. Complete correlation between two variables is
expressed by either +1 or –1. Complete absence of correlation is

represented by 0. Figure 2-14 shows a graphic representation of

correlation.

Figure 2-14. Correlation Coefficient

 Regression analysis is a statistical method that predicts a variable from

one or more other variables. The purpose of regression analysis is to
determine whether a relationship exists between variables and the strength
of the relationship.

A causal relationship exists when two variables are related in some way.
Three conditions must be met in a causal relationship:
o Evidence of association must exist.
o The dependent variable must change in a consistent way after the
independent variable changes.
o All other possible causes must be eliminated.

Inferential Statistics

We have looked at five different types of descriptive statistics. Now we will

consider three different types of inferential statistics:
 Population
 Sample
 Normal distribution

Inferential statistics let you form a conclusion about a characteristic of a

population by studying a sample taken from that population. Three concepts

important in inferential statistics include population, sample and normal

distribution.

Population

A population is a group or a collection (of people, objects or measurements) that

you want to form conclusions about. Examples of population include:
 All the employees of an organization
 All the parts produced on a given day
 All the test scores of math students at a specific level in a specific
community
 Sample

HR professionals often do not use or cannot use an entire population to test a

hypothesis. Instead, they form conclusions about the population based on a part of
the population, or a sample. In order to provide relevant information, the sample
of a population must have the characteristics of the whole group.

Normal Distribution

The normal distribution is the distribution you expect to see after conducting a
random sampling across a large population. When you use inferential statistics,
you assume that the sample and the population under examination conform to the
characteristics of a normal distribution, as shown in Figure 2-13.

Qualitative Analysis

Qualitative analysis is based on research that uses interviewing to explore and

understand the opinions and behavior of individuals or a group.

Qualitative research is the best research method for gathering in-depth

information and discovering underlying motivations, values and perceptions.

Qualitative research has many applications, including:

 Identifying strengths and weaknesses
 Exploring alternative communication methods
 Brainstorming/idea generation

Qualitative research can take many forms. A typical example is an interview with
individuals or groups. Some benefits and cautions related to common qualitative
research tools are described below.

Individual or Panel Interviews

An interview involves asking a carefully planned, structured series of questions in

a face-to-face setting. Interviews give researchers qualitative information and
yield additional insights through probing questions.

Figure 2-15 lists the benefits and risks of interviews.

Benefits of Interviews Risks of Interviews

 Yield insightful information.  An interviewer’s nonverbal signals
 Provide opinions and reactions to can influence responses.
events.  Interviewers might ask leading
 Allow for personal connection to questions.
interviewee.  Interviewees might answer with
 Are flexible. what they think the interviewer
wants to hear.

Figure 2-15. Interview Benefits and Risks

Surveys and Questionnaires

Many HR professionals find interviews to be more effective when used with a

questionnaire. Questionnaires involve asking a series of prepared questions in
written form. Four common approaches are listed below.
 Rating scales
 Yes, no or don’t know answers
 Open-ended essay questions
 Structured questions with multiple-choice answers

Rating scales provide fixed quantitative responses. For example, participants are
asked to read a series of statements and indicate their degree of agreement with
one representing strong disagreement and five representing strong agreement.
Rating scales may consist of an odd or even number range. A scale of 1 to 5
allows participants to choose a centered response (3). A scale of 1 to 6 does not
contain a center value and forces participants to choose a value in the lower range
(1, 2 or 3) or the higher range (4, 5 or 6).

Rating scales are easy for participants to answer when the directions are clear.
These scales are sometimes combined with qualitative information. Qualitative
information may be obtained through open-ended questions that encourage
descriptive written responses rather than specific ratings.

Figure 2-16 lists the benefits and risks of surveys and questionnaires.

Benefits of Surveys and Risks of Surveys and

Questionnaires Questionnaires
 Interviewee anonymity  Surveys and questionnaires are
 Efficiency less flexible than interviews.
 Standard data collection  Low response rates could yield
little data.
 Data analysis may not indicate
underlying assumptions or
motivations.

Figure 2-16. Survey and Questionnaire Benefits and Risks

Observation, Organizational Records and Testing

Some data-gathering methods have problems with objectivity, availability or cost-

effectiveness. In those cases, you can use a supplemental form of analysis.
Examples include:
 Observational techniques. For example, the person being observed is not
aware that his or her behavior, production or responses are being recorded.
 Archival information in organizational records. This information
includes performance appraisals, turnover data and personnel records.
 Job-relevant tests. Job-relevant means that the test accurately reflects a
person’s ability to do a task, such as assembling electronic components or
using equipment.

When you collect personal data as part of a qualitative analysis, be aware of the
laws concerning data privacy in your country.

Reliability and Validity

Before you begin to analyze data, be sure that all data are generated in a
consistent way. Your goal is to gather reliable and valid information that you can
use to make objective conclusions about a particular situation.

Reliability is the ability of a measurement technique to measure consistently. It

is also defined as the ability to repeat an experiment and get similar results.

For example, a measure is considered reliable if a person's score on the same test
given twice is similar.

Parallel Forms

This method uses two assessments that are identical except for the test questions.
For example, a pre-test and a post-test can be considered parallel forms if they are
designed correctly. After both tests are completed, the two scores are correlated.

Test/Retest

This approach measures the consistency of test scores over time. Participants take
the same test at two different times. After both tests are completed, the scores for
each individual are correlated.

Internal Consistency

Internal consistency tells you how well a test or procedure assesses the same
characteristic, skill or quality. For example, a test is divided into two equivalent
parts. The same person takes both parts of the test, the results of which are then
correlated. For there to be internal consistency, the results should be the same or
very similar.

Rater Agreement

Do different raters or observers give consistent estimates of the same behavior?

You can check reliability by calculating the percentage of agreement among
raters. For example, a group of raters is observing an employee conducting a
meeting. They rate the employee’s behavior as excellent, good, fair or poor in 20
categories. The employee receives the same rating in 15 out of 20 categories. In
this case, agreement is 75 percent.

Training helps clarify the rules for rating and improves reliability among raters.

Validity is the ability of a measurement technique to measure what it is intended

to measure. Validation answers two questions.
 What is being measured?
 How well does the measurement technique measure it? In other words, is it
correct?
For example, do the test questions assess the correct content or behavior based
on the objective to be tested?

Metrics for Human Resource

Management and Evaluation
In his book HR Metrics the World–Class Way, Dr. John Sullivan states: ―The
largest single difference between a great HR department and an average one is the
extensive use of metrics.‖ (Sullivan 2002)

Measuring and evaluating the effectiveness of HR functions and processes is of

critical importance in order to maintain HR’s strategic position in an organization.

―Measurement starts with the belief that we can and should evaluate our work in
both qualitative and quantitative terms. Without some type of objective review, it
is very difficult to improve performance.‖ (Fitz-enz and Davison 2002)

When implementing evaluation processes and analyzing data, it is important for

HR professionals to focus on identifying outcomes and measuring quantifiable
results rather than the activities associated with the intended results. It is
important to measure things correctly. It is even more important to measure the
correct things.

HR professionals may choose to measure and evaluate items such as:

 Direct achievement of business goals
 Return on investment of specific HR initiatives
 Return on investment of training programs
 Contribution to the organization’s net profit
 Goals associated with reducing the cost of doing business; for example, the
cost of acquiring a new employee

Frequently Used HR Metrics

Figure 2-17 on the next page describes some frequently used HR metrics and how
they are used. Note that the metrics your organization chooses to measure and
evaluate should be based on the needs of your organization.

You may notice that some of the metrics listed in Figure 2-17, and in other lists
of metrics used here and from other sources may not be appropriate for your
organization’s strategy, location or culture. Formulas vary. Be sure to use a
consistent formula in your organization and when benchmarking.

HR metrics can be used to:

 Compare to metrics from previous years to evaluate whether organizational
performance has improved or declined.
 Show the benefit of HR practices and how HR professionals contribute to
the organization.
 Compare to the metrics of other organizations (benchmarking) to identify
best practices, areas of excellence and areas requiring improvement.

An HR Metrics Toolkit with sample spreadsheet templates, calculators and other

information regarding HR measurements and metrics can be found at the Society
for Human Resource Management website:
 http://www.shrm.org/hrdisciplines/Pages/CMS_005910.aspx
 http://www.shrm.org/TemplatesTools/Samples/Metrics/Pages/default.aspx

Figure 2-17. Frequently Used HR Metrics

Other Common Operational HR Metrics

Compensation

Figure 2-18 describes some frequently used compensation (remuneration) metrics

and how they are used.

Figure 2-18. Frequently Used Compensation Metrics

See Section 3.4: Employee Benefit Program and Compensation Plan Service
Delivery for more information on compensation (remuneration).

Benefits

Figure 2-19 describes some frequently used benefit metrics and how they are used.

Figure 2-19. Frequently Used Benefits Metrics

See Section 3.4: Employee Benefit Program and Compensation Plan Service
Delivery for more information on benefits.

Human Resource Development

Figure 2-20 describes some frequently used human resource development (HRD)
metrics and how they are used.

Figure 2-20. Frequently Used HRD Metrics

Employee Relations

Figure 2-21 describes some frequently used employee relations metrics and how
they are used.

Figure 2-21. Frequently Used Employee Relations Metrics

Number of Internal Complaints

The number of internal complaints an organization receives is measured to

determine long- and short-term solutions for improving performance and
productivity issues. The number of internal complaints made annually can be
compared on an annual basis to note any change in the number of complaints
received. For example, a decrease indicates the processes put into place were
effective and an increase in complaints indicates an ineffective process.

Number of Employment Practice Liability (EPL) Claims

The number of employment practice liability (EPL) claims made against an

organization is measured to compare past and future years. Measurement of EPL
claims is important due to the possibility of huge compensatory and punitive
damages. An organization is wise to evaluate the management of EPL risk and
exposure on an annual basis. For example, an increase in annual EPL claims can
serve as a catalyst to encourage the organization to re-evaluate their employment
practices, implement loss-control tools and consider risk-transfer alternatives.

There are many published lists and approaches to the identification, measurement
and analysis of HR metrics. Below are some references to consult for more
information:
 How to Measure Human Resources Management by Jac Fitz-enz and
Barbara Davison (Fitz-enz and Davison 2002)
 HR Metrics the World-Class Way by John Sullivan (Sullivan 2002)

Evaluating HR’s Strategic Contributions

Any organizational function can be measured at two levels: effectiveness and
efficiency. Effectiveness measures how well the organization has met its goals.
Efficiency measures whether operations are done on time and on budget.

The efficient and effective use of human resources contributes to the

organization’s success and profitability. HR can actively contribute to the
organization’s strategic plan by:
 Suggesting ways for the organization to measure the effectiveness of the
strategic plan
 Demonstrating the value of HR activities to the organization’s financial
considerations and organizational goals

HR professionals use a variety of metrics to measure the effect of organizational

changes. We will discuss four financial metrics, two performance metrics and
workforce planning metrics.

Financial Metrics
HR professionals can use the following four financial metrics to evaluate HR’s
strategic contributions.
 Return on investment (ROI)
 Cost-benefit analysis
 Break-even analysis
 Financial statement analysis

Return on Investment

Return on investment (ROI) is a calculation that measures the economic return on

a project or investment.

Figure 2-22. Formula for Calculating Return on Investment

Example:

An organization lost 100 employees last year, at a cost of 10,000 each, for a total
of 1,000,000. With a new program that will require a one-time investment of
300,000, you can reduce turnover by 50 percent. This will mean a savings of
500,000. The net savings the first year will be 200,000. The net return on
investment of this program for the first year would be 66.6 percent.

Figure 2-23. Sample ROI Calculation

It is sometimes difficult to identify the full value of the benefits received and the
cost to produce the benefit. ROI calculations require HR professionals to:
 Establish clear objectives.
 Define achievements in a measurable way that can be translated into a
monetary value.
 Gather data carefully.

With these actions, ROI is one of the most effective ways for HR to evaluate the
strategic impact of initiatives.

Figure 2-24. ROI Methodology

Cost-Benefit Analysis

The cost-benefit analysis (CBA) presents data as a ratio. CBA and ROI differ
because CBA involves both tangible and intangible costs and benefits.
Management uses this analysis to measure how programs impact the
organization’s profitability.

Figure 2-25. Formula for Calculating the Cost-Benefit Ratio

Example:

A new HR program will result in total savings of 10,000. The cost of the program
will be 2,000. The cost-benefit ratio is calculated as follows:

Figure 2-26. Sample Cost-Benefit Ratio Calculation

A a cost-benefit analysis of all HR activities and programs should be completed

on a regular basis. Ideally, this happens once a year in conjunction with the
budget cycle.

The cost-benefit analysis process for the entire HR function includes the
following steps:

1. Identify each program in the HR plan.

2. Evaluate the effectiveness of each program based on the following:

o Cost versus projected benefits of the program.
o Relevance of the program to corporate objectives.
o Willingness and ability of line managers to execute the program.
o Economic risks of not executing the program.

3. Prioritize all programs and assign staff resources.

Break-Even Analysis

A break-even analysis is one of the simplest forms of cost-benefit analysis. In

this analysis, you find the time at which total revenue associated with the program
is equal to the total cost of the program.

To calculate the break-even point, divide the total cost by the total revenue.

Figure 2-27. Formula for Calculating the Break-Even Point

 Example

A program has an annual cost of 35,000 and is expected to generate a savings of

40,000 the first year. The break-even point would be about 10.5 months.

Figure 2-28. Sample Break-Even Point Calculation

Financial Statement Analysis

An income statement explains revenues, expenses and profits over a specified

period of time—usually a year or a quarter. A balance sheet explains assets and
liabilities at a specific point in time. A cash flow projection predicts cash inflows
from customer payments and cash outflows for expenses. Financial statement
analysis is common among investors. This analysis is used to:
 Determine the financial health of an organization.
 Measure the overall impact of a strategic plan.

HR professionals can analyze financial statements in various ways:

 To calculate financial ratios such as the rate of return the organization is
earning on the shareholders’ retained earnings and assets
 To calculate profit margins such as the gross profit margin, operating profit
margin and net profit margin

More information regarding financial analysis can be found in Section 1.7: The
Sustainable HR Budget.

Performance Metrics
HR professionals should focus on measuring results rather than activities. An
example of an activity is establishing a dispute resolution training program for
managers. An example of a result that can be measured is the number of
employees retained as a result of a change in dispute resolution. HR can
collaborate with internal stakeholders to select significant measurement points.
This collaboration will have two effects:
 Ensure that efforts are being directed at strategically significant
improvements.
 Build understanding of the process and its value which is essential for
cooperation in data gathering.

We will discuss two approaches to performance metrics, the balanced scorecard

and performance audits.

The Balanced Scorecard

The balanced scorecard provides a concise and complete picture of an

organization’s performance. Four areas are assessed in a balanced scorecard:
 Finance
 Customers
 Internal business processes
 Learning and growth

Additional information about the organizational use of the balanced scorecard

can also be found at Balanced Scorecard Institute website
(www.balancedscorecard.org).

The steps for implementing the balanced scorecard system are similar to the steps
followed in strategic planning.
 Step 1: Plan the Process
To plan the process, HR professionals must:
o Confirm the scope of the project and establish a project timeline.
o Outline a project communication approach.
o Determine organizational participation and roles.
o Confirm expected project deliverables.
Goals must be in place before the scorecard is used. If possible, recruit a
person from top-level management to provide sponsorship and visibility to
the process.
 Step 2: Design the Scorecard
To design the scorecard, HR professionals must:
o Focus on measures that actively support the organization’s strategy.
o Identify key success factors.
o Develop an action plan.

o Collect and prepare data.

o Decide on tracking measures.
Scorecards should be designed to match the organization’s strategic goals.
Measurements should be tied to specific organizational activities.
 Step 3: Employ and Refine Measures
In Step 3, the organization takes the following actions:
o Employ scorecards.
o Monitor performance gaps.
o Refine measures of the scorecard.
o Identify implementation issues.

Performance Audits

Performance audits assess the performance and management of a program by an

objective evaluator using objective criteria.

An HR audit measures HR effectiveness and efficiency and demonstrates the

value of HR in helping an organization meet its strategic goals. The HR audit has
two main functions:
 Helps organizational decision makers understand what is happening with
various HR activities
 Allows HR managers determine which programs and positions should be
eliminated or enhanced

You can use HR audit tools such as checklists to indicate what items should be
included in any HR audit. The HR audit tool should allow HR professionals to
assign a numerical value to an assessment. This numerical value shows how
effectively the organization has put basic HR activities in place and how well
these HR activities are being performed. Either HR staff or a third-party
contractor can conduct an audit. The benefit of using an outside source is that they
can be more objective in their evaluation than internal staff.

Before starting an audit, make sure that you have agreement to fix any legal
compliance problem you may discover as part of the audit. If you learn about a
problem and then ignore it, you might increase your organization’s liability.

Workforce Planning Metrics

Workforce Workforce planning is a disciplined process used to analyze an
planning organization’s workforce and prepare for future staffing needs.
Workforce planning helps HR determine whether future skill
needs will be met by recruiting, by training current staff or by
outsourcing the work.

Staffing needs A staffing needs analysis provides a systematic approach to

analysis anticipate the demand for talent and the supply available. The
outcome of the process is data that HR professionals can use to
help ensure that the appropriate workforce mix will be available
when needed to accomplish organizational goals and objectives,
typically within a one- to three-year timeframe.

HR leaders are directly involved in an organization’s strategic planning process.

During this process, the HR function forecasts human needs. The human capital
forecasts may include any of the following:
 Supply analysis
 Demand analysis
 Trend and ratio analysis
 Employee turnover analysis
 Flow analysis
 Judgmental forecasts
 Statistical forecasts

Supply Analysis

Supply analysis Supply data is one type of workforce planning data. Supply
analysis considers the varieties of skills in an organization as it
exists now and projects future needs based on anticipated
business growth or retention. Historical attrition is considered
when forecasting future supply.

Accurate supply forecasts account for movement into and inside the organization
(new hires, promotions and transfers) and out of the organization (resignations,
layoffs, retirements and discharges).

Forecast approaches include a variety of quantitative and qualitative analyses.

Specific analysis tools may range from a manager’s information projection to
rigorous mathematical applications. The first step is an evaluation of current staff
competencies. HR professionals interview line managers to determine if:
 Employees are using their time appropriately
 Work should be reallocated to provide more effective use of skills
 Jobs need to be redesigned
 Productivity rates are changing
 Current staff has the ability to achieve the desired outputs
 Staff growth is exceeding the expansion of outputs
 Staff members have applicable skills
 Skills are not being applied or are missing

Having assessed current staff competencies, projections of internal supply would

seem to be a simple calculation. It would seem logical to consider the number of
people in each job and the number of people who will transfer or who will leave
the organization. After these simple calculations, the number of people remaining
provides the estimate. However, accurate forecasting involves many additional
variables.
 Will the jobs remain the same?
 Will some jobs be eliminated while others are added or combined?

 Can you rely on historical data to hold true in the future?

 How will new employees compare to former employees in terms of
productivity, punctuality, time off for illness, attitudes and leadership
abilities?

For these reasons, HR professionals use tools such as trend and ratio analysis,
employee turnover analysis and flow analysis.

Demand Analysis

Demand analysis Demand data is one type of workforce planning data. Demand
analysis considers the model organization of the future and its
human capital needs. Demand is often measured in terms of
estimated growth, need for new skills, and the location and
number of new positions.

Demand analysis considers the model organization of the future and its human
capital needs. Once the supply model is developed, data can be compared to the
demand analysis projections and discrepancies can be identified, including
insufficient or surplus numbers of employees and skills deficiencies. Various
techniques may be used in demand analysis to project the number of employees
and the skills required to meet future organizational goals.

Trend and Ratio Analysis

Trend and ratio analysis uses statistics to determine whether relationships exist
between two variables. To forecast human capital needs, look for variables
related to the business that appear to change predictably over time. Thus, review
past performance to forecast the future.

Trends and ratios are calculated separately but can be interrelated. Consider this
example:
 The end result is an estimate of the number of employees required in the
organization’s workforce.

 The trends used are annual sales and labor productivity (see Figure 2-29).
There is performance data for the last six years. Using statistical analysis
variables, the trend analysis estimates the number of employees needed for
the next two years (see Figure 2-30).
 The ratio analysis considers assumptions for changes in amount of sales or
the productivity per employee.

Ratio analysis uses estimates that reflect future changes to the performance data.
For example, assume that labor productivity remains the same at 12,520 per
employee, but sales are predicted to increase to five million in year seven. Figure
2-31 illustrates this calculation and how the estimate changes.

Year Business Factor Labor Productivity HR Demand

(sales in millions) (annual sales per employee) (number of
employees)

1 3.613 11,120 325

2 3.748 11,120 337

3 3.880 12,520 310

4 4.095 12,520 327

5 4.283 12,520 342

6 4.446 12,520 355

Figure 2-29. Performance Data

Figure 2-30. Trend Analysis Example

Figure 2-31. Ratio Analysis Using Protected Increase in Sales

Now assume that because of new efficiencies created by better equipment and
employee training, labor productivity will increase to 13,000 during year seven.
Figure 2-32 illustrates how the estimated number of employees needed changes
with this additional assumption.

Figure 2-32. Ratio Analysis with Projected Increase in Sales and Labor Productivity

The ability to predict variables such as level of sales, production or service within
workable limits or ranges usually becomes the foundation for making the HR
forecast. It is crucial that HR leaders understand how the organization plans to
change and grow, as well as other variables that influence human capital
requirements so that they can participate effectively in strategic planning. When
trend and ratio analyses figures are projected into the future, the key determinant
is whether relationships between the variables will remain the same or change.
Therefore, it is essential to understand the assumptions underlying the forecast so
that it can be adapted if variables change.

Employee Turnover Analysis

Employee turnover is a metric that is normally expressed using an annualized

formula that tracks the number of separations and the total number of workforce
employees per month.

Turnover is typically expressed as percentage over an annual time period (12

months). Figure 2-33 provides the previous 12 months data for the number of
separations and total workforce size. Figure 2-34 illustrates the employee turnover
percentage calculation.

Two of the most common methods to project turnover are:

 Examining previous turnover rates and adjusting them to reflect knowledge
of changing conditions such as pay rates and the economy
 Analyzing trends in turnover rates for particular geographic locations or
occupational categories

Month Separations Total Month Separations Total

Workforce Workforce

January 15 250 July 5 220

February 5 245 August 0 220

March 5 240 September 4 216

April 2 238 October 1 215

May 3 235 November 15 200

June 10 225 December 0 200

Total 65 2,704

Figure 2-33. Separation and Total Workforce Data

Figure 2-34. Turnover Percentage Calculation

Flow Analysis

Flow analysis forecasts how employees move between organizational units, into
the organization and out of the organization. Flow analyses allow HR leaders and
planners to visualize the personnel changes and forecast future staffing needs for
discrete portions of the organization (department, division or function). Thus, the
technique requires the HR planner to separate employees by levels, occupational
groupings and organizational units.

The following methods can assist HR planners in projecting internal employee

turnover:
 Analyze the career development plans for employees on an aggregate basis
by job function, division or other organizational classification. Using the
target positions for employees and their ratings on when they will be ready
to assume the positions (immediately, one year and two years), managers
can project the availability of talent for positions.
 Obtain estimates from each division on transfers and promotions into, out
of and within divisions. These estimates may be aggregate and may reflect
subjective probability of movement based on historical data.

 Project future movement through statistical analysis. Models of employee

movement project the numbers of employees who will remain in an
organizational classification based on past transition rates or probabilities.
Past transition rates and probabilities may have limited value in forecasting
future trends and are also affected by change.

Figure 2-35 summarizes a potential flow analysis for a single department.

Figure 2-35. Example Department Level Flow Analysis

Judgmental Forecasts

Judgmental forecasts use information from the past and present to predict
expected future conditions. These forecasts utilize information provided by
individuals associated with the industry to project future industry needs.

Overall, for judgmental forecasting to be effective, HR needs estimates of:

 New positions or skill sets needed
 Positions to be changed, eliminated or left unfilled
 Job sharing
 Job design needs or organizational structure changes
 Costs of changes
 Adjustments in overhead, contracted labor and supervision

Figure 2-36 summarizes the three types of judgmental forecasting.

Type of Forecast Description

Managerial Managers supply forecasts (estimates). The success of this

Estimates method is entirely dependent on the quality of information
provided to managers to use in making estimates.

Delphi technique The Delphi technique progressively collects information from a

group on a pre-selected issue. This process is usually done by
mail, but more recently, fax and e-mail responses have eased the
process and greatly shortened the time necessary for completion.
The approach is designed to facilitate group involvement,
problem solving and individual thinking. Figure 2-10 illustrates
the Delphi technique process.

Nominal group The nominal group technique uses a variety of individuals to

technique forecast ideas and assumptions and prioritize issues. Unlike the
Delphi technique, individuals are brought together for a face-to-
face discussion. The structured session is led by a moderator.

Figure 2-36. Types of Judgmental Forecasting

Statistical Forecasts

Statistical forecasts are typically classified as regression analysis and simulations:

 Regression analysis can be subdivided into two types:
o Simple linear regression is a projection of future demand based on a
past relationship between employment level and a single variable
related to employment.
o Multiple linear regression operates the same way as simple linear
regression, except that several variables are utilized to project future
demand.

 Simulations are representations of real situations in abstract form and are

often referred to as what if scenarios. They give organizations the
opportunity to speculate about what would happen if certain courses of
action were pursued.

Figure 2-37. Process for Delphi Technique

Cultural Considerations
As HR professionals collect and utilize data to arrive at specific metrics and
organizational measures, it may be necessary to consider the need for local
differentiation in data collection and the possible impact cultural differences may
have on results from specific locations.

In these situations, the HR professional may need to identify a different data

collection method or may be unable to include data from specific locations in the
final analysis.

Likewise, as discussed throughout this module, differences in language, values

and cultural interpretations can have a significant impact on:
 Employees’ responses and reactions to specific factors such as performance
management, recruitment efforts and leadership behaviors.
 Responses to data-gathering techniques such as interviews or surveys, as
well as understanding and interpretation of survey and interview questions.

Measuring Employee Engagement

Introduction
Understanding how employees think and feel about their jobs and specific issues
in the workplace is very important. Given the challenges of recruitment and
retention, employers must monitor employee opinions and concerns to be sure
that compensation systems are competitive and that organizational flaws which
might negatively affect productivity are addressed.

Improving and increasing employee engagement begins with knowing what

employees need and value. HR departments should monitor the attitudes,
opinions, commitment and engagement level of current employees on an ongoing
basis. Employee surveys and focus groups are the primary tools used to collect the
data. These types of employee assessments can provide useful information to
improve the workplace environment and productivity, and to support the
organization’s strategic objectives.

Note that the terms employee engagement, commitment, opinions and attitudes
are frequently used interchangeably when referring to employee surveys.

Employee Surveys
An employee survey is a measurement tool used to assess employee perceptions
about the work environment. Employee surveys provide formal documentation on
important organizational issues.

Survey Benefits

Employee surveys have many benefits if properly designed and conducted:

 Provide a direct and confidential method of assessing employee opinions
that would otherwise be unknown
 Improve employee relations by showing employees that their views are
considered important by the organization
 Increase levels of employee trust—if results are acted on
 Improve the satisfaction levels of customers because engaged employees
are more productive, produce higher quality products and provide better
customer service
 Detect early warning signs of workforce problems and/or sources of
conflict

Survey Topics

Employee surveys can be used to collect data on a wide variety of topics such as:
 Quality of management
 Organizational business strategy and direction, creativity, innovation, etc.
 Quality of work/life issues
 Employee morale and job engagement
 Customer focus
 Effectiveness of compensation (remuneration) and benefit programs
 Perceptions of HR effectiveness
 Employee development opportunities
 Employee retention and attrition issues

 Organizational communication issues

 Workplace safety and health concerns

Survey Design

Employee surveys may be developed by the organization or purchased from

external suppliers. Surveys created by the organization allow you to focus solely
on your organization, whereas purchased surveys save time and may allow you to
compare your organization to other similar organizations. Consultants who
regularly work with employee surveys advise that the real value is in measuring
improvement over regular time periods.

Online Surveys

Many organizations use online survey administration, rather than relying on

traditional paper-and-pencil, mail and telephone formats. Again, HR may choose
to develop and administer an online survey internally, or there are many suppliers
that offer online survey design, development and administration services.

Some advantages and disadvantages of online surveys are listed below.

Figure 2-38. Advantages and Disadvantages of Online Employee Surveys

Special Considerations

For surveys to deliver their promised benefits, employees should be:

 Aware of the purpose of the survey.
 Guaranteed that responses will remain private.
 Given timely feedback on the results and action plans.

Survey Analysis

Once an employee survey is completed, results must be analyzed and findings

quickly communicated to management and employees. Managers and employees
can become disappointed in a survey’s failure to bring about improvements and
disengaged in the organization’s commitment to the workforce if the results are
delayed, used improperly or ignored.

Employee Focus Groups

A focus group is a small group of about six to twelve people invited to participate
in a structured discussion with a facilitator. Focus groups typically last from one
to three hours depending on the topic and purpose.

Specific topics will vary depending on the purpose of the focus group. For
example, a focus group gives employees an opportunity to express opinions on:
 How to best redesign a company’s product
 New corporate strategies
 Proposed changes to an employee benefits plan

Focus groups serve a variety of purposes for HR and are often used following a
survey. Focus groups can provide more detailed information about specific issues
raised during a survey. Focus groups can collect qualitative data that supplements
quantitative survey results. However, focus groups may also be used
independently from a survey to determine employees’ opinions about a specific
program or issue such as a major reorganization or change.

Special Considerations

When planning a focus group, HR professionals should consider:

 The importance of planning. Effective planning is very important. Focus
group objectives must be clearly defined because they influence all
subsequent focus group questions and the structure and flow of the
discussion.
 The importance of the facilitator. A good facilitator/moderator
contributes to a successful focus group. A focus group facilitator should:
o Be independent, with no stake in the results of the focus group so
participants feel comfortable providing candid information.
o Know the topics well.
o Be a good listener.
o Possess good conflict resolution skills.
o Allow group perspectives to emerge without interjecting any bias or
allowing any one individual to dominate.
o Have enthusiasm for the session. Enthusiasm can be contagious in a
group setting.
o Be conscious of time allocation and usage.
 The importance of participant selection. A focus group is intended to
represent the employee population. Ideally, participation should be selected
randomly. This gives every employee an equal chance of being selected
and ensures that the diversity of the employee population is represented.
Employee participation should also be voluntary so that invited employees
are not required to provide opinions on a subject in which they have no
interest.
 The importance of note-taking. A focus group should have a person
designated as a note-taker to record comments. A designated note-taker
allows the facilitator to remain focused on group dynamics that enrich the
focus group experience.

Advantages and Disadvantages of Focus Groups

Focus groups can be an effective technique for gathering employee feedback. Yet,
focus groups also have some distinct disadvantages.

Figure 2-39. Advantages and Disadvantages of Employee Focus Groups

Results Analysis and Interpretation

Analyzing and reporting results requires looking for relationships in the data. You
should interpret the significance of the data and report findings and conclusions in
a timely manner.

Statistics are useful for translating quantitative and qualitative data into
understandable information. The use of both qualitative and quantitative data in a
report often provides the most complete picture.

Listed below are some common errors in interpreting data and how to avoid them.
 Drawing conclusions too early. It is easy to draw preliminary conclusions
from incomplete data and then continue to select subsequent data that
supports these conclusions. As an analysis points to conclusions, less
attention may be given to factors that if explored further might be
significant. Try to refrain from drawing conclusions early in the analysis.

 Graphical misrepresentation. Errors are often made in visually

representing data. Check graphs, charts, tables and calculations for
accuracy.
 Statistical analysis errors. Ensure that all of the statistical tests were
performed correctly. In the case of employee surveys that are conducted at
regular intervals, it is often best to replicate the original procedures.
 Over analysis. You may tend to over analyze data and apply a variety of
statistical techniques just to see what kind of results can be obtained. Do
not let the analysis phase go on indefinitely. Remember that with surveys
you may be creating a base-line procedure for your next assessment.
 Manipulated results. The results should be based on actual and not
manipulated data and analysis. You may get pressure from someone in the
organization to alter findings to conform to his or her point of view.
However, the findings should be presented intact if long-term results are to
be satisfactory.

More information about data analysis and presentation can be found earlier in this
section and in Section 4.1: Basic Measurements for Organizational
Management.

Feedback to the Organization

Organizational feedback is generally described as the systematic presentation of
data to groups with the following intent:
 To cause discussion of problem areas
 To cause ideas for potential solution
 To cause motivation for change
 To result in the development and implementation of action plans

The data collected in an employee survey and/or focus group describes an existing
situation which can then be compared with the desired situation. The ideal result
of survey and focus group feedback is that changes will occur.

Feedback should be provided to both management and employees:

 Management feedback. Management must get accurate feedback on the
meaning of all survey and/or focus group data. Once a survey or focus
group has been conducted, the results must be shared with all levels of
management so the situation can be accurately understood.
 Employee feedback. Results should also be shared with employees. As
noted previously, conducting a survey but not providing feedback to
employees who participated can have a negative effect on employee
morale.

In addition, addressing the issues that are identified in surveys or focus groups is
important. If an organization goes through the process of doing a survey but does
not act on the result, it may influence how people respond to subsequent surveys.
Organizations should be clear about the actions they are taking, and the linkage
between the actions and the survey results.

More information on employee engagement surveys and third-party providers of

employee engagement surveys is available on the Internet.

Practice Questions

Directions: Choose the best answer to each question.

1. When using an assessment tool, it is important that the tool has validity. Validity refers to
the fact that
a. the assessment measures what it is supposed to measure.
b. the same results are demonstrated over time.
c. the results are based on more than one interviewer.
d. the reviewers reach the same conclusions.

2. A company requires job applicants applying for a position in their distribution center to
take a lifting test. Test results are consistent, and the test measures what it is intended to
measure. This test is considered
a. reliable.
b. valid.
c. neither reliable nor valid.
d. both reliable and valid.

Use the following information to answer Questions 3, 4 and 5.

3 5 5 5 6 7 7 8 8

3. Which of the following is the mean?

a. 1
b. 5
c. 6
d. 9

4. Which of the following is the mode?

a. 3
b. 5
c. 6
d. 9

5. Which of the following is the median?

a. 3
b. 5
c. 6
d. 7

6. Which measure of variation shows how scores are spread out from the mean?
a. Range
b. Percentile
c. Standard deviation
d. Mode

7. When examining a correlation coefficient, if one variable increases as the other

__________, the correlation is positive.
a. increases
b. decreases
c. stays the same
d. cannot be predicted

8. An HR professional sends a survey to 500 of 10,000 employees. This is known as a

a. population.
b. sample.
c. standard deviation.
d. normal distribution.

9. Which of the following is true of a balance sheet?

a. It predicts cash inflows from customer payments and cash outflows for expenses.
b. It indicates the net income of the company.
c. It explains assets and liabilities at a specific point in time.
d. It explains revenues, expenses and profits over a specified period of time—usually
a year or a quarter.

10. The ability of a measurement technique to measure consistently is referred to as

a. validity.
b. internal consistency.
c. reliability.
d. parallelism.

11. Which of the following measures of central tendency refers to the value that occurs most
frequently in a distribution?
a. Mode
b. Median
c. Mean
d. Range

12. Which measure of association measures the relationship between two variables?
a. Range
b. Regression
c. Correlation
d. Deviation

This page intentionally left blank.

Practice Question Answers

1. a (p. 50)
2. d (p. 48)
3. c (p. 38-39)
4. b (p. 38-41)
5. c (p. 38-41)
6. c (p. 42)
7. a (p. 43)
8. b (p. 44)
9. c (p. 64)
10. c (p. 49)
11. a (p. 38-41)
12. c (p. 43)

© 2011 SHRM 90
4.3: Establish and
Administer a Performance
Management System
This section covers the following information from the
Knowledge Base:

Behavior: 01. Establish and review results of an employee performance

management system

03. Connect individual and team performance to organizational

measures of success and report the metrics to management

Skill & Knowledge: 08 Preparing metrics for different audiences (for example, providing
and interpreting information to the executive management team
or to a group of employees)

Source: HR Certification Institute

Section 4.3: Establish and Administer a Performance
Management System
Introduction ..................................................................................................................................93

Goals, Roles and Expectations ....................................................................................................94

Organizational Values and Goals ...............................................................................................94
Creating a Shared Definition of Performance Standards ...........................................................95
Performance Management Process ............................................................................................96
Business Results and Employee Growth ....................................................................................98
Organizational Support ..............................................................................................................99

Individual Performance Appraisals .........................................................................................100

Establishing Performance Goals ..............................................................................................101
Individual Development Plans .................................................................................................114

Practice Questions ......................................................................................................................115

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Introduction
In his book Human Resource Management, Gary Dessler defines performance
management as follows (Dessler 2008):

―A process that consolidates goal setting, performance appraisals and

development into a single common system, the aim of which is to ensure
that the employee’s performance is supporting the company’s
(organization’s) strategic aims.‖

Performance management is the process of maintaining or improving employee

job performance through the use of performance appraisal tools, coaching, and
counseling, as well as providing continuous feedback. Organizations utilize
performance management systems because individual contribution drives
business results by accomplishing an organization’s goals. The performance
management process provides an opportunity for the employee and the manager
to discuss development goals and jointly create a plan for achieving those goals.
Development plans and individual achievements then contribute to organizational
goals and the professional growth of the employee.

This section discusses elements of a performance management system, as shown in

Figure 3-1, and the relationship between organizational strategy, individual contribution
and business results, which ultimately affects the organizational goals.

This section presents the design, implementation and evaluation of a performance

management system, as well as the principles and metrics of the performance
appraisal process.

Figure 3-1. Performance Management

Goals, Roles and Expectations

There is no single standard prescribed for a performance management system, but
it must be aligned with the organization’s strategic plan and culture. Alignment of
organizational systems, strategies and philosophies is the foundation of effective
performance management because this process influences all the others.

Organizational Values and Goals

Values and goals reflect organizational structure and philosophy. Executives must
come to an agreement about the values and goals of their organization. Once they
successfully communicate those values and goals, employees have a sense of
purpose and understand the organization’s priorities.

Values

Management throughout the organization must display behavior that reflects

organizational values. Values are usually expressed in an organization’s mission
statement.

Values are principles, standards or qualities considered worthwhile or desirable.

It is important that employees always conduct business with the organization’s
values in mind. The following are examples of highly regarded values:
 Putting the customer first
 Treating employees as well as you treat your customers
 Conducting business fairly, honestly and ethically
 Showing creativity and innovation
 Using teamwork to achieve goals

Goals

Management must also be specific about the organization’s long- and short-term
goals. Goals are standards that reflect an organization’s success. By comparing
organizational goals with achievement levels, management knows whether an
organization is making the desired progress.

Creating a Shared Definition of Performance Standards

Another key aspect of an effective performance management system is the
creation of shared definitions of performance. The organization’s efforts to
achieve shared definitions of performance result in the creation of standards that
are the foundation of a performance management system. Performance standards
are the expectations of management translated into behaviors and results that
employees must achieve.

The HR professional needs to consider the following when creating and

communicating performance standards:
 Behaviors. What behaviors are expected of employees? These behaviors
must be translated into performance standards.
 Results. What results does the organization want employees to produce?

When performance standards are communicated throughout an organization, they

must be clearly defined so all employees understand the expected behavior.
Employees must be told what managers expect for performance. This can be done
in a number of ways:
 Employee orientation
 Employee handbooks
 Company or department meetings
 Newsletters
 Individual meetings between employees and their managers

Performance Management Process

In many organizations, development of a performance management process
includes three phases. Each phase has a unique set of activities, considerations
and outcomes. These phases are shown in Figure 3-2.

Figure 3-2. Phases of the Performance Management Process

Design

During the design phase of the performance management process, the following
important questions are answered:
 Who will evaluate?
 When will evaluations be completed?
 What criteria will be used?
 What input will be incorporated?

Questions that must be answered during this phase also include:

 Purpose:
o Why do we have a performance management process?
o What do we expect from it?
 Performance criteria:
o What standards will we use to evaluate employees?
 Instrumentation:
o How will the evaluations be done?
o What tools will be used?
 Evaluators:
o Who will complete the evaluations?
o What input will be incorporated?
 Integration/local differentiation:
o How will the process and performance standards differ in different
locations? If so, how and why?

Implementation

The implementation phase involves the following activities throughout the

organization:
 Communicating expectations regarding job performance and how
performance will be evaluated
 Providing training in the performance management process
 Communicating the performance management process to employees and
managers
 Determining performance incentives

Evaluation

The evaluation phase involves identifying and evaluating the effectiveness of the
performance management process. The following outcomes are evaluated:
 Overall alignment with the organization’s culture and objectives
 Fairness to employees
 Extent to which it supports the organization’s recognition and reward
system

For more information about performance management, see the following

resources:

 http://harvard.wsi.com.cn/sumtotal/stdata/20081126_154302_4721/make_pe
rformance_measurement_part_of_your_job.html

 Performance Management: Getting It Right from the Start. Leslie A.

Weatherly, SPHR, 2004 SHRM Research Quarterly

Business Results and Employee Growth

Business Results. Organizations will assess the effectiveness of the performance
management system by asking certain questions:
 Are the employees’ behaviors and results what managers expected?
 Are the employee’s behaviors and results aligned with organizational
goals?
 Is the organization progressing as planned?

Business results influence the goals and strategy of the organization. As business
goals and strategies change, the performance management system will need to be
adapted. Business results provide value to stakeholders and may affect:
 Financial results
 Quality
 Customer products or services

Employee Growth. The employee brings certain knowledge and skills to the job
but will also grow professionally through experience, performance improvement
plans and organizational support. The performance management system should
include fair and meaningful recognition and rewards. Employee engagement
surveys have shown that employees do value financial rewards, but the following
performance incentives are essential to keeping employees in an organization:
 Appreciation/recognition
 Career growth opportunities
 Good manager relationships

Organizational Support
There are several ways an organization can support and enhance its performance
management system:
 Demonstrate support of performance management at the executive level.
 Encourage and promote activities that result in improved employee
engagement.
 Train managers in various aspects of performance management.
 Hold managers accountable for their contributions to the performance
management system.
 Encourage continual feedback from managers, peers and other team
members.
 Ensure that everyone in the organization understands that performance
management is a management tool that is applied through an ongoing
process rather than a yearly appraisal.
 Ensure that managers understand potential ramifications of not adequately
documenting and communicating standards of performance.
 Provide the necessary resources and tools.
 Communicate consistent management practices.
 Follow the process as communicated throughout the organization.

Individual Performance Appraisals

The typical method of measuring an employee’s achievement of performance
standards and providing feedback is the performance appraisal (also called
performance evaluation or performance review). Performance appraisal is the
process that measures the extent to which an employee accomplishes work
requirements and goals.

According to Gary Dessler, there are four reasons to evaluate employees’

performance:
 From a practical point of view, most employers still base pay and
promotional decisions on the employee’s appraisal.
 Appraisals play an integral role in the employer’s performance
management and talent management processes. It is not very productive to
translate the employer’s strategic goals into specific employees’ goals if
you don’t periodically assess performance.
 The appraisal lets the boss and employee establish a plan for correcting any
deficiencies and to reinforce the things the employee performs correctly.
 Appraisals should serve a useful career planning purpose. They provide an
opportunity to review the employee’s career plans in light of his or her
exhibited strengths and weaknesses (development needs) (Dessler 2008).

What is the difference between performance management and performance

appraisal?

Performance management is the process of maintaining or improving

employee job performance. By communicating and defining performance
standards throughout the organization, development plans and employee actions
contribute to organizational goals and the professional growth of the employee.

Performance appraisal is the process that measures whether an employee

accomplishes work requirements.

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Establishing Performance Goals

Remember, the organization’s goals are the standards that reflect its success.
Managers need to help convert business goals, objectives and performance
standards to individual employee goals. This approach is commonly known as
management by objectives (MBOs), a term first popularized by Peter Drucker in
his 1954 book The Practice of Management. MBO is a process in which the
employee and manager talk about performance goals and create a plan for
achieving those goals. Figure 3-3 shows the phases of the performance
management cycle.

Figure 3-3. Performance Management Cycle

Performance management is an ongoing communication process between a

manager and an employee. Together they:
 Set performance and development goals.
 Meet regularly to talk about progress on projects, plans and goals.
 Update goals and plans throughout the year as needed.
 Document the results and meet to review them at least annually.

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Setting Performance and Development Goals

The manager and employee decide on performance and development goals by

considering:
 Organizational long- and short-term goals and objectives
 Employee’s job description
 Past performance (if applicable)

Performance goals communicate the expected level of performance and how

performance will be measured. It should include not only expected outcomes, but
also how those outcomes should be reached (behaviors).

It is important that employees understand the connection between their

performance goals and the organization’s goals, and that they participate in their
individual goal-setting process. Managers and employees should agree to the
following when setting goals:
 Short-term goals in longer-term goals which make it possible to measure
progress periodically
 Goals and objectives do not conflict with each other

In addition to performance goals, managers and employees should agree on one or

more development goals which should align with the needs of the organization
and the employee’s career aspirations. Consider the following examples:
 Individuals who have not yet met the requirements of their position should
have development goals designed to help them reach a satisfactory level of
performance in their current job.
 Individuals who are satisfactory performers and who do not have
aspirations to move up to other areas of the organization should have goals
that expand their current roles.
 Individuals who are satisfactory performers and who do have aspirations to
move within the organization should set development goals that emphasize
obtaining skills or competencies for future positions.

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Development goals should always align with the organization’s needs. For
example, if an employee who works for a financial management firm would like
to move into movie production, the manager should not incorporate this into
development goals.

Connecting Individual and Team Performance to Organizational Goals

An organization’s performance management process must be interconnected with

the organization’s long-term plan, annual strategic plan and tactical action plans.
Individual and team performance goals must cascade from the annual strategic
plan and tactical action plans in order for the performance management process to
ensure that organizational goals are achieved. This process is called cascading
goals.

The cascading goals process is easily understood through the example in Figure 3-
4 below that illustrates the correlation of the organization’s five-year and annual
plans to a global staffing manager’s annual individual performance goals.

Cascading Goals Description

1. Achieve annual revenue of 650 million by end of
Five-year organizational
year five.
goals (long-term plan)
2. Achieve annual operating income of 112 million by
end of year five.

1. Achieve revenue of 489 million.

Current year
2. Achieve operating income of 78.24 million.
organizational goals

Figure 3-4. Example Cascading Goals for a For-Profit Organization

(continued to next page)

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Cascading Goals Description

1. Achieve operating income of 78.24 million:
Current year
a. Achieve 10 percent G&A expense reduction.
organizational action plan
b. Achieve continuous improvement process
savings in distribution center # 1 of 1.35
million.
c. Cancel lease on remote testing center
effective 1 April and relocate all employees
to manufacturing plant # 3 to achieve savings
of 1.12 million.
1. Achieve 10 percent expense savings in HR budget.
Current year global HR
a. Global staffing director: Achieve Recruiting
goal
and staffing expense savings of 250,000.
b. Organization development and training
director: Achieve expense savings of 75,000.

Figure 3-4. Example Cascading Goals for a For-Profit Organization

(continued to next page)

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Cascading Goals Description

1. Global staffing director: Achieve recruiting and
Current year individual
staffing expense savings of 250,000.
goal
a. Immediately implement second recruiter
interview using Voice over IP (VOIP) to
achieve savings of 60,000 in travel
expenses.
b. Immediately implement use of VOIP for
first technical evaluation interview for
software developers and test engineers to
achieve savings of 125,000 in travel
expenses.
c. Discontinue use of recruitment/staffing
agencies for all open positions (except top
executives) by 1 April in order to achieve
savings of 100,000 in recruitment fees.
d. Immediately begin onboarding process
for remote new hires using VOIP to save
35,000 in travel expenses.

Figure 3-4. Example Cascading Goals for a For-Profit Organization

(concluded)

Notice in the above illustration that all goals are SMART:

 Specific
 Measurable
 Attainable
 Realistic
 Time-bound

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Observation

Managers and employees should have frequent interaction with feedback and
coaching throughout the period covered by the evaluation process. Feedback and
coaching should be ongoing and consistent to support the success of both the
employee and the organization.

Assessment and Formal Evaluation

A formal evaluation typically takes place at the end of a defined period such as a
year. The formal evaluation often involves input from the manager and others
with whom the employee has had substantial interaction (manager assessment),
and the employee (employee self-assessment).

Manager Assessment

Throughout the period of the evaluation, the manager should do the following:
 Provide ongoing feedback to the employee, including a review of successes
and obstacles, with coaching as needed.
 Provide the necessary support to help the employee reach his or her
objectives including tools, training, coaching and participation in special
assignments.
 Document information such as key accomplishments, issues and
communication with the employee.

Just prior to the formal evaluation process, the manager should review
information collected over the course of the reporting period and obtain feedback
from key stakeholders including internal and external clients, peers and partners,
as appropriate. If the employee is a manager, it is important to obtain feedback
from all subordinates. Feedback from clients, peers and partners is sometimes
called 360-degree feedback.

Ongoing documentation of employee performance and feedback provided to the

employee is very important. It helps the manager conduct the formal evaluation,
and also provides important support for the manager and organization in the event

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

any legal action is taken by the employee. Particularly when there are
performance issues, managers should document the issues and key discussion
points with the employee. Managers should also document relevant conversations
in an e-mail or memo to the employee that outlines what was discussed.

The formal evaluation should be as objective as possible and focus on actual

performance. It should also refer back to any accomplishments, issues and
feedback given during the period being evaluated. Unless new information is
obtained from stakeholders, there should be no surprises for the employee at the
time of the formal evaluation. To the extent possible, the formal evaluation should
be consistent with the ongoing formal and informal feedback the employee has
received. The manager’s ability to be objective is essential, as is preparation for
the evaluation meeting.

Employee Self-Assessment

Some organizations ask employees to complete a self-assessment before the

evaluation meeting. This process can help the dialogue between the manager and
employee.

Employee Self-Assessment and Manager Assessment Combined

If the performance management process uses a self-assessment, the evaluation is

usually completed as follows:
 The employee provides the self-assessment.
 The manager adds comments about the employee’s assessment. Positive
comments are provided first, followed by suggestions for improvement.
 The manager and the employee talk about results and problems, and agree
on steps which may be incorporated into goals for the following reporting
period.

Again, it is very important that performance feedback occurs frequently. In

addition to the annual formal performance evaluation, many performance
management processes include monthly, quarterly or semi-annual performance
discussions.

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Evaluation Methods

An organization’s decisions about evaluating performance are usually influenced

by the industry in which it competes as well as its culture. A common approach to
performance appraisal involves the employee and the direct supervisor. Methods
available for conducting an appraisal are described briefly below.

Category Rating Methods

Category rating methods are the easiest to administer and understand. The
manager selects an employee’s performance level on a designated form that is
divided into performance categories. The following are three category rating
method examples.
 Graphic scale: This method uses a five-point scale with ratings ranging
from ―exceptional‖ to ―needs improvement‖.
 Checklist: Check marks are placed next to characteristics describing
employee performance.
 Forced choice: Check marks are placed by two of four statements from a
combination of positive and negative statements describing what the
employee is most like and least like.
 Behaviorally anchored rating scale (BARS): The behaviorally anchored
rating scale (BARS) method enhances the category rating. The manager
describes the employee’s behavior associated with each performance level.
 BARS works best in situations where many employees are performing the
same tasks. This method requires a lot of time and energy to develop and
maintain. In addition, different BARS must be developed to measure
employee performance for different jobs. (Dessler 2008)

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Comparative Methods

Comparative methods of evaluation require the manager to compare employees’

performance. The following are comparative method examples.
 Ranking all employees: Employees are ranked from highest to lowest in
performance.
 Paired comparison: Each employee is compared with every other
employee one at a time.
 Forced distribution: Employee ratings are distributed on a bell curve.

Errors in Performance Appraisals

No appraisal rating method is foolproof. Figure 3-5 lists some common errors
when managers are conducting an appraisal of employees and assigning a rating.

Error Description

Halo/horn effect A halo effect may occur when an employee is extremely

competent in one area and is rated high in all categories. On the
other hand, the horn effect may occur when one weakness results
in an overall low rating.

Recency The recency error occurs when a manager gives more weight to
recent performance and ignores the employee’s earlier
performance during the appraisal period. This may happen for the
following reasons.
 The manager is unable to remember the employee’s
performance from eight or 12 months ago.
 Many employees may improve their performance just before
their performance review occurs.

Figure 3-5. Common Errors in Performance Appraisals (continued to next page)

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Error Description

Primacy The primacy effect occurs when a manager gives more weight to
the employee’s earlier performance and ignores recent
performance. This may occur when individuals tend to pay more
attention at first and then lose attention.

Bias When a manager’s values, beliefs or prejudices have an influence

on ratings, the error is due to bias. National origin, age, religion,
gender, appearance or other non-job-related factors may influence
the manager to alter appraisal information.

Strictness The employees of a strict manager may be performing better than

employees in other departments, but their ratings may be lower.
This occurs when managers--who believe the standards are too
low--increase the standards to make them meaningful in their
opinion.

Leniency Leniency errors are the result of managers who don’t want to give
low scores, so they give all employees high scores. If an employee
is discharged after receiving such an evaluation, the appraisal may
contradict the reason for the discharge; therefore, this type of
evaluation can cause discontent among employees and litigation.
In addition, employees who have not received clear, honest
feedback have limited opportunity for improvement and future
success.

Central tendency Central tendency errors occur when a manager rates all
employees within the same range regardless of the differences in
actual performance.

Figure 3-5. Common Errors in Performance Appraisals (continued to next page)

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Error Description

Contrast The contrast error occurs when an employee’s rating is based on

how his or her performance compares to another employee’s
performance instead of on objective performance standards.
Although it is legitimate for an employer to rank employees and
compare them, their performance must first be judged against
objective standards that are appropriate for them.

Figure 3-5. Common Errors in Performance Appraisals (concluded)

Ways to mitigate these potential errors include the following:

 Ongoing documentation. This helps the manager consider performance
for a long period without relying on memory, which is a common source of
errors related to the halo/horn effect, and recency and primacy errors.
 Validation with peer managers. Validate the process with peer managers
to ensure that, within a given area or team, the same criteria is being used
to rate employees. This minimizes issues from strictness or leniency errors
which can occur in departments with more than one manager.

Formal Performance Evaluation Meeting

The formal performance evaluation meeting is an extension of the documented

appraisal. It gives the manager and employee the opportunity to talk about the
employee’s performance, the rationale behind strengths and weaknesses, and
suggestions for future development. Items for future development may be
documented in the next evaluation period as goals.

Guidelines for Giving Feedback

As mentioned earlier, feedback should be given often, not just at the end of a
reporting period. The guidelines in Figure 3-6 are helpful for managers when
giving performance feedback.

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Feedback Guidelines

Do Do Not
 Do choose a time and place that allows for  Don’t focus on a specific event.
privacy and lack of interruptions. (Instead, review the entire
 Do give employees a chance to comment evaluation period.)
on their own performance (both objectives  Don’t focus only on the negative.
achieved and areas for improvement).  Don’t focus on personality issues
 Do focus first on strengths and then talk or traits that are not related to job
about areas for improvement. performance.
 Do be specific, not general. (Support  Don’t do all the talking.
feedback with factual information.)
 Do focus on job behaviors, not the person.

Figure 3-6. Feedback Guidelines

Finalizing the Formal Appraisal Process

To finalize the formal appraisal process, the employee and manager should reach
agreement on the appraisal ratings. When this is not possible, the manager should
document that the appraisal was shared with the employee and that agreement
could not be reached. Ensuring ongoing dialogue and feedback throughout the
reporting period will mitigate this possibility.

In addition, the manager and the employee should discuss the employee's
development and outline some potential development goals for the following
performance period, which will be finalized during the goal-setting phase.

After review of the employee’s performance, the manager and the employee work
together to create a performance improvement plan that will help the employee
meet organizational, departmental and individual goals.

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Documentation

As mentioned earlier, ongoing documentation is essential and can make the

difference between winning or losing an employee lawsuit. More importantly,
good documentation plays an important role in the overall fairness of the
evaluation system. Up-to-date performance information helps the manager
explain the comments in the formal performance evaluation.

Documentation of employee performance creates a record of the reasoning that

led to positive or negative actions. To support the formal evaluation, the manager
should document the following:
 Accomplishments and issues
 Progress toward measurable goals such as unit, quantity/quality,
accounting or cost (as applicable)
 Notes from discussions held with the employee

All performance documentation must be specific, objective and accurate.

The following guidelines will assist managers in documentation efforts.

 Document as an event happens.
 Keep performance notes on all employees.
 Keep observations job-related and objective.
 Support your observations with facts.
 Focus on the deficiencies, not the perceived underlying cause.
 Avoid emotion; write with respect, regardless of the employee’s
performance.
 Avoid conclusions; provide facts for others to use in reaching logical
conclusions.
 Keep in mind that others may read your comments.

For more information on the performance evaluation process, see:

http://www.wpi.edu/Admin/HR/performance-appraisal.html

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Individual Development Plans

An individual development plan (IDP) is typically longer-term; annual
development goals are often based on this plan. IDPs are a valuable performance
enhancement and career development tool. Managers who support the use of IDPs
send a clear message to their employees that each person’s professional
development is a priority.

An IDP is linked to an employee’s career goals and the needs of the organization
and focuses on the following:
 The employee’s skills and talents for future jobs
 New skills that will help the employee perform better on the job

Important questions to answer when developing an IDP include:

 What is the future direction of my organization?
 What will the organization need from its employees?
 What jobs or departments is the employee interested in?
 What are the employee’s career goals?
 What strengths can the employee leverage and improve on?
 What key development areas should the employee focus on?
 What is the level of commitment of the manager and the employee to
achieve the development goals?

Employees who are involved in a career development process are more likely to
stay with the organization. Working together, a manager and an employee can
create a plan to meet the goals of both the employee and the organization. It is
very important that these goals are regularly monitored, and that the organization
supports the employee to enable him or her achieve these development plans.

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Practice Questions

Directions: Choose the best answer to each question.

1. __________ are the standards that reflect the success of an organization.

a. Values
b. Goals
c. Behaviors
d. Results

2. In most organizations, the performance management process includes three phases. Which
of the following is not a phase of the performance management process?
a. Analysis
b. Design
c. Implementation
d. Evaluation

3. What are career growth opportunities, recognition and good manager relationships?
a. Goals
b. Values
c. Performance incentives
d. Performance standards

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

4. What is the process that measures whether an employee accomplishes work requirements?
a. Performance values
b. Performance standards
c. Performance management
d. Performance appraisal

5. Which appraisal method evaluates performance using self, peers, direct reports,
management, and sometimes customers and suppliers?
a. Category rating
b. 360-degree feedback
c. Management by objectives
d. Behaviorally-anchored rating scale (BARS)

6. Which performance appraisal error occurs when an employee is extremely competent in

one area and is therefore rated high in all categories?
a. Central tendency
b. Bias
c. Horn effect
d. Halo effect

7. What plays an important role in the overall fairness of the performance evaluation system?
a. Good documentation
b. Goal setting
c. Employee’s self-assessment
d. Performance appraisal errors

Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

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Module 4: Measurement Section 4.3: Establish and Administer a
Performance Management System

Practice Question Answers

1. b (p. 95)
2. a (p. 96)
3. c (p. 99)
4. d (p. 100)
5. b (p. 106)
6. d (p. 109)
7. a (p. 113)

4.4: Measurement
Technology

This section covers the following information from the

Knowledge Base:

Skills & Knowledge: 10. Using technology to calculate and effectively present metrics (for
example, enterprise resource planning system [ERP], desktop
software, HRIS)

Source: HR Certification Institute

Section 4.4: Measurement Technology
Introduction ................................................................................................................................121
Technological Factors ..............................................................................................................121

Utilizing Technology for HR Measurement and Metrics .......................................................122

Technology Integration ............................................................................................................122
Enterprise Resource Planning (ERP) Systems .........................................................................124
Human Resource Information Systems (HRIS) .......................................................................125

Practice Questions ......................................................................................................................129

Module 4: Measurement Section 4.4: Measurement Technology

Introduction
The role of human resources (HR) is constantly changing due to advances in
technology and computer software tools that are dramatically transforming the
practice of human resource management (HRM). Many organizations deliver HR
services using technology and web-based applications. This practice is commonly
referred to as e-HR. Research shows that organizations that implement HR
technology tools are more efficient than those that do not. HR professionals need
the ability to deliver HR services using technology in addition to mastering
traditional HR skills and knowledge (Johnson and Gueutal 2011).

Technology also enhances HR measurement, metrics and analytics. This section

will cover:
 Using technology for HR measurement and metrics
 Technology integration
 Enterprise resource planning (ERP) systems
 Using human resource information systems (HRIS) to gather, store and use
data to perform transactions and conduct analyses

For more information about using technology for HR service delivery, see
Module 3: HR Service Delivery. Note that some content from Module 3 is also
presented here for review and context to using technology for HR measurement.

Technological Factors
The ability of HR to collect, measure and analyze data is affected by several
factors. For some organizations, the most notable factor relates to the level of
access to technology for each location.

Digital divide The gap between individuals with and without access to
technology.

Module 4: Measurement Section 4.4: Measurement Technology

The world has become increasingly dependent on technology and the Internet. As
a result, a digital divide has emerged between those organizations and economies
with access to technology and those without access. For example, this gap can
impede the collecting and sharing of information in organizations with
subsidiaries that operate in regions or communities without high-speed Internet
access.

Utilizing Technology for HR

Measurement and Metrics
The type of technology an organization selects depends greatly on the size of the
organization. Collection of data for HR measurement may be relatively simple for
small organizations and can be easily done on a spreadsheet, while larger
organizations will need more robust systems.
 Smaller organizations may only require support for basic personnel
information typically related to payroll. These organizations may not
require a special HR system.
 Large, complex and geographically dispersed organizations have a greater
need for broad-based employee information to help leaders make effective
decisions. A special HR system will be required.

There are many variations of technology for organizations that fit between these
two extremes (Johnson and Gueutal 2011).

Technology Integration
HR leaders should carefully analyze and determine their HR measurement,
metrics, and analytic needs and align them with organizational strategy before
making implementation decisions (Towers Watson 2010). While new
technologies can potentially save organizations time and money, implementation
of these new technologies may be met with resistance. For example, employees

Module 4: Measurement Section 4.4: Measurement Technology

might be intimidated by the new system or be resistant to change. Additionally,

employees may fear that the new system will make them redundant. Leaders must
be prepared to address employee concerns and support them during the changes
technology brings.

It is important to note that when an organization already has a technology-based

HR system in place, other new technologies tend to be more readily accepted
(Society for Human Resource Management, Growth Opportunities Seen in
Benefits Administration Market 2007) (Anheier and Doherty July 2005) (Society
for Human Resource Management, Case Study: Knowledge Applications — ATK
Uses Authoria for Shared Services and Sel 2007).

When selecting and integrating technology for the purpose of measurement,

metrics and analytics, HR professionals should seek answers to the following
key questions:
 What are the technological requirements and effects regarding the tools
needed to support the organization’s measurement, metrics and analytic
needs?
 How are the technological requirements different for each stakeholder or
critical user?
 How will these technologies effect existing technologies inside and outside
HR? (Owners of existing technologies need to be fully involved in the
implementation of any new HR tools.)

The following criteria are particularly important to the choice of technology:

 Flexibility. The solution should be flexible enough to integrate with an
organization’s existing technology and anticipated future technology.
 Scalability. The solution should grow efficiently and economically along
with the organization.
 Security. The solution should be secure and integrate seamlessly with the
security implemented for existing technology.
 Usability. Users should find the technology easy and intuitive.

Module 4: Measurement Section 4.4: Measurement Technology

 Extensibility. The solution should be easily extended to incorporate data

from existing technology and anticipated additional new technology in the
future. (Bintliff-Ritchie 2010)

Enterprise Resource Planning (ERP) Systems

Many large organizations have implemented organization-wide enterprise
resource planning (ERP) systems. As shown in Figure 4-1, ERP is an integrated
information system that serves all departments in an organization.

Figure 4-1. Enterprise Resource Planning (ERP) System

An ERP system typically includes software for functions such as customer

relationship management, manufacturing resource planning, finance, supply chain
and human resources.

More information about ERP systems can be easily found by searching the
Internet.

Module 4: Measurement Section 4.4: Measurement Technology

Human Resource Information Systems (HRIS)

A human resource information system (HRIS) is a type of technology that
supports HR functions and enables HR gather, store, maintain, retrieve and revise
HR data. HRIS applications assist in the performance of basic HR functions, as
shown in Figure 4-2, and provide various data that can be analyzed and reported
to inform HR effectiveness, workforce trends, etc. Application suites and business
intelligence tools are available from multiple sources; some may be part of a
broader enterprise resource planning (ERP) system used by the entire
organization, and some may be stand-alone software applications.

Figure 4-2. Human Resource Information System (HRIS)

Module 4: Measurement Section 4.4: Measurement Technology

Applications of HRIS

Following are some common applications for HRIS.

Strategic Management

An HRIS can provide quality and productivity improvements by allowing leaders

real-time access to reports, particularly measurements and metrics of various data
that can help inform strategic decisions.

An HRIS typically provides three types of reporting/analytics:

 Standard reports: These include regulatory-related reports, as well as
common recruiting reports such as turnover, recruiting and attendance data.
 Ad hoc reports: An ad hoc report writer allows users to create their own
reports beyond the standard ones.
 Dashboards: A dashboard provides leaders with high-level, real-time
metrics that are configurable to user preferences. A dashboard allows the
leader to link data to essential organizational metrics in order to make
correlations between HR outcomes and the organization’s strategic goals
(Johnson and Gueutal 2011).

Workforce Planning and Staffing

An HRIS allows leaders to identify and measure an organization’s workforce

trends in areas such as hiring, promotions, transfers and termination rates.
Analysis of this information allows HR to focus efforts in key areas relevant to
the organization’s strategy.

Skill banks and Inventories of skills and talents of an organization’s

skill tracking workforce.
systems

HRIS skill banks and skill tracking systems can be robust tools for determining
where strengths and gaps exist in the workforce. These systems often contain a
complete database of employee records, which include the specific qualifications
of each employee, and that can then be mapped to the knowledge, skills or

Module 4: Measurement Section 4.4: Measurement Technology

abilities that an organization needs now or in the future. This area (also known as
workforce analytics) can help to inform HR development and recruitment
strategies.

Performance Management/Talent Management/Training and Development

Talent and performance management applications in an HRIS allow organizations

to:
 Define employee career path development.
 Record and store employee information including education, knowledge,
skills and completion of training programs.
 Manage and track training including registering employees for courses,
monitoring the training budget, and scheduling trainers and facilities
through an integrated Learning Management System (LMS).
 Automate data collection and reporting for the employee performance
management process (Johnson and Gueutal 2011).

Compensation (Remuneration) and Benefits

An HRIS can be used to track and measure employee remuneration and benefits
to confirm that the organization is appropriately benchmarked against other
similar organizations and to ensure internal equity. This is a significant factor in
employee attraction and retention.

Employee and Labor Relations

In the area of employee and labor relations, an HRIS may be used to track and
measure items such as:
 Instances of employee discipline issues
 Labor distribution data
 Union service data
 Employee opinion or engagement survey results
 Progress on compliance efforts

Module 4: Measurement Section 4.4: Measurement Technology

Risk Management

An HRIS is particularly useful in managing the level of organizational risk. Some

potential uses include:
 Identifying trends in on-the-job accidents and illnesses in order to develop
preventive measures
 Tracking insurance and workers’ compensation claims
 Tracking safety records

More information about human resource information systems (HRIS) can be

found by searching the internet and at the following website:
http://www.shrm.org/about/foundation/products/Pages/HRTechEPG.aspx.

Module 4: Measurement Section 4.4: Measurement Technology

Practice Questions

Directions: Choose the best answer to each question.

1. When considering technology for the purpose of measurement, metrics and analytics,
which one of the following is not important?
a. The period of a performance evaluation
b. The technological requirements and effects
c. How the technological requirements are different for each stakeholder or critical
user
d. How new technologies effect existing technologies inside and outside HR

2. What type of technology would you implement if your organization needed to integrate
functions and data for customer relationship management, manufacturing resource
planning, finance, supply chain and human resources?
a. Ad hoc reporting system
b. Application service providers (ASPs)
c. Enterprise resource planning (ERP) system
d. Human resource information system (HRIS)

3. Which one of the following reporting/analytics features of an HRIS provides high-level,

real-time metrics that are configurable to user preferences and can be linked to essential
organizational metrics?
a. Standard reports
b. Dashboards
c. Ad hoc reports
d. e-HR reports

Module 4: Measurement Section 4.4: Measurement Technology

4. Which of the following is not a function or feature of a typical HRIS?

a. Managing HR functions such as performance management, succession planning
and onboarding
b. Identifying trends in on-the-job accidents and illnesses
c. Communicating benefit information to employees

Module 4: Measurement Section 4.4: Measurement Technology

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Module 4: Measurement Section 4.4: Measurement Technology

Practice Question Answers

1. a (p. 123)
2. c (p. 124)
3. b (p. 126)
4. d (p. 125-128)

You have completed Module 4: Measurement. Next, go to the Online Learning

Center at https://www.epathcampus.com/SHRM/onlinelearningcenter/login/ and
check your knowledge by completing the Case Studies, the Module 4 Practice
Test, and the HRMP Certification Practice Test, if you feel ready. Also try the
e-flashcards to check your knowledge of terminology.

Module 4: Measurement Bibliography

Johnson, Richard D., and Hal G. Gueutal.

Bibliography Transforming HR Through
Technology: The Use of e-HR and
Anheier, Nancy, and Sharyle Doherty.
Employee Self Service: Tips to HRIS in Organizations. SHRM
Ensure a Successful Implementation. Foundation's Effective Practice
SHRM White Paper, Alexandria, Guidelines Series, Alexandria,
Virginia: Society for Human Virginia: SHRM Foundation, 2011.
Resource Management, July 2005.
Parmenter, David. Key Performance
Bintliff-Ritchie, Joanne. "Realizing the Full Indicators, Developing,
Potential of Workforce Analytics." Implementing and Using Winning
2010. KPIs. Hoboken, New Jersey: John
http://storage.pardot.com/2911/3308 Wiley & Sons, 2010.
3/RealizingPotential_Whitepaper_W
eb.pdf (accessed June 28, 2011). Robb, Drew. "Making the Move to Manager
Self-service." HR Magazine,
Business Performance Improvement November 11, 2010.
Resource. "What Is Benchmarking?"
Business Performance Improvement Society for Human Resource Management.
Resource. 2011. "Benchmarking for Continuous
http://www.bpir.com/benchmarking- Improvement." December 1, 2006.
what-is-benchmarking-bpir.com.html http://www.shrm.org/Research/Articl
(accessed May 28, 2011). es/Articles/Pages/ROI_20Series__20
Benchmarking_20For_20Continuous
Dessler, Gary. Human Resource _20Improvement.aspx (accessed
Management. 11th Edition. Upper June 27, 2011).
Saddle River, New Jersey: Pearson
Prentice Hall, 2008. —. Case Study: Knowledge Applications —
ATK Uses Authoria for Shared
Fitz-enz, Jac, and Barbara Davison. How to Services and Sel . November 12,
Measure Human Resources 2007.
Management. New York, New York: http://www.shrm.org/hrdisciplines/te
McGraw-Hill, 2002. chnology/Articles/Pages/CMS_0065
92.aspx (accessed March 24, 2011).
Goldratt, Eliyahu M., and Jeff Cox. The
Goal: A Process of Ongoing —. "Future Insights: The Top Trends
Improvement. 3rd Editon. Great According to SHRM's HR Subject
Barrington, Massachusetts: North Matter Expert Panels." 2009.
River Press, 2004. http://www.shrm.org/Research/Futur
eWorkplaceTrends/Documents/09-
Hindle, Tim. Guided to Management Ideas 0700%20Workplace%20panel_trend
and Gurus. London, United s_sympFINAL%20Upd.pdf
Kingdom: Profile Books/The (accessed March 24, 2011).
Economist, 2008.

Module 4: Measurement Bibliography

—. "Growth Opportunities Seen in Benefits

Administration Market." Society for
Human Resource Management.
December 15, 2007.
http://www.shrm.org/hrdisciplines/be
nefits/Articles/Pages/GrowthOpportu
nitiesBenefits.aspx (accessed March
24, 2011).

—. "SHRM Bid to Lead Global HR

Standards Effort Ratified." Februrary
25, 2011.
http://www.shrm.org/about/news/Pag
es/StandardsEffortRatified.aspx
(accessed March 24, 2011).

Sullivan, John. HR Metrics the World-Class

Way: How to Build the Business
Case for Human Resources.
Peterborough, New Hampshire:
Kennedy Information, 2002.

Towers Watson. 2010 HR Service Delivery

Survey Report. August 2010.
http://www.towerswatson.com/unite
d-states/research/2247 (accessed
March 23, 2011).

Weatherly, Leslie A. HR Technology:

Leveraging the Shift to Self-Service-
It's Time to Go Strategic. SHRM
Research Quarterly, Alexandria,
Virginia: Society for Human
Resource Management, 2005.

Module 4: Measurement Index

Index
absence rate ............................................... 53 compensation ratio .................................... 54

analysis of data .......................................... 84 competitive analysis .................................. 21

analytics .......................... 3–5, 121, 126–127 correlation ......................................... 43, 103

annual number of training hours per cost of defending employment practice

employee ............................................... 56 claims .................................................... 57

annual training costs per employee ........... 56 cost of turnover ......................................... 57

audits ................................................... 65, 66 cost per hire ............................................... 53

HR audit ................................................ 66
performance audits ................................ 66 cost-benefit analysis .................................. 61

average .................................. 7–8, 38–41, 50 cost-benefit ratio

sample calculation ................................. 62
balance sheet .............See financial statement
analysis critical path.......................................... 18–19

balanced scorecard .................................... 65 Crosby, Philip B. ....................................... 11

benchmarks ......................................... 19–21 customer value proposition ....................... 10

benefit costs as a percentage of total payroll CVP ............. See customer value proposition
............................................................... 55
dashboard .................................... 22–23, 126
benefits 4, 10, 46–48, 55, 60–61, 79, 81, 127
metrics ..................................................... 5 data ... 3–4, 12, 14, 16–17, 19, 21, 30–43, 48,
60–61, 64, 66–70, 73–74, 77–79, 81, 83–
break-even analysis ............................. 59, 62 85, 121–122, 124–127
analysis ...................................... 35, 48, 84
break-even point capturing, analyzing and presenting ...... 14
sample calculation ................................. 63 collection ................... 35, 48, 78, 122, 127

cash flow projection ..See financial statement deductive reasoning ................ 30–32, 30–32
analysis
delphi technique ........................................ 76
cause-and-effect diagram .............. 15, 14–16 process ................................................... 76

CBA ....................... See cost-benefit analysis demand analysis .................................. 67, 69

central tendency ...................... 36, 38–40, 42 Deming, W. Edwards ................................ 11

compensation ...... 4, 33, 54, 78–79, 127–128 Dessler, Gary..................................... 93, 100
metrics ................................................... 54

Module 4: Measurement Index

Drucker, Peter ......................................... 101 frequency distributions........................ 36–38

e-HR ........................................................ 121 frequency table .......................................... 38

employee engagement ............. 30, 78, 85, 99 Gantt chart ........................................... 14, 18
measurement of ..................................... 78
Goldratt, Eliyahu M. ................................. 22
employee focus groups
advantages and disadvantages of ........... 83 health care costs per employee ................. 53
special considerations ............................ 82
health care expense per employee............. 55
employee surveys .......................... 78–80, 84
histogram................................................... 16
employee turnover analysis........... 67, 69, 72
HR expense factor ..................................... 53
enterprise resource planning (ERP) systems
............................................. 121, 124–125 HRD ......... See human resource development

ERP .See enterprise resource planning (ERP) HRIS ......... See human resource information
system systems

errors in performance appraisals ....... 109–11 human capital return on investment (ROI) 53

evaluation meeting, formal ..................... 111 human resource development ................... 55

feedback guidelines ............................. 112
human resource information system (HRIS)
evaluation methods ................................. 108 ............................................................. 125
category rating methods ...................... 108 applications.......................................... 126
comparative methods ........................... 109
human value added ................................... 54
experiment................................................. 49
hypothesis formulation.............................. 34
experimental .................................. 30, 33–35
design .................................................... 35 IDP .......... See individual development plans
group...................................................... 35
income statement ......See financial statement
research process ..................................... 33
analysis
feedback .................................. 81, 83, 84, 93
individual development plans ................. 114
financial statement analysis ................ 59, 64
individual interviews ........................... 33, 46
fishbone diagram ........... See cause and effect
inductive reasoning ................................... 31
diagram
inferential statistics ....................... 36, 44–45
Fitz-enz, Jac .............................................. 58
normal distribution ................................ 45
flow analysis ....................................... 67, 74 population .............................................. 45
sample.................................................... 45
flowchart .............. See process-flow analysis

Module 4: Measurement Index

integration ............................................... 121 scatter diagrams ..................................... 43

internal consistency, to measure reliability49 measures of central tendency .............. 36, 38

mean ...................................................... 38
international organization for median ................................................... 38
standardization (ISO) .............................. 9 mode ...................................................... 38

interpretation of data ................................. 83 measures of variation ................................ 42

percentile ............................................... 42
interviews .................................................. 33 range ...................................................... 42
individual ............................................... 46 standard deviation ................................. 42
panel ...................................................... 46
median ................................................. 38–39
Ishikawa diagram ......... See cause-and-effect
diagram metrics ......................................................... 4
employee relations................................. 79
judgmental forecasts ........................... 67, 75 financial metrics .................................... 59
frequently used ...................................... 51
Juran, Joseph M. ....................................... 11 human resource ..................................... 51
operational ............................................. 54
key performance indicators (KPIs) ......... 3, 6
performance ........................................... 64
12-step model for KPI development ....... 6
workforce planning ............................... 67
examples .............................................. 7–8
mode.................................................... 38–39
KPIs. See key performance indicators (KPIs)
multiple linear regression .......................... 76
lean six sigma...................................... 10, 13
nominal group technique........................... 76
Learning Management System (LMS).... 127
normal distribution ........................ 42, 44, 45
LMS ......... See learning management system
(LMS) number of internal complaints ................. 58
managerial estimates ................................. 76 number of employment practice liability
(EPL) claims .......................................... 58
mean .............................................. 38–41, 42
observation .............................................. 106
measure 41–42, 43, 49–51, 59, 61, 102, 108,
121, 126–127 online surveys ........................................... 80
measurement 3–4, 11, 16, 23, 29, 49–50, 58, organizational feedback ............................ 84
64, 79, 121–122
human capital ...................................... 122 organizational records ............................... 48
measurement and evaluation ................. 3, 29 organizational values ................................ 94
measures of association....................... 36, 43 panel interviews ........................................ 46
correlation.............................................. 43
regression analysis................................. 44 parallel forms ............................................ 49

Module 4: Measurement Index

Pareto chart ......................................... 14, 17 program evaluation and review technique

(PERT) chart ......................................... 18
Parmenter, David ........................................ 6
qualitative analysis .................................... 46
percentage of engaged, not engaged and individual or panel interviews ............... 46
actively disengaged employees ............. 57 observation, organizational records and
testing ................................................. 48
percentiles ................................................. 42 surveys and questionnaires .................... 47
performance and development goals .. 101–2 quantatative analysis
charts and graphs ................................... 37
performance appraisal frequency distributions and tables ......... 38
goals ...................................................... 95 inferential statistics ................................ 44
shared definition .................................... 95 measure of central tendency .................. 38
values ..................................................... 94 measures of association ......................... 43
measures of variation ............................ 42
performance appraisals ............... 48, 93, 100
errors in ............................................... 109 quantitative analysis .................................. 36
descriptive statistics............................... 36
performance evaluation .......See performance
appraisals quartiles ..................................................... 42
performance management applications... 127 questionnaires ..................................... 33, 47
performance management process ..... 93, 96, rater agreement.......................................... 50
103, 107
design .................................................... 96 rating scales ............................................... 47
development phases ............................... 96
evaluation .............................................. 98 raw average ............. See unweighted average
implementation ...................................... 97
regression analysis .............................. 44, 76
performance management system ............. 93
reliability ................................................... 48
performance review ............ See performance
appraisal remuneration .....................See compensation

PERT chart ........ See program evaluation and research ....................................... 20–21, 121
review technique (PERT) chart primary .................................................. 32
process ................................................... 33
population ........................................... 44–45 secondary ............................................... 32

primary research........................................ 32 return on human capital invested (ROI).... 54

problem analysis ....................................... 34 return on investement

sample calculation ................................. 60
process
delphi technique .................................... 77 return on investment (ROI) ....................... 59
process-flow analysis ................................ 15 ROI.............. See return on investment (ROI)

Module 4: Measurement Index

sample ........................................... 31, 44–45 analysis of .............................................. 81

benefits of .............................................. 79
scatter diagram .................................... 14, 16 design .................................................... 80
employees .............................................. 79
scientific method ....................................... 33 online ..................................................... 80
data analysis .......................................... 35 special considerations ............................ 81
data collection ....................................... 35 survey topics .......................................... 79
experimental .......................................... 35
hypothesis formulation .......................... 34 systems theory........................................... 10
problem analysis .................................... 34
technology ....................... 8, 11, 22, 121–125
secondary research ........................ 30, 32–33 HR measurement and metrics ............. 122
integration............................................ 122
SHRM .......See Society for Human Resource
Management (SHRM) test/retest, to measure reliably................... 49
simple linear regression ............................ 76 testing .......................................... 33, 48, 104

simulations .......................................... 76, 77 theory of constraints .................................. 22

six sigma ....................................... 10, 11–14 time to fill.................................................. 53

DMADV ................................................ 13
DMAIC .................................................. 13 TOC........................ See theory of constraints
lean ........................................................ 13
total company compensation expense ....... 54
Society for Human Resource Management
(SHRM) ................................................... 4 total quality management .......................... 10

staffing needs analysis .............................. 67 TQM............... See total quality management

standard deviation ..................................... 42 trend and ratio analysis ....................... 67, 69

standards ............... 9, 20, 29, 95–96, 99, 110 turnover costs ............................................ 53

statistical forecasts .............................. 67, 76 turnover rate ........................................ 21, 57

strategic planning .................. 3, 6, 65, 67, 72 unweighted average .................................. 40

steps ....................................................... 65
vacancy costs ............................................ 53
strategic planning process ........................... 3
validity ...................................................... 48
Sullivan, Dr. John ..................................... 50
variable .......................................... 35, 43, 76
supply analysis .................................... 67–68
weighted average ................................ 40–41
surveys ............ 33, 47–48, 78–81, 84, 85, 99
workforce planning ........... 4, 59, 67–68, 126

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