In the prior posts in this series on Human Capital Analytics we discussed how descriptive analytics, diagnostic analytics and predictive analytics can be used to inform decision-making. Descriptive analytics is the most basic of techniques and can still provide vital information for decision-makers. Diagnostic analytics begins to create relationships between variables and attempts answers the question “Why did this happen?” Predictive analytics generates an algorithm to express the impact of human capital on financial outcomes. This final installment will discuss prescriptive analytics and provide an example of how this level of analytics can be used to guide decisions that will scientifically optimize financial outcomes.
- Descriptive Analytics: What happened?
- Diagnostic Analytics: Why did it happen?
- Predictive Analytics: What will happen?
- Prescriptive Analytics: How can we make it happen?
Prescriptive analytics builds on predictive analytics as it allows decision makers to “scenario test” the human capital algorithm generated in the Predictive Analytics phase to understand how small changes in variables can generate financial outcomes.
In a sense, now that we have the roadmap of human capital paths to financial outcomes, we’re figuring out how to alter than path to optimize the return on human capital investment which will ultimately be reflected in EBITDA performance.
By testing the coefficients on each of the human capital variables, you can understand how to optimize human resources programs to generate outcomes that will to achieve desired financial performance. For example, a 0.1 increase in the impact of training and development variable may generate a 3% improvement in EBITDA whereas a 0.05 reduction in attrition may generate a 15% improvement in EBITDA. Regardless of the mathematics here, it is easy to see what an impact you can have on results by paying attention to these analytics. For example, we might want to focus on attrition reduction rather than additional investment in training and development because the impact is more beneficial. However, consideration needs to be given to the method of achieving those small changes. It’s easier to spend money on training and development than it is to understand how to retain your employees. This would go to the next level of analyses which would focus on a cost-benefit analysis for each variable’s optimization strategy.
Solange Charas is a senior-level human resources expert with 30+ years of experience as a consultant, practice leader, top corporate executive, and board director across all industry sectors. She was the Chief Human Resources officer at Havas Worldwide, Benfield and Praetorian Financial Services Group and held senior-level positions at Ernst & Young and Arthur Andersen. She serves of the boards of 2 public companies, a non-profit organization and a higher-education institution. She is the Founder and CEO of HCMoneyball – a SaaS company founded to provide support for enhanced decision making about spend on people in any organization.
Solange earned a PhD in Management from Case Western Reserve University’s Weatherhead School of Management, an MBA in Accounting and Finance from Cornell University’s Johnson Graduate School of Management, and a BA in International Economics from the University of California, Berkeley. She has authored numerous articles, including “The Art and Science of Valuing People” in HR Director, “6 Ways to Coach Your Company’s Teams to Be Champions” in Entrepreneur Magazine and “Why Men Have More Help Getting to the C-Suite” in Harvard Business Review.