Employee Lifetime Value and Cost Modeling

Section 3:  Employee Lifetime Value and Cost Modeling

By Pasha Roberts, Chief Scientist, Talent Analytics, Corp.

Lifetime Value (LTV)

One notable takeaway of this Section 3 is the lifetime value of an employee in a role. Marketing professionals calculate the lifetime value of a customer – defining it as “a prediction of the net profit attributed to the entire future relationship with a customer.”

Our calculations of Employee Lifetime Value (LTV) refer to “a prediction of the net profit attributed to an employee through their tenure in a given role.” If someone changes roles, say from Customer Service III to Internal Sales IV, a new lifetime value will apply.

We limit our analysis to one role at a time – say Underwriter I, or Teller II, or Customer Service III. We don’t attempt to predict an employee’s promotion path or their ultimate journey through the company.

Lifetime Value is probability-weighted by the risk of attrition from the role. Because it is risk-weighted, the LTV is an excellent roll-up number to compare programs or scenarios, with a direct tie to the bottom line.

Key Takeaways

We address employee cost, performance, attrition and lifetime value to bring the practice of Human Resources into the information age. Only with these metrics will the actual value and dynamics of our “Human Resources” be known. We imagine a future where enterprise software dashboards commonly report this information, and the curves are routinely used in planning. With this kind of information innovation, business operations will be able to routinely measure and apply productive gains from advanced analytics.

Executives will learn key workforce measurement concepts that will enable a new level of business intelligence. With these key metrics in focus, executives will be able to lead predictive analytics efforts throughout the enterprise.

Human Resources, Recruiting, and Staffing Professionals will learn to measure what happens to new hires after they leave the HR funnel and enter the workplace. Intelligent feedback from workplace performance/attrition can effectively inform hiring efforts to be smarter and more targeted.

Line of Business Managers, such as Sales Operations or Call Center Managers, will learn to format their employee operations into enterprise-relevant information.

Data Scientists, Analysts, and IT professionals will learn the business context for their analysis. These analysts can apply the knowledge to identify information sources and formats for dashboards and predictive analytics.

Read More in Section 1: Understanding Your Most Expensive Asset

Read More in Section 2 : Are Your Employees Cost Or Asset

Excerpts from:

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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