People analytics – using statistical approaches to derive insights from employee data to manage talent – has gotten much traction in recent years. According to Harvard Business Review, more than 70% of companies now say they consider people analytics to be a high priority. The benefits of people analytics have traditionally been associated with gathering straightforward information, such as average year on year turnover rates or snapshots of department headcounts over the years.
There is no doubt much value that people analytics can bring beyond mere reporting of key HR metrics. This includes capitalising on analytics capabilities to manage talent, make evidence-based people decisions and even optimise human capital costs. However, the fact is that most organisations still face critical obstacles in the early stages of building their internal people analytics capabilities, preventing real progress. Many organisations are still cleaning up and centralising their HR data. While the majority of organisations have taken a step towards investing in HR technologies, most organisations would agree that there is still a long way to go. According to PwC’s HR Tech Survey 2022, over a quarter (36% – 39%) organisations have cited that HR insights/data analytics and modernization of HR systems is one of the key HR challenges that they face today.
While the majority of organisations are still taking baby steps when it comes to people analytics, this should not stop organisations from learning how to be great at it. Particularly when labour costs are the biggest expense in the organisation, it becomes even more imperative to capitalise on people analytics to optimise labour costs.
Here are some steps in which organisations can use data and people analytics to optimise labour costs.
Ensure an accurate HR budget forecast to staff against
It is first critical to understand the number of employees required in the organisation and across departments or teams. The more accurate the number, the easier it would be to align it against the HR budget. Consider looking at historical patterns such as the past three to five years. It also helps to layer in other events that may influence headcount movements, such as corporate mergers and acquisitions or change in leadership. These approaches would help organisations in forecasting labour costs more accurately.
Identify unnecessary costs in your labour plan
There are bound to be times where employees are working beyond what is required of them or simply finding loopholes in the overtime pay arrangement. Review employees’ overtime schedule to ensure that they are working within the legally stipulated number of hours. For organisations that have a larger proportion of shift workers, it may be helpful to roll the shift change, which minimises the number of people that overlap during the same shift. Monitor lull periods where the workload is expected to decrease, for example during the start of the month, and reduce the number of employees accordingly.
Ensure the right number of resources for the right type of activity
It is important to ensure that all business operations are covered with the right number of employees. What is even more important is the correct number of employees for each task. For example, it is not feasible to have five sales managers in the Sales Department but with only two sales executives to support the groundwork and paperwork. The typical approach would be to conduct a span of control analysis to determine the optimal number of subordinates per manager and per department.
Identify the best and worst performers and factor that into the labour plan
Business leaders tend to assume that a labour plan is only about the number of headcount per task or per department. However, it is also critical to think about the quality of these employees. A star performer may get more work done compared to two novices. Pair new hires with senior and experienced employees to help them learn the ropes and get up to speed quickly. At the same time, it may be helpful to consider interpersonal dynamics and individual expertise. An ideal scenario would be to pair employees with diverse expertise and work well together on similar projects.
Measure the effectiveness of training and onboarding
Learning and development is often overlooked when it comes to people analytics. However, it can be extremely informative. For example, measuring training metrics such as number of errors can reflect the effectiveness of the training programme. Similarly, onboarding time can provide insights on how training is progressing. These help business leaders to determine if employees are operating at maximum efficiency and within labour costs.