Optimizing the Human Capital Balance Sheet

Are you making winning workforce decisions?

The workforce is commonly a company’s biggest investment. But organizations typically don’t have visibility into all the information necessary to make educated and optimized decisions. Leaders, for example, frequently lack:

• A complete, accurate, and current view of the “all-in” labor cost for the total workforce (i.e. direct labor spend, human resources (HR) operational spend, and allocated spend)
• Meaningful insight into what their employees value in terms of compensation, benefits, and other workforce investments

• An understanding of the value those programs drive throughout the organization
  

In this environment, it’s nearly impossible for the C-suite to know if they’re making winning workforce decisions (i.e. driving their investment dollars to the programs and parts of the workforce that will deliver the greatest return on investment and create the required value for the organization). Without these insights and cross-functional collaboration, discussions on this topic more frequently center on costs—not value.

Senior leaders are often more inclined to ask, “How do we reduce human capital costs?” than to inquire, “How do we ensure that we get appropriate value from the money we invest in our people?”

Executives can no longer afford to make human capital decisions in isolation and on the basis of cost alone. The C-suite and the rest of the organization must view these decisions as strategic investment choices that drive value throughout the organization. With the introduction of the Human Capital Balance Sheet from Deloitte, they can now have the information and analytical tools to do just that.

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What it is

Every C-suite leader makes investments in the workforce that are critical to determining an organization’s performance, brand, and reputation. The key to making winning workforce decisions is to bring these leaders together around a unified picture of all-in labor costs and workforce performance drivers.

The Human Capital Balance Sheet has been designed to accomplish this feat. It can best be described as a single, transparent view of the workforce from the lens of cost, spend, and risk. It analyzes these factors to understand how investment drives organizational performance. This helps executives align on people priorities and make well-informed decisions about where to increase or maintain investment, or where to eliminate or cut back, to optimize the organization’s human capital investments.

The Human Capital Balance Sheet helps senior executives and the organization:

• Work from a single, complete set of data, make key workforce investment decisions together, and monitor and measure the impacts of those decisions
  
• Visualize human capital spend and understand the return on investments
• Eliminate wasteful spend and increase investment capacity for new programs
• Enhance the value of the current programs and plan for the future

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The potential impact

The Human Capital Balance Sheet analyzes workforce cost, spend, and risk to understand how investments in people drive organizational performance. It provides a holistic view of an organization’s all-in labor cost that is otherwise hard to obtain. As different types of work arrangements (i.e., the gig economy, contractors, freelancers, etc.) have become more prevalent, the ability to track the rewards cost as well as the totality of workforce investments has become exponentially more difficult. In other words, the future of work is changing in a way that can obscure the financial results of human capital investments, hiding them in buckets that even the most prudent chief financial officers, chief human resources officers, and other leaders are unable to track.

Given the large amount of capital being spent in the workforce, the inability to understand the totality of the organization’s people investment and measure its effectiveness is a huge risk.

The Human Capital Balance Sheet can largely reduce that risk. It helps to centralize labor-cost management, so leadership can coordinate initiatives, allowing for increased financial discipline. Companies can then direct their focus to how their investments are performing and manage them proactively.

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The power of optimization

Above anything, the workforce must be viewed as an “asset” not only on the Human Capital Balance Sheet but also on the organization’s overall financial balance sheet. This asset can only be optimized if it’s managed as an investment rather than a cost center. That said, optimizing the balance sheet starts by understanding the full scope of how work gets done and identifying the true all-in cost. You know your balance sheet is optimized when:

• Wasteful spend is eliminated
• Programs that drive minimal value are reduced or eliminated (i.e. you’re able to be smarter about where you spend your money) 
• Inherent risks are understood and factored into decision-making and expected outcomes
• Decisions are informed by the business strategy and market conditions (i.e. you’re able to direct future investments toward preserving, protecting, and enhancing your assets) 
• Investments in labor are value-driven and clearly linked to an appropriate rate of return

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