The role of human resource data in business decisions

Businesses must evaluate the effectiveness of all resources, including employees, to ensure efficient operations. Human resource (HR) departments analyse data to inform decisions, optimise performance, and plan for the future.

Key human resource metrics used in decision-making

• Labour productivity - Measures output per employee, helping identify efficiency levels.
• Labour turnover - Tracks the rate at which employees leave, indicating workforce stability.
• Absenteeism - Monitors unplanned absences, which can affect overall productivity.

HR uses performance management systems to ensure human resources are utilised efficiently. These systems involve regular reviews to check employee performance against targets.

Applications of human resource data

• Informing decisions - Data on metrics like productivity and turnover guides choices on training, recruitment, and pay.
• Planning future human resource needs - HR analyses trends to forecast staffing requirements and manage workforce flow.
• Benchmarking against competitors - Comparing figures, such as lower turnover rates in rival businesses, helps identify areas for improvement and prompts investigations into better practices.
• Ethical considerations - Decisions must balance cost control with fair treatment of staff, as ethical practices may increase short-term costs but build long-term loyalty.

Calculating and analysing labour productivity

Labour productivity measures how efficiently employees produce output, helping businesses assess workforce performance. HR analyses trends in this metric to make informed decisions on training, recruitment, and compensation.

Formula for labour productivity

$\text{Labour productivity}=\frac{\text{output per period}}{\text{number of employees}}$

Where:

• Output per period = Total goods or services produced in a set time (e.g., units per year)
• Number of employees = Average number of staff during that period

Ways HR can improve labour productivity

• Employing a diverse workforce to bring varied skills and perspectives.
• Ensuring employees feel engaged and motivated through recognition and involvement.
• Placing the right people in suitable roles based on their strengths.
• Reducing absenteeism levels to maintain consistent output.

Responding to changes in labour productivity

• If productivity is increasing - HR might reward staff with bonuses or salary increases to sustain motivation.
• If productivity is decreasing - HR could retrain employees, provide stronger incentives, consult staff for suggestions, or, in severe cases, implement redundancies.
• If productivity is low compared to competitors - HR should review rivals' human resource strategies to adopt effective approaches.

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Worked example - Calculating labour productivity

A manufacturing firm produces 150,000 units in a year with an average of 250 employees. Calculate the labour productivity.

Step 1: Identify the values

• Output per period = 150,000 units
• Number of employees = 250

Step 2: Apply the labour productivity formula

$\text{Labour productivity}=\frac{\mathrm{150,000}}{250}$

$\text{Labour productivity}=600\text{ units per employee}$

Measuring and controlling labour costs

Controlling labour costs is a primary HR objective, as these expenses directly impact profitability. Metrics help compare costs across businesses and identify ways to reduce them without harming motivation.

Formula for labour cost per unit

$\text{Labour cost per unit}=\frac{\text{labour costs}}{\text{units of output}}$

Where:

• Labour costs = Total expenses on employees (e.g., wages, benefits) (£)
• Units of output = Total goods or services produced

This metric indicates the employee cost to produce one unit.

Formula for employee costs as a percentage of turnover

$\text{Employee costs as a percentage of turnover}=\frac{\text{employee costs}}{\text{sales turnover}}\times 100$

Where:

• Employee costs = Total expenses on employees (£)
• Sales turnover = Total revenue from sales (£)

This percentage is useful for comparing businesses of different sizes in similar industries.

Strategies for reducing labour costs

• Decrease overall labour expenses, such as by negotiating lower wages or benefits, though this may demotivate staff.
• Boost labour productivity to spread costs over more output.
• Consider business ethics, as treating employees well (e.g., fair pay) may raise costs but enhance loyalty and long-term performance.

Worked example - Calculating labour cost per unit

A company has total labour costs of £600,000 and produces 120,000 units. Calculate the labour cost per unit.

Step 1: Identify the values

• Labour costs = £600,000
• Units of output = 120,000

Step 2: Apply the labour cost per unit formula

$\text{Labour cost per unit}=\frac{\pounds \mathrm{600,000}}{\mathrm{120,000}}$

$\text{Labour cost per unit}=\pounds 5$

Worked example - Calculating employee costs as a percentage of turnover

A business has employee costs of £350,000 and sales turnover of £1,750,000. Calculate the employee costs as a percentage of turnover.

Step 1: Identify the values

• Employee costs = £350,000
• Sales turnover = £1,750,000

Step 2: Apply the employee costs percentage formula

$\text{Employee costs as a percentage of turnover}=\frac{\pounds \mathrm{350,000}}{\pounds \mathrm{1,750,000}}\times 100$

$\text{Employee costs as a percentage of turnover}=20\%$

Understanding labour turnover, its causes and effects

Labour turnover measures the rate at which employees leave a business, expressed as a percentage. High turnover can signal underlying issues, but some level is beneficial for fresh ideas.

Formula for labour turnover

$\text{Labour turnover}=\frac{\text{number of staff leaving}}{\text{average number of staff employed}}\times 100$

Where:

• Number of staff leaving = Employees who depart in a period (e.g., per year)
• Average number of staff employed = Total workforce average over that period

A higher percentage means a larger proportion of workers leave annually.

Causes of high labour turnover

External causes:

• Changes in regional unemployment, making it easier for workers to find new jobs.
• Competition from firms requiring similar skills, attracting staff away.

Internal causes:

• Poor motivation or low wages.
• Lack of promotion opportunities.
• Ineffective recruitment processes that select unsuitable candidates.

Ways to reduce labour turnover

• Increase delegation to give employees more responsibility.
• Provide job enrichment to make roles more fulfilling.
• Offer higher wages or better training opportunities.

Benefits of high staff turnover

• Introduces a constant stream of new ideas from incoming staff.
• Allows recruitment of pre-trained employees from competitors.
• Provides a natural way to reduce workforce size during sales declines.
• Brings enthusiasm from new staff that can motivate existing workers.

Disadvantages of high staff turnover

• Loss of loyal, experienced staff who hold valuable organisational knowledge.
• Risk of trained employees moving to competitors.
• Increased training costs and reduced productivity during onboarding.
• High expenses associated with recruitment processes.

Some turnover is essential to refresh the workforce with innovative perspectives.

Worked example - Calculating labour turnover

In a year, 30 staff leave a company that has an average of 240 employees. Calculate the labour turnover rate.

Step 1: Identify the values

• Number of staff leaving = 30
• Average number of staff employed = 240

Step 2: Apply the labour turnover formula

$\text{Labour turnover}=\frac{30}{240}\times 100$

$\text{Labour turnover}=12.5\%$