Most important aspects:
- It is important for HR departments to establish and measure relevant KPIs in order to evaluate and improve HR processes and performance.
- HR KPIs should be linked to the company's overall goals and strategies so that the HR department can better inform and contribute to decisions that lead to the company's success.
- You must be open to adapting and adjusting your HR KPIs over time to account for changes in business needs and changes in the market environment.
- An HR system is an essential resource to have in place for a structured and long-term approach to measuring KPIs.
What are KPIs?
KPIs (Key Performance Indicators), also known as key figures, are clearly formulated variables used to determine whether a company is developing in the right direction, i.e. is on track to achieve its goals. By using their own KPIs and other measurable methods, HR departments can gain valuable insights and data that can then be used by management to make strategically smart decisions.
KPIs also help to visualise the results achieved in a concrete way, which facilitates decision-making, problem-solving and mapping. For KPIs to be useful, they should be concrete, measurable, realistic, and relevant to a company's overall strategy and objectives.
Why are KPIs important in HR?
Relevant KPIs are an important part of business development and growth. For the HR department, this means being able to measure and demonstrate the company's development in the area of human resources. Employees are one of the company's most important resources; measuring and following up on the right KPIs is about the possibility of changing the company for the better.
Having an HR system and employee data in place makes it easier to develop, analyse and evaluate the company's performance. By measuring the right KPIs, HR can produce important metrics that show turnover rates, employee engagement, and company efficiency, among other things.
Working in an evidence-based and measurable way is a prerequisite for HR to be able to work more strategically and be a natural part of company management. Working with strategic HR work involves a greater degree of long-term plans, strategies and policies for everything from recruitment, negotiations, work environment and staff training. Being able to measure the development of this work is a prerequisite for continuing to develop in the right direction.
KPIs also help to visualise the results achieved in a concrete way, which in turn facilitates decision-making and problem-solving. KPIs fulfil their purpose when they are concrete, measurable, realistic and relevant to a company's strategy and objectives.
Common KPIs in HR
There is of course a plethora of data that can be measured and reported on, and every company will have unique needs. Which KPIs are right can vary, but we see that there are some HR-related KPIs that are more common. These are:
- Time to hire: This is a common KPI in recruitment and it measures the number of days it takes to fill a vacancy, namely from the time a candidate applies for the job to the time the same candidate accepts a job offer. Thus, this KPI provides information on two important recruitment processes:
- Recruitment efficiency: the time it takes to process, assess, interview, and accept a candidate for a job. A long recruitment time indicates a slow and inefficient process.
- Candidate experience: The time a recruitment takes is also an indicator of the candidate experience. Candidates generally prefer shorter recruitment processes, especially if they are in several processes at the same time. A shorter recruitment process usually leads to a better candidate experience.
- Cost per hire: Measures the cost of recruitment activities and is one of the most widely used KPIs in HR and especially in recruitment. Understanding and controlling the costs associated with recruitment allows the company to make more strategic decisions, such as future labour analysis for recruitment. This is because it includes all costs, such as advertising, onboarding, recruitment bonus costs, etc. Cost per hire is calculated by taking all internal recruitment costs plus external recruitment costs and dividing by the total number of new hires over a given period of time.
- Employee turnover rate: Measures the percentage of employees who leave the company during a given period, usually one year, either voluntarily or involuntarily. It usually measures the total number of employees leaving, but you can also dig deeper and look at teams within the company, such as individual departments or demographic groups. The employee turnover rate is calculated by dividing the sum of the number of employees who leave within a certain time (month, quarter, year, etc.) by the average number of employees who worked in the selected time frame. Multiply that figure by 100.
- Absent rate: This KPI is used to measure unplanned absences, for example due to illness, maternity leave, or other reasons. The level of absenteeism can be measured for an individual, a team or the whole company – each metric providing a picture of the health and well-being of the organisation. Like high staff turnover, high levels of unplanned absence are a sign of negative employee behaviour and may indicate problems in the organisation or the work environment.
- Employee engagement: Employee satisfaction is usually measured by eNPS (Employee Net Promoter Score) which is a metric for measuring and tracking employee loyalty. Employee satisfaction and keeping employees engaged and motivated is of great importance to the success of many companies, making it a common KPI for HR to measure. Healthy employees who are happy at work are more productive. Every investment in employees is an investment in the company. Creating a positive work culture is a long-term process that requires continuous maintenance and monitoring. An important KPI to measure for all companies.
- Training and development ROI: This KPI measures the return on investment in employee training and development. Measuring this return provides an understanding of how rewarding training has been for a department, compared to their past performance. Usually determined through a post-training follow-up in comparison to the expected training objectives.
Choosing the right KPIs is important
Choosing the right KPIs is all about being able to obtain and measure the data needed to make decisions that align with your organisation's unique goals. As the expectations on HR increase, it is also becoming more important to work more data-driven and with efficient processes, measuring the right KPIs is a step in the right direction.
To find the most relevant KPIs, you need to start from the company's specific goals and strategies. Since HR should also work towards these goals, it is important to map out how to achieve the companies' vision, what strategy is required, what goals need to be met and what critical factors have an impact on these goals. Such mapping helps to identify the most relevant and, above all, measurable KPIs to measure success.
It's important to remember that you don't need to measure every HR-related KPI that may exist, it will only make it difficult to get an overview. Instead, choose the ones that really add the most value, contribute to development and that you can follow up on continuously.
Measure and analyse KPIs
We've talked a lot about the importance of becoming more data-driven and keeping track of your key performance indicators, but the truth is that it can quickly become a very time-consuming and manual process for HR. Having an HR system in place is essentially a necessary resource to facilitate the measurement of KPIs.
With an HR system in place, there is automated data collection thanks to the centralised database of employee data that the HR system represents. An HR system manages most HR functions, which means that all relevant information that may be needed for the KPIs is stored in a structured way - in one place. This in turn means that it is very easy to extract and analyse the data needed to measure the KPIs relevant to HR.
However, an HR system can generally generate customised reports and show trends over time. With access to real-time data, continuous monitoring becomes a very simple process for HR to undertake. Collecting, analysing and reporting HR data in a structured and automated way is made possible by having an HR system in place. Without an HR system, each step becomes a time-consuming and manual process.
By measuring HR KPIs, you can analyse and evaluate your company's performance to make smarter decisions. KPIs help to visualise results in a concrete way and facilitate decision-making and problem-solving. To be useful, KPIs should be concrete, measurable, realistic and relevant to the company's overall strategy and objectives.
However, continuously monitoring and analysing the KPIs you choose to measure can mean more manual work for the HR department. Of course, investing in an HR system has a number of advantages, but in this context, it is about the HR department being able to benefit from all the valuable information available.
Measuring KPIs and extracting valuable data from an HR system is a type of HR analysis that involves using statistics and analyses of HR data to gain a deeper understanding of the business and create a basis for decisions. Using KPIs and analytics for strategic assessments and valuable insights is becoming increasingly important as the role of HR is changing and is now increasingly seen as one that is more of a strategic partner in companies.
Using the right KPIs will help HR to be more data-driven, efficient, and strategic in their day-to-day work and therefore contribute to the overall success of the organisation.