Using P&L thinking to improve people management
So what is a people P&L
It’s a focusing of attention on the real cost of an organisation’s people. For any of you out there who employ staff I would like to ask you a question.
“Do your managers know the real cost of people to your organisation”?
Unless you are already operating a people P&L your answer will probably be no. The reality is that most managers in organisations we work with really can’t tell you anything about turnover other than what is contained in the board report from HR. If they don’t see the board report then chances are they have no idea at all.
So why do your managers need to know the real cost of their people? Well, let’s consider for a moment that you are just setting up your new business and you have £50k to invest in employing a sales person or administrator. You employ them and they leave 8 months later. Your board report would probably show that one person left the business and the cost is 8 months of salary. Wrong.
What you have actually invested is more along the lines of:
· Some of your time in interviewing candidates
· Some of your time on administering CVs and letters or phone calls
· The cost of agency fees or adverts used to attract candidates
· The 8 months salary costs for the individual
· The lost opportunity cost of not having someone in the role whilst re-recruiting
· The NI, holiday and sickness costs associated with employing staff
· The cost in time and reduced efficiency of training the new employee
If you add up the typical costs associated with each of the above and you will soon start to see your £50k being eaten away. Now multiply this by the number of starters and leavers you get in your business and the number starts to become very large indeed.
What is the impact of knowing this?
If you are a small organisation that employs less that 10-15 people then your turnover probably means the costs associated with the above are relatively small. They are, however, probably still a significant portion of your organisation’s investment. The key here is to use this information to help focus on getting the recruitment and management of your staff right and so reducing potential turnover and the associated costs.
If you are an organisation of 20+ people then the costs start to become much more significant. If you are running with your turnover on the high side then the associated costs can be very large. The biggest problem is not the associated costs it’s the lack of management awareness. If your managers don’t fully understand the commercial impact of this information then they can not be expected to act any different to normal.
So how do we use a People P&L
Ok so, when you do realise that using a People P&L makes good sense then you need to know how to put it in place. So that we are clear, our primary aim here is not to produce a small forest worth of stats and beat your managers over the head with them until they say the right things. Nor is it to spend countless hours analysing every bit of cost. This is a sure and fast way to turn people off to the whole concept. This is not a quick fix! The People P&L is as much about commercial education as it is about identifying true cost.
Right then, before you get all eager and start defining the measures you are going to put in place to create your People P&L you need to start letting your managers and your people know what you are planning to do. This is absolutely crucial, miss this out and you’ll start on the back foot with a mountain to climb. I kid you not, if you let people know in the right way, you’ll be halfway to success.
Getting the communication right
Before you tell everyone about your grand plan you need to be absolutely 110% convinced yourself. You need to know what objections you might get along the way and have the answers ready. You need to know the advantages and disadvantages in your head like you’ve always known them. If you believe it, you’ll be in a better position to convince others. Create a mix of communication routes. Use the list below as a guide to finding the right mix of media and develop a plan that carries communication from start to end. Keep communication going even when you think everyone is bought in and on-board.
· Communication Methods
· Manager briefing sessions
· Factsheets/Newsletters
· Company Intranet site
· Frequently Asked Questions information
· Video Comms
· SMS Messaging or WAP media
· Screensavers
· Posters
There is no substitute for face-to-face communication and this should always be your primary route, especially with something so business critical. Ok, time to move on.
Defining Your Measures
You are now ready to define the actual metrics for your People P&L. Your metrics should be the key areas that will tell you and your managers how well they are leading and managing the Human Resource aspect of their role. You can choose whatever metrics you like but you should bear something important in mind. Your people metrics are partly about understanding what financial impact getting the metrics right or wrong is having on your business and partly it is about improving the way in which people are managed in your business.
Your understanding of the financial impact alone is not worth anything unless you choose to do something with it. This is where the quality of your management teams will start to shine through……or not. Those managers who “get it” will start to use the People P&L to influence their actions in relation to their people. This in turn will see their People P&L results improve whilst at the same time making it a better place to work for staff. The result is an improvement in operating performance and a reduction in costs. Everyone wins.
I have outlined below some of the most common Human Capital Measures that can go into making your People P&L.
· Labour turnover
· Sickness & Absence
· Stability
· Retention
· Employee Satisfaction
· Internal Appointments
· Cost of recruitment
Can you spot the odd one out in the list above? It is Employee Satisfaction. It is the only one of the group that cannot be directly linked to a tangible financial value. However, when you consider how much influence your staff have over quality, efficiency and economy it makes great sense to measure how satisfied they feel with your business. I can guarantee you that if you get this metric going upwards your business will show evidence of improvements.
You should probably limit your People P&L to 4 or 5 metrics. Any more and you start to make it a cumbersome job to produce and distribute.
Along with your measures you need to define what is and isn’t acceptable i.e. if a department’s turnover is 25%, how do you define if that is ok or not? Something to be aware of here and I’ve experienced this before on more than one occasion. Some idealists decide that the goal for things like turnover should be 0%. It is perfectly acceptable an aspiration but it is highly likely that you’ll never achieve it. So once again, be realistic and set the goal so that it can be achieved within the year. The aim is to motivate managers to achieving the goal, not to depress and demotivate them with an aspirational goal that is not achievable. A little movement in the right direction will do wonders to build motivation and commitment. It is also interesting to note that some recent research showed that it takes up to 5 times more effort to remotivate people once you’ve switched them off so it makes sense to get it right first time.
Educating People
Ok, so we have let managers and staff know that this is going to happen and what the benefits are. We have also defined some measures. We now need to educate all of the managers who are going to be expected to do something with the People P&L. By educate, I mean that they need to understand what the measures are and how they are calculated. If there are inconsistencies in how a measure is calculated then your information will be wrong from the start. This is very feasible thing and so needs to be a key part of training managers.
For example – one manager classes turnover as everyone who leaves the department. Another manager classes turnover as those people who leave the business through a forced nature i.e. they were fired or made redundant etc. The second managers results will not take into account staff moving internally or choosing to leave of their own accord. It doesn’t matter which one is right or wrong, just that they are the same.
You also need to help your managers understand what they are expected to do if a measure is not improving. Now, a friend of mine one introduced me to the “sunshine method of management” for dealing with people when things go wrong. To demonstrate this he reached out and pulled me towards him by my suit jacket and said “now listen here sunshine”. Not a tactic I would ever recommend you try.
Your education of your managers should include training to understand the measures, tips and tools to help improve on them and how to recognise when things are not improving. Below is a list of different routes you could use to develop a programme of education. As before, try to use a mix of different methods.
· Classroom training sessions
· E-learning
· Shadowing expert users
· Training workbooks
· Drop in seminars/demonstrations
· Video-based demonstrations
· User manuals
· Roadshows
When you have a training plan in place, ensure you measure the level of people’s understanding against your expectation of where they should be once you’ve carried out the training. By doing this you can identify where extra support is needed for those who struggle with the concept.
Implementation
Right, if you have followed all the above stages you should be ready to begin operating your People P&L. I have said this a number of times and I make no apology, be realistic. Expect some teething problems as you go live. There is likely to be a hard core of people who will try and resist as well as the odd problem with the numbers, calculations and reporting methods. If you expect these to occur then you will be well prepared to take them in your stride.
We have talked here about the implementation of the People P&L, more from the people perspective than a systems and procedures one. You can, of course, improve the efficiency and consistency of your People P&L by automating the recording and production of reports. If you create a standard template for recording the data and a standard set of reports you will minimise problems through inconsistencies.