Human Capital Value Added: A Human Resources Key Performance Indicator

Overview

Human Capital Value Added (HCVA) is a vital Key Performance Indicator (KPI) in the realm of Human Resources (HR). This KPI calculates the economic value added by the workforce after accounting for the cost of capital. Through the HCVA, organizations can understand how effectively they are using their human resources to generate value and profitability.

HCVA is essentially a measure of employee productivity and effectiveness. A higher HCVA indicates a higher return on human resources, implying the workforce is creating more value per unit of investment.

This measure helps in benchmarking the company's human resource efficiency against competitors or across different departments within the same organization. It aids in strategic decision-making related to talent acquisition, staff development, and strategic planning.

Formula

The formula to calculate Human Capital Value Added is slightly more complex than some other HR metrics, involving several financial and HR variables.

Here is the formula for Human Capital Value Added:

Human Capital Value Added = (Revenue - Operating Expense - Capital Charge) / Total Number of Employees

In this formula:

• Revenue refers to the total earnings of the organization over a given period.
• Operating Expense includes expenses related to the operation of the business, excluding labor cost.
• Capital Charge is the cost of capital invested in the business.
• Total Number of Employees is the total headcount in your organization during the same period.

This formula gives a direct measure of the value each employee contributes to the company's profitability, after accounting for other costs and capital investments. However, like any KPI, it should be used in conjunction with other metrics for a holistic view of HR performance.