Selection and Measurement of Hotel Human Resource Metrics
By Robert M. O'Halloran, Professor and Director, School of Hospitality Leadership, East Carolina University
In a world of assessment and evaluation, the questions are clearly, who, what and how are operations measured for success and what data are needed to make the optimal decisions in a business? There's a business saying "if you can't measure it, you can't manage it"? Real responsive management needs reliable and truthful figures on which decisions can be made (profitablehospitality.com, 2016).
What are Metrics?
A metric is a standard of measurement by which efficiency, performance, progress, or quality of a plan, process, or product can be assessed (Business Dictionary, 2016). In the hotel world there are numerous examples of data and or metrics that lodging operators use or can use to make decisions on a daily basis. Most hotels use performance indices such as occupancy, average daily rate, revenues per occupied room, revenues per available room (REVPAR), and segment share, such as mix of demand for commercial, group and tourist or leisure businesses. STR, the industry leading source of lodging metrics provides operators across the country with metrics to assist in decision making. The STR Share Center (STR, 2016) provides hotel managers and operators with performance data, (occupancy and ADR), profit and loss data (accounting), pipeline data (under construction), census data (hotel attributes) forecast information property and room counts, sales transaction data, hotel company statistics, and industry reference information (Share Center, 2016).
Hotel operators use these data to make the best decisions they can for their businesses. If we specifically focus on human resources, what are the metrics and measures one would want to use to assess if a hotel's or hospitality business's human resource practices are efficient? As we know not all hotels are the same or even similar in size and service hotels might make different selections and decisions for which metrics they want to measure and use. HR metrics are a vital way to quantify the cost and the impact of employee programs and HR processes measure the success (or failure) of HR initiatives. A metric is an accountability tool that enables the assessment of a function's results (Dulebohn & Johnson, 2013). Metrics enable a company to track year-to year-trends and changes in these critical variables (Wikipedia, 2016).
The task, as a hotel human resources manager is to assemble the metrics needed for your property. These metrics will enable HR personnel to communicate with hotel decision makers in a fashion somewhat similar to the hotel metrics discussed above. The question is, what are the metrics for each HR function? In that effort, the following is a brief outline of a sample of HR topics and functions:
Typical Human Resource Functions:
- Career Planning
- Conflict management
- Diversity management
- Job matching
- Setting Career Objectives
- Setting KSA's needs for a job
- Orientation/ on boarding
Review of this outline highlights some of the difficulty one could have measuring some of these functions. For example, how does one measure the effectiveness of a training program? As educators, we face similar issues. For example, some might argue that if students pass a test, then the instruction was effective. This may be true but what if everyone in a class failed a test? Does that mean the instructor (or trainer in business) did not do his or her job? Measuring the effectiveness of a training program requires more specific measures than a test. For example, some Key Performance Indicators (KPI) for Staffing and Employment (profitablehospitality.com, 2016) include a variety of metrics, including:
- Wage cost %: wages as a percentage of sales
- Total labor cost %: plus insurance, benefits retirement, taxes etc.
- Total labor hours
- Sick days taken
- Labor turnover
- Average length of employment
- Average hourly pay
For a hotel human resource manager, the task is to select measurements that will allow consistent and useful measures. Following up on the measures above, the questions revolve around "What do they mean?" Labor or wage cost is important to monitor but what does it mean if the cost percentage is higher than budgeted? What does tracking Average Length of Employment tell the management team? Metrics need to be useful to human resource decision makers. For example, Boyd and Gessner (2013) shared sample human resources metrics that could measure given functional categories:
- Recruitment: job vacancy rate time to hire, type of hire, source of hire -workforce success of attracting talent.
- Engagement: number of grievances, number of referrals HR functions and workplace costs.
- Operations: salaries, wages and benefits as a percentage of budget, revenue per employee- job matching.
- Retention: total and voluntary turnover, top voluntary turnover reasons, retention rate for top performers- HR practices.
- Demographics: number of employees, full and part time, diversity categories, gender.
- Development: training type(s), training cost, promotions. Each of these can be measured and then used as efficiency measures to support the hotels goals and objectives. Human resources has never been considered a revenue department and therefore must be conscious of cost and their contributions to a hotel's efficiency. The objective for human resource departments is for them to build a business case for their work and therefore contribute to an increased partnership between HR and the broader business (Dulebohn & Johnson, 2013). They also suggested HR metrics by level as indicated below.
First Level HR Metrics- Efficiency
- Cost per hire
- Employer sponsored health plan cost per employee
- HR expense per employee
- Yield ratios: number of applicants per recruiting source
Second Level HR Metrics
- Human capital - measuring the value of an employee
- Expense factor - operating expense / total Full Time Equivalent (FTE)
- Profit per employee (Revenue - Operating Expense / Total FTE
- Labor cost factor; compensation + benefits costs/ FTE
- Human capital value added revenue: operating expenses - (compensation + benefits) / FTE
Third Level HR Effectiveness (HR Practices and Programs)
- Firm salary / competitor salary ratio
- Number and quality of cross functional teams
- Progression of employees through development plans
- Percentage of total salary at risk
SHRM (2014) also stressed that the determination of which metrics to use and measure will be based on an organizations goals and objectives. A hotel human resource manager will be a member of the hotels leadership team and will be familiar with the hotel's goals and then should select HR Metrics that are connected to these goals. Each metric selected should be defined by calculation and intended use. Subsequently, the human resource manager must address how that metric data will be collected. This process is very similar to a research plan that defines the goals and objectives and then the methods that will be used to collect the data.
Campos, Vale and Alturas (2008) also recommended metrics for human resources for multiple human resources functions in a business:
- Recruitment metrics: recruitment rates, rehire rates, transfer rates, promotion rates,
- Retention metrics: turnover, employee engagement, cost of turnover,
- Capability metrics: education levels, ROI for training, performance pay differential,
- Compensation metrics: benefits satisfaction, average annual salary per FTE,
- Environment metrics: absentee rate, external complaints, lost time, incident rate,
- Human Resource Service Delivery: service levels, staffing breakdown,
- Workforce metrics: age, staffing rate-part time, average workforce tenure,
- Organizational Effectiveness Metrics: productivity rate, research and development expense rate.
As noted above, human resource departments have a wide spectrum of possible measures to create and or select. It is also noted that, in the decision to select metrics (and therefore needed data) timing of data collection is also important. How often will data be collected and reported and/ or are some metrics collected daily? For example, for food and beverage operations, measurement of food cost is daily. However, there are no "rules" or exact standards for what a proper food cost should be. Budgeted food cost should be relative to the menu and the standard recipes of the operation. Diverting from standard recipes can influence a food cost percentage either higher or lower. Typically, the food cost reported is for a specified period of time. So, for a human resources function, recruiting and hiring for example, what happens if the job description and qualifications are ignored and/or interpreted differently by different people? Is employee success and productivity for the hotel compromised?
Metrics should be thought of as mini-case studies, again asking, "What does it mean" for the operation? If staff are calling in sick at a higher than average rate, are there work place issues? Ultimately decisions will need to be made from these data and human resource managers will be able to justify those decision based on the metrics being utilized. Measurement requires that there are processes in place to collect, analyze and handle these metrics. Handling human resources indicators / metrics is a recent process and is still maturing. Especially in human resources it involves measuring unreachable factors such as knowledge, and acquired competencies, employee satisfaction and level of commitment to the organization (Campos, Vale and Alturas, 2008).
As previously stated the decisions of which metrics to select for a human resource manager need to connect to a hotel's goals and objectives. Human resources deal in human capital (often thought of as assets to an organization) which is very important because it is a potential source of innovation and strategic renewal for an organization (Campos, Vale and Alturas, 2008). Human resource managers need to consider Which metrics? What are the data collection processes to be used? And, How will the data be analyzed and handled?
Review of hotel industry human resource practices indicates the integration of technology into many aspects of human resource functions. For example, job matching technology can read resumes and qualification and select candidates that best suit a position based on the knowledge, skills and abilities and any other qualifications specified by the employer. The introduction of technology into a work flow also suggests easy access to data and a possible metric data source. Human resources managers and a hotel organization can conduct a cost benefit analysis for these types of technology systems and consider multiple metrics in the recruitment and selection processes (labor hours per hire, success of new hire (longevity with the organization etc., turnover rates etc.)
An additional consideration is the use of a balanced score card for performance and or the creation of a hotel human resources dashboard. One of the most recent developments in macro-level performance, metrics involve the use of human resource scorecards. Based on Kaplan and Norton's (1992) balanced scorecard framework (financial, customer, internal operational, and learning growth criteria), the human resource scorecard is a way of measuring the performance of people in an organization, (Boyd and Gessner, 2013). The purpose of the dashboard is to create a group of indicators that will allow an adequate analysis of the organization to ease human capital management. A basic review of this topic can be found at http://balancedscorecard.org/Resources/About-the-Balanced-Scorecard. The scorecard method can help organize a hotel's human resource metrics by looking at various criterion and the metrics.
This discussion suggests the formalization of human resource metrics in a lodging property as an effort to optimize decisions, cut costs and support the goal of the hotel's leadership. Many of the larger lodging operations, brands etc. have already adopted and implemented some of these metrics and processes in human resources. However, there are smaller properties without corporate assistance that will need to align their human resource processes in accordance with defined metrics to better compete for the highest quality candidates.
Finally, there is much discussion of the use of metrics and their value. Due to the multiple criterion and considerations required when selecting, analyzing and handling metrics, some managers and some employees do not feel that these metrics represent their work place performance. Despite this feeling of "non-representation" it is clear the trend is to use metrics in and across businesses. Thoughtful selection of metrics, with input from employee and managers will yield an optimal metrics scenario for a human resource departments.
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Robert M. O’Halloran is a professor and is currently the Director of the School of Hospitality Leadership at East Carolina University. He was previously Director of the Kemmons Wilson School of Hospitality and Resort Management at the University of Memphis. He has also served in faculty and administrative positions at the State University of New York at Plattsburgh, the University of Denver, Michigan State University and Central Michigan University. Professor O’Halloran teaches courses in planning and development, financial feasibility and food and beverage operations. He is also an instructor for the Certified Hospitality Educator (CHE) program offered through the Educational Institute of the American Hotel & Lodging Association. Mr. O'Halloran can be contacted at 252-737-1604 or firstname.lastname@example.org Please visit http://www.ecu.edu for more information. Extended Bio...
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