Analysing human resource performance

Welcome to Analysing Human Resource Performance!

In this chapter, we are going to look at the "numbers side" of managing people. While Human Resources (HR) is often about feelings, motivation, and culture, successful businesses also need to measure how well their workforce is performing using data. Human resource performance tells a story about how efficient, happy, and costly the employees are. Don't worry if you aren't a "maths person"—the formulas are straightforward, and we will break them down step-by-step!

1. Labour Turnover

Labour turnover measures the rate at which employees leave a business over a specific period (usually a year). Think of it like a "revolving door" at a shop—some people are coming in, but how many are heading for the exit?

How to calculate it:

\( \text{Labour Turnover (\%)} = \frac{\text{Number of staff leaving during the year}}{\text{Average number of staff employed during the year}} \times 100 \)

Why does it matter?

A high labour turnover often suggests that staff are unhappy, or perhaps a competitor is offering better pay. Example: If a fast-food restaurant has 100 staff and 50 leave in one year, their turnover is 50%. This is very high and means they are constantly spending money on job adverts and training new people.

Quick Review: Is high turnover always bad?
Not necessarily! Sometimes a business needs "new blood" and fresh ideas. However, very high turnover is usually expensive because of recruitment costs and lost productivity.

Common Mistake: Students often confuse "Turnover" (which means Sales Revenue) with "Labour Turnover" (which means staff leaving). Make sure you read the question carefully!

2. Labour Productivity

Labour productivity measures the output per worker. It tells us how much "work" each person is getting done in a certain amount of time. It is a key measure of efficiency.

How to calculate it:

\( \text{Labour Productivity} = \frac{\text{Total output per period (e.g., per week)}}{\text{Number of employees}} \)

The "Sandwich Shop" Analogy:

Imagine two different sandwich shops.
• Shop A: 2 staff make 200 sandwiches a day. (Productivity = 100 per person).
• Shop B: 4 staff make 300 sandwiches a day. (Productivity = 75 per person).
Even though Shop B makes more sandwiches total, Shop A is more productive because each worker is doing more!

How to improve it:

1. Better training (making staff faster).
2. Better tools or technology (e.g., a faster oven).
3. Increasing motivation (e.g., bonuses for hitting targets).

Key Takeaway: Higher productivity usually leads to lower costs and higher profits because you are getting more "bang for your buck" from your staff.

3. Employee Costs as a Percentage of Turnover

This tells us how much of the business's sales revenue is being "eaten up" by staff wages and benefits. Turnover in this specific formula refers to Sales Revenue.

How to calculate it:

\( \text{Employee costs as \% of turnover} = \frac{\text{Total employee costs}}{\text{Total sales revenue (turnover)}} \times 100 \)

What does this show?

It shows how labour-intensive a business is. A hair salon will have a very high percentage because you need people to cut hair. A software company might have a lower percentage once the product is built because they can sell it a million times without hiring a million people.

Did you know? If this percentage starts rising, it might mean wages are growing faster than sales, which could be a warning sign for the business's profits.

4. Labour Cost per Unit

This looks at how much the "human effort" costs for every single item produced. It links productivity and wages together.

How to calculate it:

\( \text{Labour cost per unit} = \frac{\text{Total labour costs}}{\text{Total output}} \)

The Trick to Understanding This:

If you pay your staff more (wages go up), your labour cost per unit usually goes up.
However, if your staff become more productive (they make more items in the same time), your labour cost per unit goes down.

Example: If you pay a worker £10 an hour and they make 10 widgets, the labour cost per unit is £1. If they get better and make 20 widgets in that same hour, the labour cost per unit drops to £0.50!

Memory Aid: Think of this as the "Price Tag" of the person's time on every product.

5. Using Data for Decision Making and Planning

Businesses don't just calculate these numbers for fun; they use them to make big decisions. This is called HR Planning.

How managers use this data:

• Identifying Problems: If labour turnover is high in one specific department, a manager might investigate if that department's supervisor is being too strict.
• Setting Targets: A manager might set a goal to "Increase productivity by 5% by the end of the year."
• Budgeting: If labour costs as a percentage of turnover are too high, the business might decide to freeze recruitment or look for ways to automate jobs with technology.
• Comparing Performance: A business can compare its numbers to competitors to see if they are falling behind.

The Limitations (The "But..." part):

Don't worry if this seems like a lot of maths—in the exam, it's important to remember that numbers aren't everything.
• High productivity is great, but what if the quality of the product is bad because staff are rushing?
• Low labour costs are good for profit, but if you pay staff too little, they might leave (increasing labour turnover).
• Data is historical (it tells you what happened in the past), but it doesn't always predict the future.

Quick Summary Takeaway:
1. Labour Turnover: High = unhappy/expensive. Low = stable.
2. Labour Productivity: High = efficient. Low = wasteful.
3. Labour Cost per Unit: Lower is usually better for competitiveness.
4. Data: Great for spotting trends, but don't ignore the "human" side of HR!