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Making The Business Case for a Learning Program

Feb 21, 20186

About Human Capital Management Institute

Background: Full service analytics/planning

Created Human Capital Financial Statements

Over 50 years of experience

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What We Do: Quantify, predict, optimize the workforce

Link HR data to business impact $$$

Software tools, training and consulting

Workforce Planning Predictive Analytics TrainingHuman Capital Reporting Workforce Productivity

Vision: Human Capital data as key to business decisions as financial data is today

We Bring Financial Discipline, Standards and Rigor to the HR Function

Have You Found Your Analytics Pot of Gold?

Human Capital Metrics Handbook

Analytic Engagement Projects

HR Roadmap Design

Training and Advisory Support• Workforce Analytics Training• Workforce Planning Training• Custom onsite training

HCMI Products & Services

© Human Capital Management Institute 3

Statistical Sales Predictor

620+ Metrics and Detailed Definitions

Workforce Capability Assessment

Factors Leading to Increased Turnover

Job Title or Position

With Compensation

w Turnover Manager

Commute Distance

Driver #3

Driver #2

Driver #1

.50

.33

.27

.02

Low Turnover Impact

High Turnover Impact

Some Turnover Impact

.11

Work Location

obs in Last 3 Years .70

h Employee Referral .19

Data Integration Blueprint

Initial Reports & Analysis

Data Gathering

First Good Metrics

HR Data WarehouseDrill-down, standard reports

Scenario Analysis

External Benchmarking

Context for decisions

Data Driven Decision

Making!

Turnover, Headcount, Hiring

HRIS system data

COE Formation

Data Errors

HR Analytics Mandate

HR Standards EstablishedLost HR

Credibility

HR data/systems Assessed

HR Data Cleansed historical data scrubbed

Bus. Units Reject

Analysis

Data Errors Historical data

still bad

1st Analytics Study

Advanced Analytic Studies

HR Analysis Validated

Integrated HR Databases

COE Launches Training Courses

Bus. Units Demand

more

Analytics journey steps

Setbacks along the way

Journey path and goal

CONSULTING SERVICES

DASHBOARDSPRO

TECHNOLOGY SOLUTIONS

Human Capital Financial Statements• Monitor Human Capital Condition• Track Total Cost of Workforce and

Identify Cost Saving Opportunity

Workforce Quantifier™ ROI Calculator• Calculate the Return of Your Human

Capital Investment• Evaluate Your Potential Investments

Workforce Planning• Identify Future Workforce Demand and

Supply• Forecast Skills, Costs, and Productivity

Job Framework Mapping• Standardize HR Database• Segment Data the Way You Want

Span of Control Optimizer™ Tool• Optimize Management Layers to

Improve Productivity

Career Path Quantifier• Quantify Your Cost Savings from Career

Path Planning• Determine Whether You Should Build,

Buy or Lease Talents

Integrated Dashboard

Advanced Tools

Metrics

Data Blueprint

Predictive Modeling

TRAINING & SUPPORT

Where are we today?

© Human Capital Management Institute 4

86%

HR

corporateNo reporting on human capital

standardsNo for talent, aka human capital reporting

reporting on what HR cares about

of companies report only hires, terminations andstaff level

The Most Important Asset in your Business

• What is this Missing Asset?

© Human Capital Management Institute 5

– What CEOs most often state as their most valuable asset– Represents the single largest expense for most organizations

Human Capital

• Human Capital is very broad, What Truly is Missing?– The ability to show Human Capital as a value-add (i.e. $$$ positive impact)

• Must be easily understood, yet give deep insight (what, where, when, why, how, who)

• What if Human Capital could be quantified, its value shown in the form of workforce productivity and return on people?

– What CEO doesn’t want to know the productivity of their workforce?– Would workforce productivity predict future business success?

NoneOh Yes!

A Few Facts about Learning

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From a Business Perspective

• Those with the best business case win!

• Learning/Training is the largest portion of HR related spending at 4-5% of payroll* or $1,273 per FTE. Translation; HR has a lot, maybe we should cut the budget

• In many organizations, there is a battle for control of L&D training budget $$$. Translation; If L&D can masters business case, they keep + grow their budget

*Source: ATD 2016-2017 State of Learning Industry Report

So What is Stopping HR and L&D?Finance and Leaders. Why Don’t they see our Value?

• They (Finance) just don’t get it• They see people as numbers• They say ‘No’ to every HR project• Training is critical to our business• Talent is key long term success• We need to invest in talent

• They (HR) just don’t get it• Warm and fuzzy doesn’t pay the bills• HR can’t show a real business case• Training is critical to our business• Talent is key long term success• We need to invest in talent (we just don’t

know how much)

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What HR Thinks What Finance Thinks

The Real Issue: HR and Finance speak fundamentally different Languages

So we just need to teach Finance to speak HR, Right?

Okay, so now what?

Wrong!

Make a good business case argument and the money will flow

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• We know training adds to the bottom line thru lower turnover and higher engagement

• If you increase our L&D budget, we can deliver more training for less money

• Adding a leadership development program, we can fill more positions internally at lower cost and reduce turnover by 1%-5%

• Our engagement survey shows employees highly value training, With 10% more training budget we can increase engagement further

• Technical training improved retention last year in operations by 25% supporting a 10% output gain in operations last year

No

No

Yes

Quiz: Which is a Good Business Case?

Close

Close

Where to Start a Business Case for Learning

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Source: The HR Value Chian Morten Kamp Andersen 2017

Questions L&D Should be Asking the Business

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1. What is the ROI of our training investment in the workforce?

2. Which training programs impact productivity and if so how much?

3. Are learning programs directed optimally to the most critical roles? Which roles need more training? Sales? Operations? Leaders?

4. Is it better to build, buy or rent talent?

5. Does learning correlate to retention, higher engagement and career growth?

6. Are leaders effectively managing human capital? Do leaders correlate to employee engagement, retention and performance?

Components of a Business CaseWhat to Include

1. Compelling Questions (or problem statement)– Key questions linking to business imperative (i.e. growth)

2. Objective Facts and Data (ideally 2-3 year trend)– Current state assessment, quantitative analysis, key metrics

3. Powerful Visuals Charts– Charts with insights, that tell a story and, drive action

4. ROI Cost Benefit i.e. Business Impact– The Cost savings range is $1.0 to $3.0 million

5. Qualitative Story Telling (opportunity or future vision)– “Two of our Top 3 salespeople came from other industries”

6. Risk Analysis “What if we do nothing”– Engagement drops, turnover rate climbs growth slows

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Linking Business Strategy to Metrics

Linking Business Strategy to Metrics that Drive HR Action

Return on Invested Capital

Sales Growth

Customer Service

Excellence

Build Workforce

Talent & Skills

Raise Workforce Productivity

Control Workforce Cost

Raise Workforce Productivity

Engage/Retain Talent

Build Talent Pipeline

Business Strategy

Workforce Strategy

KPI Metrics

Total Cost of Workforce (% of Revenue)

Revenue/Profit per FTE

Management Span of Control

High Performer Turnover Rate

Employee engagement scores (NPS)

Customer satisfaction Scores

Customer up-sell rates

Customer service training KPIs

(NPS = Employee Net Promoter Score)

Internal Hire Rate

HR Strategy & HR Activities

Training for Service Excellence

Training to build internal talent in

Key Roles

Customize pay based on Service +

Job Criticality

Recruiting for Top Talent Internally and Externally

© Human Capital Management Institute

Customer Service Focus

Talent Management, Performance,

Potential

Human Capital ROI Ratio

Return on Human Capital Investment

Quality of Hire Index

#5 Use Metrics and ROI = SHOW ME THE MONEY!

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• 15% productivity gain and lower costs ($55.0 Billion Package Delivery Co. )

• Predicting sales stars pre hire {$1.0 Billion Bank}

• ROI of sales training {$2.0 Billion Retail Co.}

• Location optimization for talent growth { West Coast Regional Bank}

• Employee engagement to revenue impact {$1.0 Billion public Airline}

• 40% voluntary turnover reduction {public, financial services co.}

• ROI of internal vs. external hires {public bank}

$1.1 Billion Annual

$264 Million Annual$1.1 million per sales person

$250 Million Annual $250k per Salesperson

$200 Million 10 years

$96 Million Annual $5 per flight premium

$12 Million Annual majority sales + operations positions

$6 Million Annual

Components of a Business Case

1. A Business Need or Imperative “Why”– A defined problem/opportunity or question(s) to be answered

2. Quantitative Analysis “What”– Current state assessment– Alternatives Evaluated, (be sure to include do nothing)– Cost Benefit Analysis or ROI “What do we get”

3. Risks– List key risks what we miss out on (address “What if we do nothing”)

4. Timing, Resources, Process– “When”, include roadmap or project plan (must have 90 day deliverables)– “How”, the process to be used (e.g. GE’s six sigma process)– “Who”, document who will do it (champion, oversight, partners)

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Case Study: Quantifying a Career PathA Business Case for Building Employees through L&D

Staff Accountant

Mgr., Accounting

Dir., Accounting

Accountant

Sr. Accountant

CAGR: Compound Annual Growth Rate

Accounting Job Family Career Salary Progression

$46,400

$49,600

$59,800

$67,000

$79,100

$94,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

0 1 2 3 4 5 6 7 8 9 10 10+Years of Experience

Bas

e Sa

lary

Staff Accountant

Accountant

Sr. Accountant

Mgr., Accounting

Dir., Accounting

Ave Annual Rate

Market Rates(50%-75%ile)

CAGR = 10.0%$130,000

CAGR = 6.6%

Entry level Staff Accountant hired at 50%ile needs annual

salary growth of 10.0% to stay with market

(Assumes mkt growth of 3% annually w progression to . Director in 10

years.)

50th %ile

Insights:Ten-year cost savings is the area between the cost of External Hires compared to the career path of an Internal Staff Accountant.

Note: Make sure to select the period which will provide the most accurate forecast. In some cases, a run rate based on the current or last year is optimal, but in others an average of several years or a custom time period is best to use.

© Human Capital Management Institute

Average Annual Rate

External Market Rate

Internal Salary Ranges

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L&D business case for career path training $

Example: Business Case Executive Summary

XYZ Retail Company Learning Imperative:• Learning enables ongoing career growth

- Training improves service skills driving customer satisfaction and retention

• Competitors are already using “Learning analytics” and gaining marketshare• Delaying leaves money on the table, risks others gaining advantage

- Are we okay at 40th Percentile vs. Best in Class (e.g. Starbucks, Google, Zappos)

Learning Investment Benefits for Customer Facing Staff • Employees value training. Turnover is 50% lower after service skills training • Enhanced training drives higher customer satisfaction scores (3%) and same store sales• Store employees getting 4 hours/month training have 20% higher engagement scores• 20% higher engagement scores correlate to 10% customer satisfaction gains + 3% sales

Key Risks:• If we do nothing things will only get worse (i.e. Sears)• Turnover is already impacting growth and service level• Stores with lower training have higher leadership failure rates• Customer Satisfaction and service levels are inconsistent

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Training Effectiveness Linkage AnalysisNational Cancer Institute

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Workforce Analytics Methodology:HCMI integrated Academy training data with overall NCI workforce data from 2009 through 2014 to build acomprehensive data model for analysis. Comparing Academy Alumni to Non-Alumni, as well as the overallNCI population, post-training impact was evaluated primarily on the following workforce measures:

Project Deliverables:

Project Background:HCMI was engaged by NCI to complete a detailed analysis on the linkage of leadership developmenttraining on employee outcomes, and answer the questions: Does training matter, if so how much, andwhat is the impact or ROI of training?

• Performance Ratings• Promotions• Turnover and Retention • Awards

• Comprehensive data model and documentation• financial linkage and quantifiable ROI• Insights and recommendations

Case Studies

1.5%

2.3%

3.8%

2.8% 3.1% 3.2%

4.7%

5.7% 6.0% 6.3%

5.0% 4.7%

0%

1%

2%

3%

4%

5%

6%

7%

2009 2010 2011 2012 2013 2014

Alumni Non-Alumni

Retention and Managed PromotionsNational Cancer Institute

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15.5%13.8%

10.3% 9.5% 10.0% 10.6%

5.8% 5.6%3.5%

5.2% 5.0%4.1%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2009 2010 2011 2012 2013 2014

Alumni Supervisors Non-Alumni Supervisors

Managed Promotion RateTurnover Rate

Method Variable 2009 2010 2011 2012 2013 2014Chi Square Turnover Rate .037** .093* .085* .008*** .066* .093*

T-Test Managed Promotion Rate .0015*** .025** .0035*** .0095*** .009*** <.001***

Note: Impact of training on turnover rate and managed promotion rate is statistically significant based on the p-value. The probability of the observed effect happened by chance is less than 0.1%.

Case Studies

© Human Capital Management Institute

Academy Alumni are more than twice as likely to be retained than Non-Alumni.

Alumni Supervisors are more successful at creating opportunities for career growth than Non-Alumni Supervisors, having more than double the rate of managed promotions.

$0.7

$0.9

$1.1$1.2

$1.3

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

ROI of Internal HiresNational Cancer Institute

Projected ROI of doubling the number of positions filled with internal hires over the next five years is approximately $5.7 Million, between $0.7 and $1.3 Million per year.

Between 2009 and 2014, roughly 10% of positions were filled with internal hires, costing $3,700 less per position than their external hire counterparts.

Five-Year Forecast

Sala

ry C

ost S

avin

gs (M

illio

ns)

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Case Studies

© Human Capital Management Institute

Projected Replacement CostsNational Cancer Institute

Replacement costs peaked in 2012, but are projected to increase to a similar level by 2019.

$6.5$7.2

$7.8

$5.9$5.5

$6.6 $6.8 $7.0 $7.2 $7.4

$-

$1

$2

$3

$4

$5

$6

$7

$8

$9

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

TITLE 42 Replacement Costs TITLE 5 Replacement Costs Projected Replacement Costs

Repl

acem

ent C

osts

(Mill

ions

)

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Case Studies

© Human Capital Management Institute

Academy Program ROINational Cancer Institute

Based on historical 15% growth in training participation, projected ROI is between $3.2 and $4.2 Million annually.

-$0.51 -$0.54 -$0.56 -$0.59 -$0.62

$1.1 $1.3 $1.4 $1.5 $1.7

$2.6 $2.7 $2.8 $3.0 $3.1$3.2 $3.4 $3.6 $3.9

$4.2

-$1

$0

$1

$2

$3

$4

$5

2015 2016 2017 2018 2019Academy Training Costs Hard Cost Savings Soft Cost Savings Academy ROI

Recruiting Cost Savings:- Includes transaction processing and general recruiting costs (estimated).

Workforce Cost Savings:- Includes replacement hire salary cost differential, replacement hire

recruiting time (hours), vacation payout and severance costs (estimated) and benefits continuation (estimated), less open position salary savings.

© Human Capital Management Institute 21

Case Studies

< 3 Months 3 - 6 Months 6 - 12 Months 12 - 24 Months 24 - 36 Months 36+ Months

Empl

oyee

Sal

es P

rodu

ctio

n

Employee Tenure

Annual Difference Between All and No Courses No Courses Some Courses All Courses

High

Case Study: Training and Sales PerformanceImperial Retail Corp

Average

Low

Insights:Job shadowing training by the sales manager significantly increases annual employee sales production, on average by $250,000.

For the remaining salesforce, the ROI of training is $180 - $250 Million annually.

70% of EEs

10% of EEs

20% of EEs

R2 = .63

© Human Capital Management Institute 22

Contact Information:

Human Capital Management Institute

Jeff Higgins, CEOjeff.higgins@hcminst.com

For more information on products and services:www.hcminst.com

SOLVE Software Human Capital Training andFinancial Statements Consulting

Human Capital Workforce Data WorkforceMetrics Handbook Integration “Blueprint” Planning

Workforce Intelligence Consortium Group @HCMI

© Human Capital Management Institute 23

Why Human Capital Planning or Reporting?

• What gets measured gets managed. No wonder human capital is treated as a cost to be minimized

• Dow Jones Sustainability Index adopted Human Capital ROI Ratio in 2014 (over 900 companies submitted for 2014)

• July 2017, HCM Institutional Investor Group formal SEC petition is accepted, requesting formal human capital disclosure rules for US public listed companies (UNPRI, NAPF, HCM) https://www.sec.gov/rules/petitions.shtml under File No. 4-711

• 2018, ISO TC260 working group (WG-7), led by Germany, releases a Human Capital Reporting standard

© Human Capital Management Institute 24

Dow Jones Sustainability Index (DJSI)

Introduction

Workforce, The ultimate unvalued intangible asset NAPF National Association of Pension Funds

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Human Capital Disclosure Statement

© Human Capital Management Institute

A B

C

A. Human Capital Impact• Integrates Financial and People Metrics• Shows Return on People & workforce productivity

B. Human Capital Flow • Employee + contingent workforce (hires, terms, internal hires)

C. Human Capital Cost• Breakdown Total cost of workforce (TCOW) • Breakdown of HR & training investments

D. Management Discussion • Explanation of significant workforce changes and talent strategy

Stories of changes in talent performance metrics and strategic directionD

Prior Year Current Year % ChgRevenueNet Operating Revenue 1,400,000,000$ 1,540,000,000$ 10.0%Total Headcount (FTE) 15,000 16,400 9.3%Revenue per FTE 93,333$ 93,902$ 0.6%

CostsTotal Operating Expenses* 1,170,000,000$ 1,285,000,000$ 9.8% Total Cost of Workforce (TCOW) 779,950,000$ 861,000,000$ 10.4% TCOW per FTE 51,997$ 52,500$ 1.0% TCOW % of Revenue 55.7% 55.9% 0.4%

ProfitNet Operating Profit 143,750,000$ 159,375,000$ 10.9% Profit per FTE 9,583$ 9,718$ 1.4%

Workforce Productivity Hunan Capital ROI Ratio 1.29 1.30 0.1% Return on Human Capital Investment 18.4% 18.5% 0.4%

Human Capital ROI per FTE 15,333$ 15,549$ 1.4%

Total Cost of Workforce (TCOW) increasing more than Revenue

TCOW was up year-over-year 10.4% above the 10.0% Revenue increase,

negatively affecting workforce productivity.

Workforce ProductivityBoth workforce productivity metrics

improved, however the rate of growth is minimal and well below the 3% productivity gains of competitors.

Profit per FTEOperating Profit increased 10.9%, and profit per FTE 1.4%, partly offsetting the negative impact of higher TCOW. Further profit gains vs. peers seem

unsustainable without further productivity gains.

Revenue per FTE is upRevenue increased 10.0% while

headcount increased 9.3%, resulting in a revenue per FTE increase of .6%

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A. Human Capital Impact

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B. Human Capital Flow

© Human Capital Management Institute

Increases in Support StaffWhat is driving increased support

staff? Is this why TCOW is increasing faster than revenue?

Contingent Workforce Is contingent workforce a feeder group for critical roles? A low cost workforce strategy or a gap filler? How does contingent

workforce fit in the strategic company direction?

Management Internal Hire Rate75 Internal Staff were promoted into mgmt however 115 were hired externally or only

39% of internal staff was considered ready for management

Critical Job Roles - SalesWhile 860 sales people were

hired, (450) departed. Why? Are they high or low performers, new hires or veterans? Co. Growth and success is heavily reliant on this

group.

Buy Build

Rent

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C. Human Capital Cost

© Human Capital Management Institute

Absence Lost Days and CostThese costs are increasing rapidly, was this due

to one time events or longer term trends?

Benefit Costs The largest rapidly rising cost is benefit costs for employees. What is the plan to

better manage these costs? How does the organization compare to peers in this area?

Are Training & Development costs aligned with the company growth strategy? Is the organization “Building, Buying or Renting” its

best current and future talent?

Total Cost of Workforce is increasing as a higher rate than revenue, a long term predictor of declining workforce productivity. How will

the company better manage these costs as they execute on their growth plans?

Appendix

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Introduction to Productivity

© Human Capital Management Institute