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4 Identifying and understanding workforce risks

A workforce risk is any workforce issue that could pose risk to delivery of business outcomes and outputs. They arise where is a misalignment between the organisation’s existing workforce and the workforce required to deliver its objectives.

Workforce risks can arise from issues such as critical skills shortages, an increasing number of staff exits, or significant workforce retirement intentions. However, such issues are only workforce risks in so far as they have a potential impact on the organisation’s business delivery.

A key consideration of strategic workforce analysis and reporting is identifying and understanding workforce risks. This involves a number of considerations, such as:

  • Monitoring workforce data that is relevant to business delivery,
  • Analysing workforce data to identify any workforce related issues that could pose risk to the delivery of business outcomes and outputs,
  • Consulting the business to assess potential impact of workforce issues on business delivery, and
  • Reporting to key business stakeholders on the workforce and any associated workforce risks, to inform organisational decision making towards mitigating these risks.

If your organisation has mature workforce planning in place, workforce risks should have been identified as part of that process, and strategic workforce analysis and reporting should complement these. However, ongoing strategic workforce analysis will enable you to identify emerging issues as well as issues not previously identified.

Monitoring workforce data that is relevant to business delivery

Regular and consistent monitoring of relevant workforce data enables you to identify emerging workforce issues. If these are assessed to be workforce risks, proactive mitigation can be initiated before the full potential impact of the risks are realised. It also enables you to assess the impact of strategies implemented through workforce management and planning.

Regular and consistent monitoring also aids the understanding of the current workforce for managers and planners. It provides a firmer basis for workforce planning discussions, to better understand the current demand and supply dynamics impacting the future workforce, and the drivers that may be causing workforce gaps.

Diagram 1 below highlights some examples of the data sources you might consider utilising to obtain workforce data.

Diagram 1. Examples of workforce data sources

A reliable HRMIS is the ideal source of workforce data. However, if your organisation’s HRMIS has limited functionality, you may need to use alternative sources while considering how (and if) to address these issues.

The sources highlighted above provide a broad range of data and you will need to consult your key business stakeholders to determine what is useful and relevant for your organisation.

Business stakeholders will also have an intuitive sense of the potential workforce issues and risks based on their experience, and these can be tested with the evidence produced through the regular monitoring of workforce data.

Benchmarking can also assist with testing assumptions. For example, increasing the representation of women in the workforce has been a key concern for the ICT industry. Therefore, an organisation with a lower proportion of women than men might consider this a workforce risk. However, industry benchmarking may reveal it to be higher than the industry average and investing in strategies to increase the representation of women may not be effective or possible.

Workforce metrics

In business, a metric is used to gauge some quantifiable component of an organisation’s performance, such as return on investment, or revenue.

In strategic workforce analysis and reporting, a metric is used to gauge some quantifiable measure of workforce activity or an aspect of its profile, and the possible implications for organisational performance.

To be effective, metrics should be meaningful, measurable, and relevant. They should be agreed to and consistently used across the organisation. When determining which workforce metrics to measure, you might consider the following points:

  • Purpose – Determine, in consultation with your key business stakeholders, what you want to know about the workforce, and which metrics will be most useful in providing this knowledge. For example, you might measure tenure by examining the level of corporate knowledge.
  • Audience – Identify the key stakeholders who will use the data to inform their decision making, what information they have requested, what they believe their workforce issues are, and which workforce metrics are most influential to their decision making.
  • Data source – Determine whether there is an existing data source for each of the selected metrics, or whether new data will need to be captured in the first instance.
  • Data integrity – Ascertain the strengths and weaknesses in the data. These will determine what metrics you are able to measure confidently, and to what extent you can draw valid conclusions from them. It will also assist in identifying steps to improve the quality of the data.
  • Definitions –Workforce metrics can be defined and calculated in various ways. Therefore, it is useful to gain agreement from your key business stakeholders (in keeping with APS reporting requirements) with a view to maintaining them consistently over time. This ensures a common understanding, and allows comparative analysis to be undertaken, which in turn assists with trend analysis and forecasting. It also ensures that workforce issues are genuine and not due to discrepancies in the data.

Example

Full-time equivalent (FTE) data can be misunderstood due to variations in the way it is defined and calculated . From the perspective of Total FTE or Average Staffing Level (ASL)4 , it will not include staff on leave without pay, and is effectively a measure of workforce affordability. If based on data in the Human Resource Management Information System (HRMIS), it may include staff on leave without pay, and is effectively a measure of workforce cost and/or maximum potential workforce capacity.

Workforce metrics can be grouped into common themes. Some examples of workforce metrics commonly monitored by organisations are provided in Table 1 below. Organisations might consider starting with a few basic metrics, and expanding and refining these over time.

Table 1. Examples of commonly monitored workforce metrics

Workforce metrics commonly measured and monitored over time (by workforce theme)
  • Workforce availability
    • Full-time equivalent (FTE)
    • Headcount (HC)
    • Employment type (ongoing, non-ongoing, contract)
    • Employment status (full-time, part-time)
    • Absence (planned, unplanned)
  • Workforce profile
    • Location
    • Occupational grouping / Job family
    • Classification level
    • Age
    • Gender
    • Diversity
  • Workforce mobility
    • Recruitment
    • Secondments
    • Transfers
    • Resignations
    • Retirements
    • Redundancies
    • Tenure
  • Workforce capability
    • Performance management
    • Education and development
    • Qualifications
    • Skills and capabilities
    • Learning and development
    • Tenure
  • Workforce intentions and satisfaction
    • Employee engagement
    • Intentions

Some workforce metrics can be an indicator for more than one workforce theme. For example, tenure can indicate the level of workforce mobility and can also be indicative of workforce capability in terms of corporate knowledge and experience. While you will generally select metrics with a particular purpose in mind, it is worth considering the alternative uses with a view to expanding and developing your analysis and reporting over time. Some metrics can be combined to enable a greater granularity of analysis. For example, resignations by age provide a more detailed profile and greater level of meaning in relation to who is leaving the organisation, than resignations alone.

Lead and lag indicators

Workforce metrics are sometimes referred to as lead or lag indicators. Lead indicators inform future activities while lag indicators provide information about the past. The results of a recruitment intentions survey would be lead indicators because they can be used to inform future recruitment activity or forecast workforce growth. The absence rate for the past quarter would be considered a lag indicator because it is based on past absences.

Lag indicators are useful in establishing trends (comparison with previous lag indicators), to assist with forecasting the future state of the workforce if no action is taken. They can also be useful in understanding seasonal fluctuations and peak periods of business activity, and the ongoing impact of particular events or strategies and initiatives. They can also assist with establishing targets, such as attendance and unscheduled absence targets. For lag indicators, it is important to identify if there are any anticipated future impacts that may limit the effectiveness of a lag indicator as a predictor of the future, such as a slowing economy in relation to staff exit rates, for example. For lead or lag indicators, it is important to clarify the time point they were captured.

While it is worth considering the time horizon informed by workforce metrics, it does not determine their value as strategic measures. Workforce metrics are of strategic value if they support delivery of the strategic goals and objectives of the organisation.

Forecasting (Trend analysis)

Trend analysis is the process of estimating what the workforce will look like at future time points within your planning horizon. It takes into consideration past trends and ratios for metrics such as staff exits, age and absence, etc. Trends are ideally based on three years of historical data, calculated on a monthly basis to flatten out any unusual highs and lows and seasonal fluctuations. These highs and lows, and the reason for them, need to be considered when determining an agreed and realistic rate.

Taking a simplistic approach to trend analysis, you can then use this rate to estimate the effect on the workforce into the future if you take no action today. This is based on an assumption that all else will remain the same and patterns will remain stable. A more complex approach considers the impact on the workforce of external factors, such as labour market forces (unemployment rate, skills shortages and budget forecasts, etc.).

Analysing workforce data to identify any workforce issues that could pose risk to the delivery of business outcomes and outputs

Strategic workforce analysis involves examining your workforce data in depth, to achieve a more sophisticated level of understanding and identify potential workforce risks. It examines what is happening (within the context of the broader internal and external environment), where, how and why it is happening and, importantly, what it might look like in the future if left unattended.

Example

Measuring the organisation’s staff exits indicates the rate at which employees are leaving the organisation. However, to understand the nature (or root cause) of staff exits, a more detailed and broader level of analysis is required.

Examining the exit rate at a more granular level, such as occupational groupings, may reveal that staff exits are particularly high in certain groups. If low rates elsewhere offset the higher rates, the organisation’s rate will mask these potential workforce risks.

Examining exit rates over time may indicate a recent spike, a steady increase over time, or a systemic high level. The timing may coincide with an organisational change program or some other significant event. Extrapolating a trend into the future will provide a forecast of staff exits if no further action is taken.

Examining the destination of exiting staff may reveal that some areas of the organisation are supply sources for others. Combining staff exit data with performance data may reveal whether high performers are exiting at a higher rate, while consulting staff exit survey results is also likely to provide additional strength to your analysis.

The more granular the level of detail, the greater the number of relevant metrics you combine into your analysis, and the greater the number of additional sources you consult, the stronger the analysis and level of understanding achieved.

Consulting the business to assess potential impact of workforce issues on business delivery

Once you have a thorough understanding of any workforce issues, you can assess the potential implications for delivery of business outcomes and outputs. Herein lies the real value of strategic workforce analysis and reporting as it provides the basis for taking action.

In order to translate workforce data into information that is useful to the business, it is recommended you consult your key business stakeholders, who are effectively your subject matter experts. They have an intimate knowledge of the business and business demand, and can therefore make linkages between the state of the workforce and how this translates into associated risks to business.

To better understand workforce risk, it may be useful to consider the workforce in terms of occupational groupings (job families) and/or critical job roles, if this approach to workforce segmentation has been progressed within your organisation. For example, high-level staff intentions to exit within roles that have long lead times for developing new staff pose greater risk to business than roles that are more easily and readily filled.

Establishing a working group may be useful to engage with your key business stakeholders, and also provides a good foundation for the ongoing management of any change process required to mitigate workforce risks. A working group to progress workforce planning may already exist, and could be utilised for this purpose in order to strengthen the link between workforce analysis and reporting, and workforce planning.

Consulting key business stakeholders also assists to engage them in the process and broaden their perspective. It positions them to better understand their workforce requirements and influence the state of the workforce to manage potential workforce risks. It also helps to ensure the organisation is focusing on what is most important to the delivery of business, and that it is implementing responsive and targeted workforce strategies and initiatives.

Example

A high staff exit rate is generally considered a workforce risk due to loss of experience, skills and capabilities, and corporate knowledge. It can also indicate increasing cost in terms of recruitment and the time to fill a higher number of vacancies and develop a larger number of new employees.

A high exit rate for a particular sector of the workforce could be of significant risk if it is critical to the delivery of business outcomes and outputs. If a high proportion of exiting staff have a long tenure with the organisation, the risk may be higher due to the associated loss of corporate knowledge.

In some workforce sectors, high exit rates may be appropriate given the demanding nature of the work. It might also indicate where ‘burn out’ is occurring, thereby enabling the organisation to reorganise work or create career paths that limit the loss of corporate knowledge.

There are other sectors where it might also be expected, and therefore not necessarily considered a risk, such as the age group approaching retirement, or for non-ongoing employees or employees on long term leave who resign after utilising all of their leave entitlements.

It is through consultation with key business stakeholders that you will be able to draw such conclusions.

It is also important to understand the point at which the organisation realises a return on its investment in the recruitment of a new employee.

Reporting to key business stakeholders on the workforce and any associated workforce risks, to inform organisational decision making towards mitigating these risks

Any workforce issues or risks need to be communicated to the relevant key business stakeholders, to inform them in their business planning and decision making.

A commonly cited barrier to progressing strategic workforce planning is a lack of executive buy-in. Transitioning from traditional transactional-style HR reporting to strategic workforce reporting (with direct linkages to the business), can provide business managers with evidence based information and analysis that they can easily understand and absorb. Strategic workforce reporting is one method by which HR can gain credibility and influence in organisational decision making.

Reporting format and frequency will vary depending on the purpose, the needs and circumstances of your organisation, and the needs and preferences of your key business stakeholders. However, it can be useful to establish a regular reporting schedule (such as monthly and/or quarterly) as agreed with your key business stakeholders. The data you report on will also vary and again, it is useful to consult your key business stakeholders.

Effective workforce reporting utilises techniques to most effectively present information, in order to solicit inquiry and discussion from the targeted audience.

When considering how to approach workforce reporting, you might consider the following points:

  • Data integrity – Note any strengths and weaknesses in the data so that your key business stakeholders are aware of any limitations, as they will be using the data to inform their decision making. This will also help gain support for taking steps to improve the data.
  • Audience – Understand how your key business stakeholders like to receive information and what drives them; what their priorities, interests and background are. This will influence the focus of your reporting, as well as the format, style and language you adopt. Key business stakeholders will generally prefer reporting that utilises business language rather than HR language. Consider also what reports your audience already receives, and how strategic workforce reporting might fit in relation to these.
  • Purpose – Determine the key messages you want to communicate to your key business stakeholders, why you are presenting the report, what outcomes you are seeking, and what action might then be taken.
  • Format – Consider how to most effectively communicate your key messages, based on the nature of the data (and associated messages), the outcomes sought, and your audience’s needs and preferences. Consider the complexity of the data (and associated messages).
  • Frequency – Determine how frequently to report, based on the nature of the data (and associated messages), the outcomes sought and the audience’s needs and preferences. Determine how frequently other reports are provided, and how strategic workforce reporting might fit in relation to these.
  • Definitions – Obtain consensus and clarify the definition and method for calculating each workforce metric (e.g. in an appendix to your report). This will ensure transparency, prevent misunderstanding and promote consistency. Appendix A provides a reference point for workforce metrics commonly monitored by organisations, including definitions and formulas for calculation.

Levels of strategic workforce reporting

There are generally three levels of strategic workforce reporting: monthly, quarterly and issue-specific (or deep dive) reports as required. There are general recommendations for each type, however it is important to consider the needs and circumstances of your organisation, and the needs and preferences of your key business stakeholders, so they can be adapted accordingly. While the three levels of reporting will differ, and aim to meet different business needs, ideally they should still support and complement each other.

  • Monthly reporting – The aim of monthly reporting is generally to provide an overview of the workforce, and how it has changed over the month compared to the previous month. It usually highlights any trends or other workforce risks that have emerged during the month, and commonly targets select stakeholders from key business areas.

    Monthly reports can be effective in engaging your stakeholders, by stimulating their interest and providing regular exposure to workforce data. They enable potential risks to specific business areas to be monitored, and promote understanding of workforce risks and opportunities.

    In general, it is recommended that monthly reports:

    • are succinct;
    • draw comparison with either the previous month or the same month in the previous financial year, and the financial year-to-date; and
    • utilise graphs, charts and tables.
  • Quarterly reporting - Quarterly reporting generally provides a more detailed level of analysis (within the context of strategic workforce considerations). It usually focuses on a broader range of workforce themes and is commonly targeted at a broader group of key business stakeholders from across the organisation.

    Quarterly reporting provides an opportunity to raise issues that could pose risk to business delivery. It provides an opportunity to present a more strategic level of analysis, and make recommendations for action.

    In general, it is recommended that quarterly reports:

    • are analytical, detailed and thorough;
    • provide an overview of the wide range of workforce themes;
    • highlight any prevailing workforce gaps and other workforce issues;
    • draw comparisons with either the previous quarter or the same quarter in the previous financial year, and the financial year-to-date;
    • indicate performance against workforce targets and relevant benchmarks;
    • utilise graphs, charts and tables along with supporting written analysis; and
    • include any recommendations for further action, where this is required.
  • Issue-specific reporting - Issue-specific reports are ‘deep dive’ reports that provide an opportunity to examine in depth a particular workforce gap, trend or other workforce issue (within the context of strategic workforce considerations). The issue generally poses significant risk to the delivery of business outcomes and outputs. Issue-specific reports are provided on an ‘as required’ basis, but generally no more than once or twice per year due to the level of analysis and preparation involved. They are commonly targeted at a specific audience, depending on the issue.

The following table provides tips for framing and planning strategic workforce reporting on a monthly, quarterly and issue-specific basis.

Table 2. Tips for framing and planning strategic workforce reporting
Tips for framing and planning strategic workforce reporting on a monthly, quarterly and issue-specific basis
Aspect of reporting Level of reporting
Monthly reporting Quarterly reporting Issue-specific reporting
Length 1-2 pages (A3 or A4) No more than 15 pages No more than 30 pages
Presentation Graphical summary Written report including graphs, charts and tables Deep-dive report
Audience Select key business stakeholders Key business stakeholders, more broadly A specified audience for a particular purpose
Metrics High level workforce data of note that can change within the period of a month, as well as any workforce issues that require monitoring on an ongoing basis. Quarterly data on workforce availability, profile, mobility and capability, as well as any strategic workforce considerations for the quarter. Detailed reporting on a particular workforce trend or other workforce issue that requires deeper analysis.
Data comparison Data commonly compared to the previous month, the same month in the previous financial year, and the current financial year-to-date Data commonly compared to the previous quarter, the same quarter in the previous financial year, and the current financial year-to-date Data comparison points are drawn as relevant to the issue
Reporting period The previous month. The previous financial year quarter:Q1: July – SeptemberQ2: October – DecemberQ3: January – MarchQ4: April – June. Time period relevant to the issue
Circulation Within the first week of the following month. Within the first two weeks of the following quarter. Once a year.

While it might generally be appropriate to circulate monthly reports directly to the audience, it may be useful to table quarterly and issue-specific reports for presentation and discussion at Executive meetings. This ensures visibility of the issues and promotes discussion at a strategic level.

Example

It might be appropriate to report on staff exits quarterly, however if an increasing trend begins to emerge in a particular business division, it may need to be included in monthly reporting to the relevant Executive. This would flag the trend as an issue possibly requiring further investigation in relation to impact on business.

If the trend continues, it may become the focus of an issue-specific report that analyses the issue further; to consider the implications for business delivery (for the division and the organisation), and consider possible strategy options.

For all levels of reporting:

  • consider using graphs, charts, symbols or pictures to visualise the data and draw attention to key messages
  • where possible, build a story showing how one workforce issue may lead to another which, in turn may lead to the emergence of a workforce risk;
  • consider using forecasts to analyse the extent to which workforce trends may become workforce issues or risks;
  • focus on facts;
  • ensure calculations are accurate;
  • keep it as succinct as possible, given the level of data complexity;
  • reference internal and external style guides;
  • reference relevant other documents and sources of information; and
  • prepare for presentations.