10 Steps How to Build KPI for HR – Step by Step Guide

The organization’s KPI is the spine of all performance tracking and performance management, it offers the organization an opportunity to control and manage its performance. When we talk of performance as a whole, we look at the departmental or unit combined process that contributes to the overall performance.

KPIs in an organization are designed based on the business unit, departments, and processes and not the whole business. There is a designed KPI to track the overall performance in an organization but departmental performance data are combined to obtain the overall business performance image.

Usually, this combined data are used to make the entire organization’s performance decision although we refer to the combined information as organizational KPI.

To design an effective key performance indicator KPI for HR you should consider the departmental goals and objectives as well as what you want to track. My concern departmental KPI today is the Human Resource performance management.

Human Resource Management (HR)

The human resource department in an organization is concerned with employee and employee management. It is hard to overlook the performance and competence of Human resources in an organization as they contribute greatly to the overall organizational performance. 

Think of an organization with competent personnel and the one without, the output produced in every process is determined by the input and no process does not need a technicality.

Being able to stage competence and technical expertise in every process is a success. You will realize the word success if you can input quality and competent professionals in every activity you undertake in your organization.

KPI for Human Resources (HR)

How KPI work for HR team

Human resource key performance is simply a metric of performance in Human resources (HR). HR KPI is the tabular measurement of how your HR process contributes to the organization’s performance, an evaluation of how the HR department progress towards organization targets and objectives.

Alternatively, you can use a simple statement that HR KPIs reflect the organizational HR performance defined as the output of the hr processes relevant to the attainment of business goals and objectives.

Often people confuse between KPI examples and KPI metrics, in HR KPI the case is the same. It is easy to mistakenly take HR KPI to be the HR KPI metric; here are the highlighted HR KPIs examples to help you avoid confusion.

  • The rate of absenteeism
  • Benefits satisfaction
  • The Absenteeism cost
  • The Net Promoter Score
  • The employee satisfaction index
  • The employee productivity rate
  • The employee engagement index
  • The employee innovation index
  • The internal promotion rate
  • The Percentage of cost of the workforce
  • Training effectiveness
  • Quality of hire
  • Turnover rate
  • Involuntary turnover rate
  • Voluntary turnover rate
  • Unwanted turnover rate
  • 90-day quit rate

Here are the HR metrics that the HR KPI is tracking to help you differentiate from HR KPI example;

  • The average length of placement
  • The average salary
  • The average retirement age
  • The average length of service
  • The average number of training hours per employee
  • The average number of vacation days per employee
  • The average number of unpaid leave per employee
  • HR-to-FTE ratio
  • Compensation cost as a percentage of revenue
  • The average interviewing cost
  • Employee training satisfaction

Important of KPIs in HR

I will not go deep into this topic because the importance of KPIs is always the same, tracking the Key Performance in an organization.

In HR the most important role implementing KPI play is the same track the HR Key Performances only that it is specific to the goals and objectives of the HR department like employee performance.

Another Key role KPIs has to enable the HR department to achieve its goals; remember the organizational goals might be slightly different from departmental goals.

For example, in the HR department, you might be tracking the Rate of absenteeism; the Organizational KPI will be tracking not only the rate of absenteeism but also the entire HR contribution to the whole Performance.

How to evaluate HR performance

Now that you know the importance of KPIs in Human Resources, there is no doubt you want to try or you are passionate to review your dormant HR KPIs. It is important indeed to understand and know how you are going to evaluate HR performance.

Unlike any other department, the HR department is more of a human resource than the rest of the departments where the process and input of raw materials as well as technology are involved. In the HR department, we rely more on the human factor and ration reasoning of the employees.

The fact that HR performance majorly lies in the aspects of morale-boosting incentives and motivation does not mean you can’t evaluate performance.

Remember HR is where all the skills and technical know-how of the individuals in the business are accrued and placed in the right position, it is where the training of employees and employee appraisal are monitored.

Let us enlighten ourselves on how we can evaluate the HR key performance.

I am not surprised if you are expecting me to list for you ways to evaluate the organization’s HR KPIs, don’t worry.

I was in your shoes too once, the answer I will give you is not what you are expecting but I will help solve this puzzle for you.

Before you start evaluating or before even you think of those HR KPIs existing in your mind you must think of HR goals. 

Start with the goals of the HR department, for example, your goal is to reduce the number of absenteeism in your organization, this goal will raise the question of what causes absenteeism or why is the rate of absenteeism is growing or when is the absenteeism occurs.

Once you have the goals they create a gap that will make KPI necessary to answer those questions.

Now you know what is needed from you to answer you now develop the HR KPI that tracks and indicate the target or the question. Let’s use the question above when absenteeism occurs, our KPI will be tracking the number of employees absent every day of the week.

At the end of a weekly tracking, you will be able to identify on which day is the rate of absenteeism high, thus answering our question when.

This is the base and where to start your tracking: Goals or problems to solve, questions or gaps to fill, and finally HR KPI (indicator).

Metrics to assess when evaluating KPI for HR

Metrix for KPI HR

HR performance evaluation is all about the context of your organization though I made it look simple in the above topic (How to evaluate HR KPI) is not that simple at all.

You may find your organization sailing in the wrong direction tracking and evaluating different things you shouldn’t be evaluating. I would like to divide HR KPI evaluation into metrics that you will access to help you work this out at ease.

First allow me to sub-divide the metrics to assess the outcome, service delivery, and legal compliance, in this way you will understand well how one can measure human resource performance. This is how we will evaluate based on the above metrics.

1. Outcome metrics

The outcome HR metrics will be evaluating whether the HR department is delivering the set target and goals crucial to business success. This hr outcome KPI will be tracking metrics on;

  • Employee net promoter score
  • Employee productivity rate
  • Average service length
  • Rate of absenteeism
  • Satisfactory index on employee
  • Rate of attrition

2. Service delivery metrics

This metric will be indicating how satisfying is the services rendered by the Human Resource to the overall strategic objectives. The KPI metric will be;

  • Rate of failure on new employees or hire
  • Effectiveness of a training program
  • New hires performance
  • Return on investment
  • Satisfaction on benefits

3. Efficiency and effectiveness metrics

This efficiency and effectiveness metric targets how the HR delivers its services and such metrics will be tracked;

  • Recruitment channel analysis
  • The average time has taken on fill vacancies
  • Cost-per hire
  • Return on investment
  • Employee net promoter score
  • Audit compliance metrics

Here is all about legal issues and compliance with employee welfare as well as working conditions. These compliance metrics will assess;

  • Employee demography or diversity
  • Salary competitiveness
  • Gender equality and the pay gap
  • Percentage of the Trained employee in the company policy
  • Number of diversity initiatives

How to build a KPI for HR?

Human Resources KPI Metrix

KPI is a significant tool in tracking key performance and therefore you should design an effective KPI for it to be meaningful in attaining your strategic Goals. As we all know that KPIs are not just an indicator but are meant to indicate the key performance of your organization.

HR KPIs are not any different from this; they also focus on what is key to your HR department’s target and goals.

Before we look at these key steps I would like you to understand that the difference between HR KPIs and Organization KPIs is just the goals HR KPIs focus on (HR target and goals). Here are the essential steps to building effective HR KPIs.

1. Strategie

The driving gear for every effective organization is a simple understandable strategy. A very simple strategy allows you to understand and design your HR KPIs that is aligned to it.

The organization strategy creates a gap or asks the question that needs answer or tracking hence the need for KPI. Therefore Strategy is the base of every KPI.

2. Evaluate the Question

The question or gap created by the HR strategy needs responses and answers therefore in seeking to answer this question you will be developing a way or medium that will track the possible solution or reason for its existence (KPI).

This raised question or gaps created require information and to get this information you need to collect data on this HR KPI.

3. Specify the data needed

You have the questions and you have to answer them this calls for a search of answers or data to answer them. Identifying the data that raise questions needs to force you to develop or establish the HR KPI metrics that will help you collect and track the information.

It is important to define the data you need after all are measurable and they are data at glance, therefore, you need to be careful about what you need and what you don’t.

4. Evaluate all the available data

You need to be systematic, orderly and composed so that you won’t hurriedly discard important data. Ask yourself what you want to fix solve or change, by doing this am sure you will evaluate the right data you want.

Check the data collecting process and tools to ensure they are effective and defiantly you have all the data you want.

5. Establish supporting data

KPIs, in general, are powerful weapons to success if properly handled and utilize well, but we have to accept the fact that there are vast data and information flow gathered in an organization.

By finding the right supporting data you will be able to defend your finding in your report, by confidently tying your finding to proven facts.

Having supporting data means your evaluation of KPI metrics will lead to a clear and better decision made which will ignite success and solve the meandering mystery in your business.

6. Have an accurate time-bond measuring methodology

Being able to collect and evaluate data is an advantage but measuring the right data is even more incredible and critical.

You should measure exactly what the gaps require for it to be filled, remember your data should be utilized while they are still relevant. Imagine someone trying to use data on customer satisfaction collected in January in October, he will be making decisions based on a piece of outdated information since consumer behavior is a dynamic factor.

The frequency on which the variable occurs must be a determining factor in your measurement, don’t overdo a short frequency measurement and vice-versa.

7. Be a custodian of your KPI

Abandon KPI is easily rendered useless. Remember your KPI is an asset or valuable possession, like gold, if left unnourished it will lose its glittering. Be careful and keep tracking and checking your KPI, doing this will help you not any irrelevance and attend to.

KPI is never effective if there is no constant monitoring of the changes, interpreting, and evaluation of what those changes mean to the business.

KPIs need a custodian to take care of and assign someone who will monitor it.

Again the data supplier or the source of data needs to be tracked although with the technology sometimes it is automated someone still has to attend.

8. Communicate your KPI target and goals

Creating awareness in Business is always gaining, conflicts have always destroyed morale, productivity, and of course everything good in the world at large.

Ensure that your KPI is well understood by everyone, let everyone in your organization understand clearly what you are trying to achieve. Allow your employees to be part of that journey and success will be on your door.

As you all know communication is the key to harmony in business, every individual in your business should understand the strategic objective.

You count on our employees to offer every single effort to combine into that big achievement you ought to achieve.

With conflicting goals and objectives, there will be no success. There is a victory in unity, let everyone be in a consensus on what you are aiming to do.

9. Understand your team

Understand your team

Teamwork is success and the only way to attain teamwork is if, through mutual understanding, every member of your team is very important.

It is very important to know how best you can communicate your KPI goals or the metrics target so that it is engaging and greats the same insight to everyone.

Great a vivid picture of what you want to let everyone visualize it, allow them to seek clarification.

Let them ask all the fun and relevant questions which will give them a better understanding. Conflict destroys unity and teamwork, therefore, creating togetherness.

10. Review and update your KPI to improve performance

Nothing is infinite in business but everything is relevant because of constant polishing. Your KPIs will lose their effectiveness if you don’t review them.

A better decision is made if you use real-time data information and improving performance means you are making an informed decision and the right choices.

The business world is dynamic and keeps advancing and becoming competitive, to be on the safe side ensure that you catch up to these changes, adapt before you quit, or else you will become irrelevant.

Just imagine how fast the technology is, if you cannot adapt then you will probably wake up when everyone is gone.

These steps are more of how you keep your KPI, in general, effective but like I said that KPIs and HR KPIs are more the same only are distinguished by their target, goals, and objectives.

I believe by following these steps you will be able to develop a new HR KPI, improve the existing or revive an irrelevant one to be a more performance-effective KPI.

What is a good KPI for HR?

I know many people are baffled about what are good HR KPIs, the simple answer to this is that there are no Bad KPIs in general only irrelevant KPIs. On this question, I will answer you on how you will tell how your HR KPIs are good or functioning according to your strategic objectives.

All KPIs that are effective to your business objectives are the good ones in our case whereas as I said there are no bad KPIs the ineffective KPIs are what may be considered bad.

It is funny how I talk about this topic (good KPIs) yet I do say there are no good and bad KPIs. To help you answer this question let me discuss the characteristic of good or effective KPIs.

HR and KPI in Performance management

I had talked about HR and KPI when I was defining what HR KPI is but I only touch on a single distinction. Allow me to once again discuss an in-depth analysis of HR and KPI.

Like I said Human resource is a department that makes up the organization as a whole, let me define what KPI is. In simple terms, KPI is and stands for Key Performance Indicator.

It is a metric that indicates the key Performance which drives the organization to its success.

Now we have the concept, our topic was about HR KPIs. These two topics (HR and KPI) have raised the question of why HR and KPIs?

These two subjects are related and part of each other for every single organization to attain its goal, interactively, and mean the same thing in literal terms.

First I would like to differentiate between HR and KPI. Human Resource Management (HR) is a single unit or department that makes the organizational; structure.

As you know a business I a sing functioning unit compose of several subunits (departments), and HR makes one of those departments. As important as any other department in an organization HR is crucial in delivering the key performance.

How is HR related to KPI?

KPI is the entire organization’s key performance indicator and to obtain these overall performances there is a department that has departmental KPIs like HR KPIs, these departmental KPIs are the one that feeds the organizational KPI with data.

Therefore one clear relationship between HR and KPI is that HR as a department manages and tracks performance with its HR metric, the obtained data are the data which organizational KPI metrics will be tracking thus KPI is the performance umbrella that departmental heads report to.

In another perspective (HR perspective), the HR KPIs metric tracks the department performance for example employee motivation to productivity yield per month, then the HR KPI dashboard indicates the two variables on productivity and motivation as a report, this HR report becomes the primary data that the Organization KPI uses to compose the final report that the top management will use.

That is it (HR) becomes the organization Metric. With HR KPIs, you van can easily tell how your organization is performing because it acts as a mirror. Make your business grow with HR KPIs today.

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