HR METRICS

Gurudatta Jambhawadekar
“To move to the center of the organization, HR must be
able to talk in quantitative, objective terms.
Organizations are managed by data.”

- Jac Fitz-enz
INTRODUCTION
• Of all the controllable factors affecting firm performance, a workforce that can execute the firm’s
strategy is the most critical and underperforming asset in most businesses.

• The problem is not that CEOs and senior managers don’t recognize the importance of human
capital.

• Rather they lack the right tools for measuring-linking-and holding the line managers accountable
for the impact their workforce has on strategic success.

• Thus, the Scorecard model introduces the management and metrics system that identifies the
behaviors, competencies, and mindset and culture required for workforce success, and measures
how these dimensions impact the bottom line.
SCORECARD
• Firms need to focus on specific kind of business performance : Strategy Execution.

• The challenges that any organisation face in order to maximise workforce potential
• Replace benchmarking with metrics
• View workforce contribution to add value rather than in terms of cost
• Make line and HR managers jointly responsible

• Thus, any firm needs a business strategy, a workforce strategy, and a strategy for the HR
function. These strategies are operationalized in the Balanced Scorecard, Workforce Scorecard
and the HR Scorecard, respectively.
 MANAGING HUMAN CAPITAL TO EXECUTE
STRATEGY
HR SCORECARD WORKFORCE BALANCED
SCORECARD SCORECARD

Customer success Financial Success

What specific customer desires and What financial
expectations must be satisfied?
commitments must be
met?

Workforce Success Operational Success

Leadership & Workforce Behaviors
What specific internal
Are the leadership team and workforce Has the workforce accomplishes the key
operational processes
consistently behaving to achieve strategic objectives for the business?
must be optimised?
strategic objectives?

HR Systems Workforce Mindset & Culture Workforce Competencies

• Align Does the workforce understand our Does the workforce, especially in
• Integrate strategy & embrace it, and do we the key positions have the skills it
•Differentiate have the culture to support strategy
needs to execute the strategy?
execution?
HR Workforce
HR Practices
Competencies
•Work design
• Strategic
•Staffing
Partner
•Development
•Change Agent
•Performance. Management
•Employee
• Rewards
Advocate
THE WORKFORCE SCORECARD

• The term ‘Workforce’ focuses on the strategic performance of employees. The Workforce
Scorecard is intended to provide the CEO and executive team members with timely and
strategically relevant measures of workforce performance and the leading indicators of that
performance.

• For line managers who want to turn practices into strategic results and HR professionals who
want to quantify the Value they create, the Workforce Scorecard offers crucial lessons for
leveraging human capital to achieve business success.

• Key value creating a link between the Balanced Scorecard and the HR Scorecard.
THE HR SCORECARD
• The HR scorecard highlights the strategic role of HR professionals and the role of HR
Management system played in the successful implementation of an organization's strategy.

• Five Key elements of HR Scorecard:

• Workforce Success
• Right HR functions and Workforce Costs
• Right types of Alignment
• Right HR practices
• Right HR professionals
BALANCED SCORECARD

• The balanced scorecard is a management system (not only a measurement system) that enables
organizations to clarify their vision and strategy and translate them into action.

• It provides feedback around both the internal business processes and external outcomes in order
to continuously improve strategic performance and results.

• When fully deployed, the balanced scorecard transforms strategic planning from an academic
exercise into the nerve center of an enterprise.

• It suggests that we view the organization from four perspectives, and to develop metrics, collect
data and analyze it relative to each of four perspectives
 MEASURING VALUE CREATION FROM HR THROUGH
WORKFORCE SUCCESS

HR Competencies HR System

Objective: Objective:
HR Managers possess competencies linked HR practices and systems are
aligned, to the needs of business integrated and differentiated, as appropriate

Right Metrics: Right Metrics:

•Rating on validated •% employees trained on
competency assessment tool product knowledge
•Knowledge of key business processes •% employees see link between training,
rewards, and workforce success
•% increase in customer satisfaction/
$ increase in training or incentives

Wrong Metrics:
Wrong Metrics:
•Cost per hire
•HR expense/total revenue
•Cost per hour of training
•Recruiting cycle time
 MEASURING VALUE CREATION FROM HR THROUGH
WORKFORCE SUCCESS CONT…

Leadership & Workforce Behaviors Workforce Success

Objective: Objective:
Employees deliver performance behaviors World-Class customer buying experience
that execute strategy

Right Metrics: Right Metrics:

•“Mystery shopper” rating
•% of frontline staff rated: •Customer repurchase %
•Knowledgeable
•“Buy again” Rating
•Helpful
•Timely •Overall customer satisfaction
•Courteous
•Turnover by rating level

Wrong Metrics:
•Overall turnover
•Global employee satisfaction
•HR $/ operating $
FIVE “RIGHTS” OF HR MEASUREMENT
Workforce Success
And Value

Right HR function
and Workforce
Costs

Right types of HR
Alignment

Right HR practices

Right HR
Professionals
What HR does What HR delivers
METRICS
METRICS

• A metric is an accountability tool that makes it easy to see if the company is producing results.

• Most metrics have six elements: measurements of quantity, quality, time, money and
satisfaction, as well as benchmark comparisons.
WHY METRICS
• Develop metrics geared towards your organization’s goals and strategies

• Establish metrics to monitor key HR practices proven to grow human capital

• Use metrics that will encourage change and help us make better decisions about human
capital

• Measure outcomes not activity

WHAT IS HR METRICS?

• As applied to the HR profession, metrics means measurement. Almost anything can be

measured — by counting (we had three new hires this month), by qualitative assessment (on
a scale of 1 to 10, that class was an 8), by time (it took two months to fill that job) or by a
combination of the three. By itself, a single measurement is meaningless.

• Multiple measurements taken over time enable us to track change. That, in a nutshell, is what
HR metrics is all about — measuring change.
WHY INVEST IN HUMAN RESOURCES METRICS?

Human Capital typically represents 50-60% of all operating costs

Human Capital can provide a source of competitive advantage.

CEO’s, executives and line managers can’t manage/improve what they can’t measure!

Pro-active action can be taken to enhance workforce productivity, capability, satisfaction

and engagement, leading to optimum workforce performance and a potential source of
competitive advantage
CONT…
• Metrics help quantify and demonstrate the value of HR

• Metrics helps to maximize return on HR investments

• Metrics help show what HR contributes to overall business results

•
• Method of tracking the effectiveness of HR

• What you value about HR programs and the equivalent monetary value
 CATEGORIES OF MEASURES
Acquisition Development
1. Recruitment 6. Employee Relations
2. Selection 7. Training and Development

Maintenance
3. Compensation & Benefits
4. Record Keeping
5. Performance Mgmt.
 WHY MEASURE?
• To communicate performance expectations

• To discover gaps in strategies

• To make better decisions

• To address the trend toward value reporting

• To enhance your career

• What you don’t measure doesn’t count

• What you don’t measure well you can’t improve

• So you can control your work—instead of it controlling you

THE IMPORTANCE OF MEASUREMENT

Improve

Control
Understand
Measure

If you can’t measure it, you can’t understand it. If

you can’t understand it, you can’t control it.
If you can’t control it, you can’t improve it.

James Harrington
The Improvement Process
THREE CRITERIA FOR SELECTING METRICS:

• Companies should ensure the metric fits the corporate culture Eg.If a company's culture
emphasizes speed or being the first to market, it would select metrics related to time.

• A metric should echo the critical success factors that make a company's product or service
successful.
eg.HR might choose to measure the satisfaction of managers and applicants.

• Metrics should focus on issues that are likely to be reported to the chief executive officer.
HR should measure the performance of new hires, because that has a direct impact on productivity.
Other types of measures related to hiring are the new-hire satisfaction rate and dates that reflect on
a company's ability to meet deadlines.
Build Your
Metrics
 NINE STEPS TO METRICS EXCELLENCE
• Re-examine your business objectives.

• Before doing anything else, revisit your organisation’s strategic business objectives.

• While there is some value in each function measuring its own performance, the overriding priority
should be the satisfaction of the end customer (either internal or external).
• Take the ‘ CUP ’ test.
• It is surprising how many organisations are busy accumulating reams of data from which no-one seems
to be able to extrapolate much useful information.
• If you already collect metrics, take this opportunity to rifle through the reporting archives. Give each set
of data the ‘CUP’test.
• Does it make a contribution to overall organisational business objectives?
• Does it provide an insight into whether organisational resources are being utilised at their optimum
level?
• Does it make any assessment of productivity which could lead to efficiency gains and therefore a better
customer experience?
• If each set of data does not address at least one of these three criteria, then question the usefulness of
continuing to collect it.
• Keep it simple.

• information overload is a greater threat to the effectiveness of HR than a complete lack of

measurement.

• Research has suggested that in order to focus on the priority areas, around five key metrics is a
good place to start, although the exact number will vary depending on strategic business
objectives.
• Decide what types of metrics to capture.
• Metrics fall into three principal categories, says US recruitment guru Lou Adler: historical, real-
time and forward-looking.
• Historical metrics give a good general indication of an organization's health.
• Real-time metrics are the snapshots which can act as warning signs that a process may be about
to go horribly wrong
• forward-looking metrics extend current and historical trends into the future to enable contingency
planning.
• In order to present a comprehensive picture, your chosen metrics suite should ideally contain all
three types of figures, though the exact proportions will depend on your industry type and
strategic business objectives.
• Establish a benchmark.

• The current state of affairs should be measured so that the future impact of any changes can be
assessed.

• You may have some idea where you’re heading, but if you don’t know your starting point on the
map you’re still very likely to get lost.

• You could also look at benchmarking your organisation against other similarly sized organisations
or industry ‘best of breeds’.
• Integrate data collection into existing work flows.

• Avoid burdening staff with extra workloads.

• Data should be collected automatically without the need for manual maintenance of parallel
systems

• The latest HRIS make it possible to data mine in a way that would have been inconceivable as
little as 15 years ago.
• Allocate resource for analysis.

• Only by undertaking rigorous analysis will HR be able to transform data into meaningful and valuable
strategic information.

• Don’t make the results too complex or else they may be dismissed out of hand as being too scientific or
too academic.

• Graphical representations with short textual summaries make for greater accessibility and readability.
• Have the power to act.

• The gathering of metrics is a useless exercise in administration if HR lacks the teeth to act
promptly on the findings.

• For example, if the metrics indicate that retention rates would be dramatically improved by
increasing performance-related bonuses but HR has no means of prompting this remedial action,
then a potentially valuable tool has been wasted.
Close the loop.

• Good business practice stipulates that all business processes and procedures should be subject
to periodical review.

• When initially defining the metrics suite, ensure that a review date is built in.

• If a metric is enhanced following a review, make it clear in all future reports, so that readers
analyzing historical trends are under no illusion as to what they are comparing.
TWO COMMON ERRORS ARE IN DEVELOPING METRICS:

• Developing and implementing HR metrics in a vacuum:

• Take a collaborative approach, in which you take a list of strategic HR metrics that you can live
with to the CFO and let him or her select the specific ones that are most likely to measure
business impact and be easily understood and considered strategic by top management. By
letting the CFO play a role in the selection process and allowing them to make the final decision
on what metrics you will move forward with, you eliminate many of the roadblocks you may
encounter — and you'll recruit a high-level champion at the same time.
• Developing more metrics than it is feasible to maintain and utilize:

• A large number of metrics is both unnecessary and difficult to maintain. I recommend instead
that you settle on between 8 and 12 really important metrics that demonstrate HR's impact on
the business.
• collecting data and calculating metrics is time-consuming and expensive, it's important to
focus your energies on the ones that really matter.
HR EXCUSES AGAINST
METRICS
• “You can’t measure what we do…”
• Lack of clear purpose for measuring
• Lack of cooperation between departments
• Difficulty extracting data from multiple systems
• Difficulty understanding and analyzing metrics
• Numbers used to draw inaccurate conclusions
 TRANSFORM THE HR ROLE AND CONTRIBUTION

FROM A TRANSACTIONAL FOCUS TO A VALUE - ADDED BUSINESS

FOCUS

VALUE-ADDED BUSINESS
PARTNERS
HR METRICS
Recruitment
WHY RECRUITMENT METRICS
Metrics Dominate Recruiting

• The major shift in thinking and acting in recruiting will not be just the utilization of metrics but
the dominance of metrics.

• Individual recruiters will be required to demonstrate that they are using the most effective
sources and techniques and producing quantifiable results.

• Recruiting budgets and expenditures will shift, based on the ROI and business impact of the
different strategies and tools.
 WHAT SHOULD I MEASURE?
Acquisition: Recruitment and Selection

?
Possible Measures: (7pts)

• Cost per Hire

• Speed of hire
• Yield Ratio
• Number hired
• Quality of Hire
• Interview Offer Yield Ratio
• Interview Accept Yield Ratio
THE COST PER HIRE

• Cost Per hire is a common recruiting effectiveness measuring tool.

• Although its calculation is a valuable tool it does not take into account the length of time it
takes to fill the position and quality of the hire.

• In addition cost per hires will drastically differ from position to position. For example, a cost per
hire for a senior executive position will be drastically different from a non-exempt position.
EXAMPLE: COST PER HIRE

CPH = Ad + AF + ER + T +Relo + RC+10% (7things)

H

Ad = Advertising fees 10%= All Other

Overhead
AF = Agency fees
ER = Employee referrals
T = Travel
Relo= Relocation
RC = Recruiter Costs
H = Number of Hires
SPEED TO HIRE - DEFINITION
Formula:
The number of business days to fill a vacant position. This is counted from the day the position
becomes vacant to the date a new employee starts in the job.

"It's all about applicant flow! You want to find the best candidates, and you want to find them
today. When you have them, no one else does. Point-to-point hiring is the eventual goal,"

Purpose:

• Shows the length of time it takes to fill vacant positions.

• This metric is an indicator of the organization's ability to recruit and hire new employees.
SPEED TO HIRE - EXAMPLE

11/3/2004 - 8/1/2004
Date of Hire - Date of Vacancy
=
65 business days
 YIELD RATIOS
• The goal of recruiting is to generate a motivated and qualified applicant pool.

• When developing a recruitment strategy to accomplish this goal, organizations must choose from
a number of methods, including college placements, community job fairs,Internet job postings,
radio advertisements, and newspaper want ads.

• If a job opening is posted on the Internet, a tally should be kept that indicates the number of
applicants who responded to that posting and, out of those, the number who were qualified
enough to be considered throughout the various stages of selection.

• A yield ratio captures this relationship.

• For example, a community job fair might generate 100 applications. If, out of those 100, 5
individuals were hired, the job fair would have a yield ratio of 20:1. Comparatively, an Internet
posting might have a yield ratio of 200:1.

• Interpreting the yield ratios indicates that job fairs are ten times more efficient at generating
hires. Yield ratios can be computed relative to the number of individuals hired, the number of
minimally qualified applicants generated, or even the number of local applicants generated.
 INTERVIEW OFFER YIELD RATIO
= Number Of Applicants
Number Of Applicants Offered An Interview

Interview Accept Yield Ratio

=
Number Of Applicants
The Number Of Applicants Who Accept An Interview
 VALUE ADDITION
• Have you conducted business process analysis on your hiring process?
• Has the time to hire increased or decreased within your organization…Why?
• Do you know which step in the process takes the most time?
• Quality of Hire
- Wastage
- Retention
Right people for right job at right time.
 HR METRICS
Training & Development
WHAT TO MEASURE : T & D
• Cost per trainee hour • Rate of Return
• No of employees • Travel expense
• Costs of training PER • Trainee response
employee • Test scores
• Cost of lost work PER • Skill change
resulting from
employee •
training
• Lost sales PER Training Expenditures as a % of
• employee
Personal Services
Expenditures
Cost benefit Ratio
COST PER TRAINEE HOUR
• This metric may help in determining if current training is cost effective.

• CTH = TCT / (NT * HT)

CTH = Cost per trainee hour

TCT = Total cost of training

NT = Number trained
HT = Hours trained
 COST OF TRAINING
a. Number of employees attending training

b. Costs of training PER employee

(eg training fee + transport + meals + material costs)

c. Cost of lost work PER employee

(hrs of work missed x hourly rate)

d. Lost sales PER employee

(for sales staff only;)
hrs of work missed x
hourly sales;
(Note: hourly sales =
employees monthly
sales / 40 hours)
COST-BENEFIT ANALYSIS IS CARRIED OUT
• To assess time spent on Training and assessment to check improvement.

• To relate time with corresponding costs, vis-à-vis salary.

• To assess performance vis-à-vis cost of improvement.

 CONT..

It is the ratio between the Cost of Training and the Value Addition by Training.

Cost Benefit Ratio = Value Addition

Cost of Training

Rate of ROI = Value Addition – Cost of Training

Cost of Training

• According to a survey conducted by the Fortune Magazine in February 2001, it sates

that the Cost Benefit ratio should be 1:6
TRAINING EXPENDITURES AS % OF TOTAL PERSONNEL
SERVICES
Formula: TEPS = DTC + ST + T + L + M + ST + OH
(7pts) / TS
• TEPS = Training expenses as a • M = Meals
percentage of personnel services
expenditures

• ST = Staff time (salary and benefits)

• DTC = Direct training costs
(registration/course fees, materials,
room rental)
• OH = Overhead of training
department (usually allocated by
• ST = Salaries and benefits of trainers time)
(or instructor fees)

• T = Travel • TS = Total salaries and benefits paid

to all employees
• L = Lodging
COMPENSATION
WHAT ABOUT COMPENSATION?
Maintenance : Compensation

Possible Measures:
• Job Evaluation Factor
• Benefits+Payroll as a % of Operating Expense
• Compensation to Costs Percentage
• Management Compensation as a Percentage of
Total Compensation
• Workers Compensation Cost per Employee
COMPENSATION TO COSTS PERCENTAGE
• This metric determines what percentage of overall costs go to employees.

• (TPB / TC) * 100

TPB = Total pay and benefits

TC = Total costs
MANAGEMENT COMPENSATION AS A
PERCENTAGE OF TOTAL COMPENSATION
• This metric determines what percentage of total compensation is paid to
managers.

• (TPBM / TPBS) × 100

TPBM = Total pay and benefits for managers

TPBS = Total pay and benefits for all staff
WORKERS COMPENSATION COST PER EMPLOYEE
• This metric provides determination of cost of workers comp spent on each employee.

• TWC / AE

TWC = Total Workers Compensation cost for year

AE = Average number of employees for year
RETENTION
WHAT TO MEASURE: RETENTION
• Cost of turnover
• Workforce stability
• Turnover rate
• Workforce capacity
• Turnover reason
TURNOVER RATE

Number of Employees Separated During Month

Average Number Employees During Month
EMPLOYEE TURNOVER RATES (CONT’D)
• Computing Turnover Rates (cont’d):
 EXAMPLE: TURNOVER / STABILITY
• Formulas:
• SF = OS / E
• IF = OL / E
• SF = Stability Factor
• IF = Instability Factor
• OS = Original employees who stay for the period (e.g., 1 year)
• OL = Original employees who left during the period (e.g., 1 year)
• E = Employee population at the beginning of the period
COSTS ASSOCIATED WITH THE TURNOVER
(Turnover costs = Separation costs + Replacement costs + Training
costs)

Separation costs
1. Exit interview cost for salary and benefits of both interviewer
and departing employee during the exit interview
2.Administrative and record-keeping action
Total separation costs

Replacement costs
3. Advertising for job opening
4. Selection interview
5. Employment tests
6. Meetings to discuss candidates
Total replacement costs
Training costs
• Booklets, manuals, and reports
• One-to-one coaching
• Salary and benefits of new
employee until he or she gets
“up to par”
Total Training costs
VALUE ADDITION

• Do you know the cost of your organization’s turnover?

• Review your exit survey/interview information.
• Look at turnover in relation to length of service.
• What type of impact are voluntary separations having on the attainment of your business
goals?
• If turnover of employees with less tenure is high you may want to review your recruiting
practices
ABSENTEEISM
 EMPLOYEE ABSENTEEISM RATES
• Computing Absenteeism Rates
PERCENTAGE OF EMPLOYEES ABSENT
Number Of Employees Absent During The Time Period
Total Number Of Employees On Payroll During The Period.

Combined absenteeism rate

Number Of Lost Workdays Due To Absences

X 100
Average Number Of Employees X Average Number
Of Workdays During Period
Economic Value Added (EVA)
 Economic Value Added (EVA)

• The goal of all companies is to create value for the shareholder. But how is value measured?

• Economic Value Added (EVA) is an accounting measure of the value a company creates.

• It is an estimate of true economic profit after making corrective adjustments to GAAP accounting,
including deducting the opportunity cost of equity capital.

• It is a performance metric that calculates the creation of shareholder value. It distinguishes itself
from traditional financial performance metrics such as net profit and EPS
 CONT…
• EVA can be measured as Net Operating Profit After Taxes(or NOPAT)less the cost of capital,
equity as well as debt.

• Basically, EVA is the calculation of what profits remain after the costs of a company's capital -
both debt and equity - are deducted from operating profit.

• The idea is simple but rigorous: true profit should account for the cost of capital.
 CALCULATING EVA
• The basic formula is:

EVA = ( r – c ) * K
= NOPAT – c * K
• Where,
r = NOPAT
K
called the return on capital employed (ROCE)

• is the firm's return on capital, NOPAT is the Net Operating Profit After Tax, c is the Weighted
Average Cost of Capital (WACC) and K is capital employed.
EASY WAY TO UNDERSTAND!
Net Sales
- Operating Expenses
-------------------------------------------
Operating Profit (EBIT)

- Taxes
-------------------------------------------
Net Operating Profit After Taxes (NOPAT)
-
Capital Charges (Invested Capital * Cost of Capital)
----------------------------------------------------------------
---
Economic Value Added (EVA)
IMPLICATIONS OF THE FORMULA
• Shareholders of the company will receive a positive value added when the return from the capital
employed in the business operations is greater than the cost of that capital

• By taking all capital costs into account, including the cost of equity, EVA shows the financial
amount of wealth a business has created or destroyed in a reporting period.

• In other words, EVA is profit in the way shareholders define it. For eg, if the shareholders expect
say 10 % ROI, they earn money only to an extent that their share of the NOPAT exceeds 10% of
the equity capital.

• Thus the level of the EVA does not matter but, it is the (continuous) improvement in EVA that
brings (continuous) increase in shareholder’s wealth.
HOW DOES IT ADD VALUE?
Managers in EVA companies learn that there are only three
Basic ways to increase value:

• Increase the returns from the assets already in the business by running the income statement
more efficiently without investing new capital;

• Invest additional capital and aggressively build the business so long as expected returns on new
investments exceed the cost of capital; and

• Release capital from existing operations, both by selling assets that are worth more to others and
by increasing the efficiency of capital by such things as turning working capital faster and
speeding up cycle times.
EVA AND MOTIVATION
• To instill both the sense of urgency and the long-term perspective of an owner, Stern Stewart
designs cash bonus plans that cause managers to think like and act like owners because they are
paid like owners.

• Indeed, basing incentive compensation on improvements in EVA is the source of the greatest
power in the EVA system.

• Under an EVA bonus plan, the only way managers can make more money for themselves is by
creating even greater value for shareholders.

• This makes it possible to have bonus plans with no upside limits. In fact, under EVA the greater
the bonus for managers, the happier shareholders will be.
 EVA AND COMPENSATION,REWARDS & BONUSES
• Most managers today have incentive compensation plans that put too much emphasis on compensation
and too little on incentive. Bonuses, whether meager or lavish, are earned by beating annually
negotiated budgets.

• EVA bonus targets, in contrast, are automatically reset each year by formula. If EVA shoots up, for
example, next year's bonus will be based on improvement above the new, higher level of EVA.

• Stern Stewart & Company recommends "banking" a portion of extraordinary bonuses and paying them
out over several years.

• Bonus banks make it possible to have "negative" bonuses when EVA drops sharply, and insure that
bonuses are paid only for sustainable increases in EVA.
 EVA AND PERFORMANCE MANAGEMENT
• EVA is the most accurate measure of corporate performance over any given period. FORTUNE
magazine has called it "today's hottest financial idea," and Peter Drucker rightly observed in the Harvard
Business Review that EVA is a measure of "total factor productivity" whose growing popularity reflects
the new demands of the information age.

• The EVA system effectively provides a common language for employees across all corporate functions
once implemented in totality.

• Aligning the Performance Management system to EVA system would emphasize on ‘the goal of
increasing EVA is paramount.’
 EVA AND TRAINING & DEVELOPMENT
• By effectively planning and implementation of Training Budget, a company would be able to control the
operating expenses incurred on the Training calendar on an annual basis.

• This, in turn, would aim to increasing the NOPAT and thus, increasing the level of EVA every year.

• Also, by aligning the Strategic Training & Development initiatives to the EVA system, the HR would
enable all line managers to continuously perform and develop their team members towards increasing
the EVA.

• Thus, by aligning the T & D function to EVA system, the organisation would work towards employee
development and engagement that, in turn, is directly proportional to the company’s shareholder value.
 EVA AND CORPORATE CULTURE
• By putting all financial and operating functions on the same basis, the EVA system effectively provides
a common language for employees across all corporate functions.

• EVA facilitates communication and cooperation among divisions and departments, it links strategic
planning with the operating divisions, and it eliminates much of the mistrust that typically exists between
operations and finance.

• The EVA framework is, in effect, a system of internal corporate governance that automatically guides
all managers and employees and propels them to work for the best interests of the owners.

• The EVA system also facilitates decentralized decision making because it holds managers
responsible for-and rewards them for-delivering value.
 EVA AND MANAGEMENT SYSTEM
• While simply measuring EVA can give companies a better focus on how they are performing, its true
value comes in using it as the foundation for a comprehensive financial management system that
encompasses all the policies, procedures, methods and measures that guide operations and strategy.

• The EVA system covers the full range of managerial decisions, including strategic planning, allocating
capital, pricing acquisitions or divestitures, setting annual goals-even day-to-day operating decisions.

• The uniform focus on continuously improving EVA, in contrast, provides the best assurance that all
managers are making the right decisions for shareholders.