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Audit And Measurement Of The Human Resource Systems And Procedures At Business Unit Level

Prepared by By Jeff Sacht

September 2001

Audit And Measurement Of Diversity

1. Purpose Of A Human Resources Audit

This document presents an audit procedure to assess whether the Human Resource (HR) Function at Business Unit (BU) level is delivering its mandate and roles.

The methodology that drives this audit is based on four key principles advocated by a leading HR consultant and teacher, Dave Ulrich and his associates in the USA.

Their cutting edge research, and consulting work has shown time and again that worthy HR professionals ensure that:

  1. Line manager friendly systems, and procedures are available to help management execute their people management role (i.e. the technical-professional and service role of HR);
  2. Line management are equipped to work within the various labour relations laws and codes of conduct that govern the relationship between labour and management in the workplace (the compliance role of HR);
  3. Each Business Unit has an overall people management (HR) strategy in place that increases the value of employees to the business (the strategic role of human resources);
  4. HR systems and procedures are run at optimal cost (financial management role of human resources). Please do not read optimal as lowest cost, but as the right price for the job on hand.

These assumptions can be translated into four critical roles that professional HR professionals must play if they wish to be seen to make a real contribution to a business’ success.

2. Scope Of the Audit

The audit will take stock of the degree to which HR delivers its four key roles. The following information indicates the aspects to be audited for each role. The sequence in which this information is presented also approximates the sequence in which the audit needs to be conducted. Each step in the process will produce information and conclusions about HR that is used as input to guide each succeeding phase of the stock take.

2.1a Audit Of The Functional Role OF HR

The model shown in figure 1 below was formulated for the American Society For Training And Development by a task team headed by Patricia Mclagan in 1990. This model was used to develop an audit questionnaire to assess the following 4 functional areas defined below. The

2.1.1 Human Resource Development Systems and Procedures (HRD)

Scope: Audit whether there is the integrated use of training and development, organisation development, and career development to improve individual, group, and organisational effectiveness. These three areas use development as their primary process.

    • Training and Development: identifying, assuring, and-through planned learning-helping develop the key competencies that enable individuals to perform current or future jobs;

 

    • Organisatlon Development: assuring healthy inter-and, intra-unit relationships and helping groups initiate and manage change;

 

    • Career Development: assuring an alignment of individual career planning and organisation career-management processes to achieve an optimal match of individual and organisational needs.

2.1.2 Human Resource Management (HRM)

Scope: Audit whether the HRD systems and procedures are aligned with the HRM systems and procedures to promote staff competence, confidence, and performance standards. These areas are closely related to the three primary HRD areas. In them, development is important, but it is not the primary orientation or process.

    • Organistion /Job Design: defining how tasks, authority, and systems will be organised and integrated across organisational units and in individual jobs.
    • Human Resource Planning: determining the organisation's major human resource needs, strategies and philosophies.
    • Performance Management Systems: assuring individual and organisation goals are linked and that what individuals do every day supports the organisational goals.
    • Selection and Staffing: matching people and their career needs and capabilities with jobs and career paths.

2.1.3 HR INFO SYSTEMS

Scope: Audit whether these areas support the achievement of results in the area of HRD and HRM; audit whether HR maintains performance indicators that help management keep track of HR costs and benefits.

    • Compensation And Benefits: assuring compensation and benefits fairness and consistency.
    • Employee Assistance: providing personal problem solving and counseling to individual employees.
    • Union/Labor Relations: assuring healthy union I organisation relationships.
    • HR Research And information Systems: assuring an HR information base is in place that provides timeous management information; assuring HR functional performance indicators are in place.

 

Figure 1

The Human Resource Wheel

Framework For Audit Of Functional Role Of HR

 

Click to enlarge the image

2.1b Audit Of The Service Role OF HR

Human resource functions have traditionally played a service role to compliment their functional activities. Therefore, any audit, to be complete needs to examine the service responsiveness of HR. An adaptation of the Parasuraman Service Quality (1990) model is used to measure service quality gaps, where HR is the service provider, and line and employees are the customers. The dimensions that are measured are summarised in table 1 below. The purpose of auditing these dimensions (service behaviours) is to identify the critical service delivery gaps. These gaps are shown in Figure 2 below. Only gaps 3 and 4 are measured in this type of audit.

Table 1

 

Service Quality Dimensions

Framework For Audit Of The Service Role Of HR

SERVQUAL DIMENSIONS

Tangibles/

Appearance

The appearance of physical facilities, equipment, personnel, and communication materials the HR function uses/supplies

 

Reliability

 

 

 

Ability to perform HR functions and service dependably and accurately

Responsiveness

Willingness to help line/employees and provide prompt service.

Assurance

Knowledge and courtesy of HR staff and their ability to inspire trust and confidence.

Empathy

Caring individualised attention the HR function provides its customers (line and employees)

 

2.2 Audit Of The Compliance Role Of HR

Since 1994 a vast array of labour legislation has been promulgated that have placed a great deal of pressure on employers to improve the standard of their people management policies, practices, and procedures. The advent of the era the CCMA and Labour Courts make it a business imperative for business to periodically audit this aspect of HR, both from a risk assessment, or best practice perspective.

The audit will assess to what degree management and HR have instituted the four main codes of best practice as prescribed in the following acts:

    1. Labour Relations Act
    2. Basic Conditions of Employment Act
    3. Employment Equity Act
    4. Skills Levy and Skills Development Acts
    5. Occupational Safety and Health Act

The main thrust of this part of the audit will be to assess whether the required policies, practices, and procedures exist, and to what extent management and labour have been trained to enact these codes of best practice.

2.3 Audit Of The Strategic Role Of HR

Each Hotel/Business Unit has an (implicit or explicit) overall people management strategy that needs to increases the value of employees to the business. This strategy is to a large degree implemented through the major HR functional levers (see 2.1 above) available to management and HR. The choice of workforce strategy may also be tempered by the leadership and management skills within each business Unit/Hotel.

The factors that will impact almost any workforce strategy are outlined in Table 1 below (Factors impacting the choice of workforce strategy). These factors correspond with all the major functions that HR performs in partnership with line management. The initial stock take of these functions will allows one to conclude whether the (implicit or explicit) workforce strategy is appropriate for each particular hotel’s circumstances, and whether the HR policies, systems, and procedures are aligned to achieve business plan results, and workforce strategy.

Management needs to decide upfront on a particular workforce strategy, and to mandate HR to work with line towards aligning their management, leadership, and HR practices/workforce strategy to support the achievement of the business plan mission, goals, and values.

 

 

Table 1

Framework For Strategic People Management

Dimensions Of HR

 
HR Functions Industrial Age Strategy

Transition Strategy

Information Age / Commitment Strategy

1. Job design

Individual attention limited to performing individual job.

Scope of individual responsibility extended to upgrading system performance via participative problem-solving groups and quality circle programmes.

Individual responsibility extended to upgrading system performance by re-engineering processes.

 

Job design deskills and fragments work and separates doing and thinking.

No change in traditional job design or accountability.

Process redesign enhances content of work, emphasises whole task, and combines doing and thinking.

 

Accountability focused on individual

 

Frequent use of teams as basic accountable unit.

 

Fixed job definition

 

Flexible definition of duties, contingent on changing marketplace conditions.
2. Performance (management) expectations

Measured standards define minimum performance. Stability seen as desirable.

 

Emphasis placed on higher "stretch objectives", which tend to be dynamic and oriented to the marketplace.

3. Management organisation: structure, systems and style

Structure tends to be layered, with top-down controls.

No basic changes in approaches to strategy

structure, control, or authority.

Flattened/ organisation structure with mutual influence systems.

 

Co-ordination and control rely on rules and procedures (reinforced by outdated job grading system).

 

Co-ordination and control based more on shared goals, values, and traditions.

 

More emphasis on prerogatives and positional authority.

 

Management emphasis on problem solving and exchanging relevant information and expertise

 

Status symbols distributed to reinforce hierarchy.

A few visible symbols change.

Minimum status differentials to de-emphasise inherent hierarchy.

4. Compensation policies

Variable pay where feasible to provide individual incentive

Typically, no basic changes in compensation concepts.

Variable rewards to create equity and to reinforce achievements: gain sharing, profit sharing.

 

Individual pay geared to job evaluation

 

Individual pay linked to skills and mastery

 

In downturn, cuts concentrated on hourly payroll.

Equality of sacrifice among employee groups.

Equality of sacrifice

5. Employment assurances

Employees regarded as variable costs.

Assurances that participation will not result in loss of job.

Assurances that participation will not result in loss of job.

 

 

 

Extra effort to avoid layoffs.

High commitment to avoid or assist in re-employment.

 

 

 

 

 

Priority for training and retaining existing work force.
6. Employee voice policies

Employee input allowed on relatively narrow agenda. Attendant risks emphasised. Methods include open-door-policy, attitude surveys, grievance procedures, and collective bargaining in some organisations.

Addition of limited, ad hoc consultation mechanisms. No change in corporate governance.

Employee participation encouraged on wide range of issues. Attendant benefits emphasised. New concepts of corporate governance.

NB: New LRA

7. Business/HR information

Business/HR information distributed on strictly defined "need to know" basis.

Additional sharing of information

Business/HR data shared widely. Re-engineering forces the shape of decision-making practices.

8. Labour-management relations

Adversarial labour relations; emphasis on interest conflict

Thawing of adversarial attitudes; joint sponsorship of QWL or EI; emphasis on common fate.

Mutuality in labour relations; joint planning and problem solving on expanded agenda. Workforce forums.

 

 

 

 

 

Union, management, and workers redefine their respective roles.
9. Line-HR relations

HR introduces people system changes for line. Line does not own these.

Joint HR-line forums initiated.

Line facilitated by staff

Line initiates needed systems changes

 

 

 

 

 

HR monitors process improvements.

 

Footnotes:

Industrial age: control strategy

At the heart of a traditional industrial age-control focused strategy for workforce management is the wish to establish order, exercise control over the decision-making process in order to achieve efficiency in the application of the workforce. This model assumes low employee commitment to the organisation. However, changed employee expectations and environmental pressure that is fast opening up to competitors who can provide the same services, has rendered this "protected" way of life obsolete in most organisations. Management will increasingly be under pressure to change management and human resource systems to accommodate or even embrace employee expectations to fully participate in running the business of local government organisation.

Information age: service quality strategy

At the heart of commitment-based strategy is the belief that individuals and teams can be taught to exercise control over their own areas of responsibility. Early attempts at establishing this type of business strategy is reflected in the emergence of Quality of Work Life (QWL) programmes, Quality Circles (QC), and Employee Involvement schemes (EI). Most of these programme-driven change initiatives have come and gone due to the fact that organisations were unresponsive to the kind of organisational changes required to sustain these initiatives.

2.4 Audit Of The Financial Management Role Of HR (financial ratios)

A comprehensive audit of HR systems and procedures needs to go beyond the ‘check and tick/inspection’ level. Basic financial ratios/scorecard measures appropriate for a staff function like HR need to be put in place to audit the efficiency of the various functions outlined in figure 1 above (See The Human resource Wheel).

Please note: The many, and varied functions of HR act as a system of levers for optimising employee, team and organisational performance results over time. The red flag here is not to fall into the trap of measuring loose-standing HR functions as administrative management tools. Many HR outputs also need to be considered from the standpoint of which is 'better' -i.e. to make or to buy. These are (financial) management decisions that need to be made about how HR will be judged to have produced results.

Each hotel/SBU can select from the following list of Customer, Financial, Business Process, and Growth and Learning measures that will be calculated to round off the audit.

Measures

2.4.1 Planning and staffing

  • Special recruitment programmes (e.g. Universities)

- Interviewing costs

- Special event analysis (Rush assignments)

- Response time analysis (Speed)

- Time to fill analysis (Quality)

- Job posting response rate (Internal)

- Job Posting Hire Rate

  • Internal Cost Per Hire/Make

- Internal Hire Rat

- Interviewing time

  • External Cost Per Hire/Buy

- Source Cost

- Staff Time

- Management Time

- Processing Cost

- Travel and Relocation

2.4.2 Recruitment efficiency

  • Interview time (internal and external appointments
  • Recruitment agency costs

2.4.3 Recruitment effectiveness

 

  • Staff Requisitions
    • Requisitions Opened
    • Requisitions filled

 

  • Optimising staff levels
    • Actual versus projected staff levels (by function/department)

2.4.4 Compensation measures

    • Cost Control
    • Distribution Patterns relative to evaluation of performance
    • Employee Pay Attitudes

2.4.5 Benefits

    • Total Cost

2.4.6 Orientation cost per employee

    • Departmental Orientation Cost (Personal walk through by mentor)

2.4.7 Counseling/disciplinary costs (early warning measure)

    • Departmental counseling factor
    • Counseling topic factor
    • Counseling topic time

2.4.8 Lost time costs

    • Absence rate
    • Absenteeism cost
    • Negotiation time cost factor
    • Strike/downtime cost factor

2.4.9 Turnover rates

    • Length of Service
    • Transfer Cost (internally across departments/functions)
    • Termination by department or job category I reason for leaving

2.4.10 Training and development costs/measures

    • Cost per learner (classroom)
    • Cost per learner (on-job-training)
    • Knowledge change benefit
    • Skill change benefit
    • Performance change benefit

2.4.11 Organisation development measures

    • Satisfaction
    • Adaptive ness
    • Development
    • Risk taking
    • Creativity/learning
    • Job Stress
    • Job Flexibility/multiskilling
    • Leader behaviors
    • Commitment Measures

3. Audit methodology, instruments, and deliverables

3.1a Audit Of The Functional Role OF HR

This aspect of the audit uses the traditional check and tick method of conducting desktop ‘research’. A comprehensive list of all the functions and sub-functions to be audited are agreed with line management and HR. All relevant manual and electronic documentation and systems are inspected. Highly structured checklists for each area is used to assess the degree to which policies, systems, and procedures are in place.

Deliverable: An exception report that details (a) which systems are in place and up to scratch in terms of Standards of HR Practice as determined by The South African Board For Personnel Practice (SABPP); (b) gaps, and deficiencies with recommended for change.

3.1b Audit Of The Service Role Of HR

A 21-item questionnaire is used to gather information from employees, line management, and HR to determine service level gaps as outlined in table 1 above. The purpose of the exercise is to establish what are the perception gaps between how HR views itself, and how HR’s customers perceive the quality and quantity of service, they receive.

Deliverable: The report will provide line and HR with a structured report about service quality gaps that exist for HR. The analysis highlights service quality strengths and weaknesses, and provides a basis to negotiate and agree service quality needs.

 

3.2 Audit Of The Compliance Role Of HR

The codes of good practice are there to ensure that business conducts itself within a framework of good people practice. This requires that (a) appropriate HR systems and policies are in place, and (b) that management plays its role according to good industrial relations practice. The systems aspect is audited using the methods described in 3.1a above, and by means of a brief 30-item questionnaire completed by all employees (including management). The questionnaire assesses the perception gaps between how management and employees view the importance of good people management practices in the hotel/SBU.

The management practice aspect is assessed using focus groups (using mixed groups from different functions and levels) to determine what management does well, does not do well on, and where management can improve in terms of the codes of good practice.

Deliverables: Two reports provide management, and HR with qualitative and quantitative feedback about whether management and HR ensure that the codes of good practice are used. The quantitative report provides specific pointers about the practices, and competencies that affect the morale, and climate of the hotel/SBU.

3.3 Audit Of The Strategic Role Of HR

The purpose of this part of the audit is to assist line management, and HR to formulate a specific people management strategy. An outside facilitator facilitates a half-day strategy discussion between line management and HR to assess the current/implicit people management strategy, and the desired/explicit strategy the hotel requires to manage its business situation/context. The items in table 2 above (factors impacting choice of workforce strategy) are placed into a 30-item discussion framework that allows for a structured decision-making meeting about the desired people management strategy for the hotel/SBU. The facilitator provides data/proof/information for each part of the discussion using the results of the systems, service quality, and compliance audits. The current strengths and weaknesses of the HR function are discussed in relation to achieving the desired people management strategy.

Deliverables: A consolidated report that summarises the results of the systems, service quality, and compliance audits is distributed prior to the strategy discussion; the desired people management strategy and a high level action plan for upgrading systems, procedures and polices to achieve this strategy are produced at this meeting.

3.4 Audit Of The Financial Management Role Of HR

The generic list of measures for assessing HR’s functioning is agreed at a three-hour orientation meeting with HR and line management. At this meeting line and HR agree what (balanced scorecard) measures need to be in place for HR and line to successfully deliver their respective people management roles. The purpose and scope of the audit is also clarified. All role players are informed about their roles, and responsibilities to supply information for a complete audit. A communication plan is agreed to inform all employees about the audit, and to gain their support for the project.

Deliverables: A set of measures is agreed to start the audit and measurement process; an audit plan, communication plan, and timetable is agreed.

4. Resources

4.1 The audit requires the support of all trade unions and key role players in the hotel/SBU.

4.2 One administrative support person is required to supervise the distribution of questionnaires, and to ensure their return.

4.3 One boardroom is required for the orientation, focus group, and strategy meetings.

4.4 One audit room for inspection/discussion of policies, systems, and procedures.

4.5 Audio visual equipment for meetings, presentations, briefings, discussions.

 

5. Implementation plan

The audit is conducted in three phases.                                         Day:

5.1 Phase 1: audit set-up

5.1.1 The set-up meeting is a half day meeting to agree the                1

scope, methods, resources, timing, and communication plan for the audit. Performance measures are agreed by line and HR for assessing the financial aspects of HR’s role

5.2.2 Finalise communication plan with HR/line/unions                          3                                                                 

5.2.3 Finalise questionnaires for service quality audit, and                    5

people management practices questionnaire.

5.2.4 Finalise balanced scorecard measures to be used in the               7

audit.

5.2.5 Implement communication plan and brief departmental                 10

management about their roles/requirements for staff time and

information.

5.2 Conduct audit

5.2.1 Conduct combined surveys (3 days to complete)                        12

5.2.2 Assemble and audit policies, procedure, systems information         15

5.2.3 Conduct focus groups                                                            20

5.2.4 Finalise quantitative and qualitative reports                                30

5. 3 Conduct feedback/strategy meeting                                               35

 

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