Measuring human capital involves looking at factors like turnover, recruitment, and training costs, as well as productivity and revenue generation. However, calculating an average revenue per employee can be misleading due to external factors. Staff absenteeism and turnover also impact human capital, as does the efficiency of the human resources department.
Human capital can be difficult to measure as it involves a variety of intangibles, including education and skills development. There are a variety of variables that can affect whether individuals actually use the knowledge, skills and experience they have accumulated. Companies trying to measure human capital typically look at a number of factors that can be quantified, including turnover, recruiting, salary and wages as a percentage of total revenue, training costs, and human resources department costs.
A company can measure human capital in terms of overall production efficiency and revenue generation. One way to isolate the effectiveness of a company’s staff is to determine the amount of revenue a full-time employee contributes to the company. This is done by simply dividing the company’s total revenue figure by the number of full-time employees. The danger is that the calculation only returns an average, as some employees undoubtedly contribute more to the bottom line than others.
An additional disadvantage of taking an average amount of revenue produced per full-time employee is that the revenue can be affected by conditions that are beyond the employees’ control. Things like a bad macroeconomic environment pose a challenge for any sales team, regardless of skill level. Furthermore, the way in which a job is designed can also make it difficult for employees to focus solely on increasing sales and revenue for the organization. This can make it difficult to get a true picture of an organization’s human capital return potential.
Another area that companies consider when measuring their human capital is staff. They can observe rates of absenteeism and lost productivity, which translates to lost revenue. Turnover and recruitment costs are two of the biggest areas that organizations try to control. Skilled and experienced employees leaving, particularly in the first few months of employment, can represent a huge amount of human capital loss. This is because it takes the organization much more money, time, and internal resources to recruit and train a new employee than it does to retain an experienced employee.
Companies also measure the efficiency of their human resource departments to measure human capital. They can calculate the average amount of human resource costs per full-time employee. Organizations might as well look at how many full-time employees are assigned to a specific human resources department. This is especially true in larger companies made up of multiple divisions, business units, and regional locations.
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