Optimizing Human Capital Investment in Recessionary Times: Employing Human Capital Analytics
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Optimizing Human Capital Investment in Recessionary Times: Employing Human Capital Analytics

August 25, 2022 | Brief

A rise in part-time employment, declining job openings, lower attrition rates, and rising unemployment—these are classic human capital indicators that predict a recession. We haven’t seen any of these leading human capital indicators, yet economic indicators predict a recession is coming. 

Against this confusing backdrop of predictors, organizations need to understand how to optimize their human capital investment returns, regardless of economic conditions. This may sound like a foreign concept, especially to HR professionals who haven't traditionally been required to prove an economic return on their HR budgets. What this means for HR professionals is that they need to quantify the effectiveness and efficiency of their budget allocations both by program and in the aggregate. Our report Brave New World: Creating Long-Term Value through Human Capital Management and Disclosure highlights the many quantitative metrics HR can use to demonstrate return, including HCROI, HCVA, HCMV, and HEVA. How can HR professionals understand if their program choices are generating value? The answer: by employing human capital analytics.  

Our recent research, Accelerating Value by Using Human Capital Analytics to Understand the Workforce Experience, indicates three important benefits of integrating human capital analytics in HR decision-making:

  1. Improved human capital return on investment (HCROI) by close to 3X that of organizations that don’t base their HR policy and program decision-making on data-driven evidence. During a recession, it is critical that all functions contribute to economic value-creation, and nowhere can this be better leveraged than HR.
  2. Improved human capital efficiency by up to 15 percent. Especially during a recession, it is critical to ensure the optimum impact of every budget dollar. Using data analytics can mean the economic impact of every dollar spent on HR goes 15 percent further, generating more value and impact for the same investment.
  3. Enhanced profitability by up to 25 percent. Nothing will get the attention of your board and executive management more than profit improvements through reduced expenses. This is a critical area where HR can make economic contributions. Better decision-making related to what is typically an organization’s largest line-item expense can have game-changing financial results.  

Understanding the economics of human capital impact may be the most important way to address the coming recession and put your organization on a sustainable course.