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What are key performance indicators and how do they relate to the human resource function?

Key performance indicators (KPIs) are defined as quantifiable or qualitative, specific measures of an organization's performance in critical areas of its business. KPIs may vary by project, department or business; be weighted differently by each project, department or business; and be financial, nonfinancial or both.

From an HR standpoint, KPIs are HR-related metrics that have been analyzed to show a link to the organization's long-term business goals or critical success factors. For example, a decrease in time-to-fill for sales positions not only helps relieve scheduling issues but also increases revenue for the organization due to appropriate staffing levels. Another HR KPI example might be whether turnover rates can be decreased within an organization. Decreased turnover leads to decreased costs (e.g., training costs, cost-per-hire) to an organization's bottom line.

Below are some steps HR leadership can take to determine KPIs:

  • Encourage the organization to include HR in the development of business goals and strategies to ensure alignment of the correct KPIs.
  • Look at the company's mission, goals, culture and stakeholders to identify critical areas to be measured.
  • Decide what factors or "deliverables" (e.g., growth of core business, organizational performance, branding) are most important to the organization overall. Knowing this information will help HR determine where to focus its efforts when defining KPIs.  
  • Determine what metrics need to be analyzed to be aligned with those factors or deliverables. Sometimes HR may need to analyze a metric that is not HR-related to show the alignment with a deliverable (e.g., time-to-fill and new employee sales productivity). HR may need to collaborate with other departments to obtain the information needed to accurately report KPIs.
  • Analyze the KPIs to identify where the organization is improving or where opportunities to improve exist.
  • Establish how often relevant KPI information will be reported (e.g., monthly, semiannually, annually) and which format will be used to disseminate the information (e.g., stand-alone document, part of HR scorecard).
  • Revisit what is being measured on a regular basis to ensure KPIs are measuring metrics critical to the organization's ongoing success. 

HR use of and reporting on KPIs demonstrates the ability to quantify delivered value to the business.  Having a more strategic approach will promote the importance of HR to the organization. 


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