“Preparation is one of the foundations for success in any field.”
― Jonathan Garo Koomey

Performance management has always been one of the my favorite topics in HR sphere because it directly influences the business on the large scale. From pure HR perspective, performance management is usually seen through the lens of individual and business employee goals in a set period of time which will result in an increase of salary or position rank but I wanted to discuss here how the said performance management is seen purely through business lens. A business cannot succeed if the end numbers in revenue aren’t good enough, we know that, so we can try and turn the performance management system into a measured productivity with numbers correlated to revenue. It’s all about the ratio and difference between earnings and costs at the end of the day. If a company has an HR department which holds the strategic responsibility of calculating the end productivity, this is a good info for many HR professionals. But just how can we measure the performance management in numbers in relation to total earnings so we can see the costs for a particular employee are viable? Let’s try and dissect it.

Creation of KPIs

We have mentioned these in couple of different articles; a performance based management system cannot be structured without the key performance indicators of a particular job or a responsibility. Those indicators have to be able being measured in a productive sense so it directly correlates to end productivity. This is easier said than done because there is no end all be all solution to this. Many different types of industries as well as jobs or job responsibilities have difficulties putting tasks into numbers but a system complementing the productivity has to be created in order to make sense for the end product or service cost. In business perspective, a KPI or a set of KPIs should tell HR professionals or line managers whether the employee in question is a justified cost in contrast to what that employee delivers as an end productivity result. Essentially, it tells us if that employee is a good investment or something has to be done to still to make it a good investment; in other words up the performance. Lack of structure or something akin to a KPI system can prove difficult to track the overall numbers which is obviously quite important for the financial statements in business.

Performance through hours worked

As everything through business lens is turned to numbers, the same goes for performance in general, regardless if it’s positive/negative or increased/decreased in value. Calculation of hours worked is important because hours can either be productive or not; when employees are absent, for example, those aren’t productive but still represent a cost, either through annual leave or sick leave costs. This is much more accurate and viable with blue-collar than white and/or when the salary is paid by the hour rather than a fixed monthly salary; not to say it isn’t approachable both ways. Another factor with performance is the overtime which can present quite a heavy load on the additional costs if it offsets the value of end productivity. The end result of any product or service should yield some amount of profit to be regarded as most successful. If the labor costs outweigh even remotely productivity or a portion of it (depending on the system/company), something is amiss. As with the KPI system, it’s always beneficial to have some sort of reporting activity in regards to hours worked so you can clearly see or follow labor costs in general.

Lack of performance management system

Can a company run the business without the said system in place? A short answer is yes albeit a bit skeptical. The financial picture at the end of it all cannot be precise if the aforementioned reporting isn’t used or in place; surprisingly, many small companies don’t run any kind of analytical reporting to give them the exact information which is viable but instead ballpark around it. Hidden costs then aren’t really hidden by the exact meaning of the word; you know you’re losing money somewhere because you don’t follow the trail. The finance or accountancy department can give the full picture though never in any practical analytics but only in financial statements which is difficult to follow or read in fast-paced environment or in laymen terms.

Takeaway

HR perspective is always looking at performance management through the scope of individual development and basic salary change but if those lens divert to more business-like lens, performance becomes numbers which translate very quickly into a company’s financial state. HR is always acting like a support to any business and merging human capital to product or service is inevitable for said financial success. Dissecting those topics into smaller parameters followed by the KPI system or worked hours can quickly give one a company picture of their health, sort of like an MRI. There’s no downside to this, any remotely structured company has this in place and if it doesn’t, it should.