Are Employees Costs or Assets?

Section 2:

Pasha Roberts, Co-founder and Chief Scientist, Talent Analytics, Corp.

From a GAAP accounting perspective, most employee expenditures are considered to be costs. Employees are not subject to depreciation, as are machines, for example. This isn’t changing anytime soon.

But from a management point of view, employees are more like a portfolio of assets – with interlocking strengths, weaknesses, and capacities. If you run a call center, your staff is your primary tool for processing calls, arguably more important than the phone switch. Likewise for a software development group or a marketing department and their tasks.

In this sense, employees are key assets, much like machines, for getting work done. If you hire or develop a more efficient and long-lasting employee, production will go up. We encourage employers to not only value their workers as human beings, but also to think of people as productive units that can be intelligently optimized for targeted outcomes.

The Basis for Advanced Analytics

In future articles we will present a powerful first step to advanced employee analytics. We will walk through a cohesive framework for measuring the cost, performance and attrition of a workforce.

These three key metrics (cost, performance, attrition) combine in interesting ways to inform decision-making. Most importantly, the metrics are a quantitative baseline for predictive analytics exercises. Only with these metrics will we be able to learn how to apply predictive models or whether the models are improving operations.

Note that each of these three metrics are not a single number, but a series of values across the lifetime of an employee. Technically they are a time series or vector, but we will use the terms “metric” and “curve” interchangeably to describe them.

Read More in Section 1: Understanding Your Most Expensive Asset

Upcoming Section 3:  Employee Lifetime Value

Read More:
People Analytics in the Era of Big Data: Changing the Way You Attract, Acquire, Develop, and Retain Talent Hardcover – April 25, 2016
by Jean Paul Isson  (Author), Jesse S. Harriott (Author), Jac Fitz-enz (Foreword)

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