VII NATIONAL CONFERENCE WITH INTERNATIONAL PARTICIPATION “VALUE-ADDED HUMAN CAPITAL MANAGEMENT ”

1. BULGARIAN HUMAN RESOURCES MANAGEMENT AND DEVELOPMENT ASSOCIATION VII NATIONAL CONFERENCE WITH INTERNATIONAL PARTICIPATION “VALUE-ADDED HUMAN CAPITAL MANAGEMENT” 18-20 May 2006, Аlbena, Bulgaria

2. Return on Investmentin Human Capital. • Jan Skvaril • Director in Charge of Consulting • Deloitte Bulgaria

3. CxO considers HR as value added service when addressing the following questions... • What is the return on the money invested in our people? • Do we have the right number of people in our organization? Where could we reduce our headcount? • Is our corporate culture customer oriented in order to support our revenue growth? • Who are our key employees and are we able to retain them? • Do we pay our employees based on their performance? • Do we train the people according to our needs or to their desires? Factors driving the increased need for HC ROI • Competitive pressures on costs and productivity are increasing • Top executives are requiring ROI information • HR budgets are under increasing review • Accountability in all functions is increasing • Technology makes acquiring information easier

4. The value added of HR Drivers and challenges to the business are transitioning HR’s core effortstoward providing a competitive advantage. Organizations are transforming HR to effectively manage human capital. Costs Value-Added • Phase III • Strategy & Consultation • HR Analytics • Talent Management Value Adding 10% 60% Optimisation Focus on continuous improvement IMPACT • Phase II • HR Service Delivery • HR Reporting • Quality/ Cost Tradeoffs Effectiveness 30% 30% Focus on positioning HR to impact organizational effectiveness and drive profit EFFECTIVENESS • Phase I • Benchmarking • Baseline Metrics • Streamline Processes Efficiency 60% 10% Value Maintenance Focus on reducing HR costsand improving HR processes EFFICIENCY

5. HR role in creating the shareholder value SHAREHOLDER VALUE RevenueGrowth Operating Margin AssetsEfficiency Expectations Createa motivatedand skilled workforce Select and retain talents Establisha self-learning organizationto ensure continuous improvement Improve the HRM processesand services Improve knowledgeand information sharing HR Strategy Talent & performancemanagement Reward& recognition delivery Learningdelivery Resourcingdelivery Leadership& changedelivery HR Services HR processes Recruitment, Learning & development, Rewards management, Performance management, etc. HR infrastructure HR department organisation structure, HR employee competencies, process workflows, HRIS, etc.

6. Human CapitalReturn on Investment. HC ROI

7. HC ROI (%) measures the return on investment for funds a company spends on its employees... Profit* – Staff Costs Staff Costs Profit* – HCM Costs HCM Costs Profit* - level depends on the particular industry and the accounting principles Staff Costs = salaries incl. social and health insurance, employee benefits Human Capital Management (HCM) Costs = Staff Costs + HCM Direct Costs (HR department overhead i.e. equipment, HRIS maintenance...) + HCM Indirect Costs (HR related costs not under full control of HR departmenti.e. recruitment agencies and advertisements, training costs, health & safety costs, ...) The most advances companies include other HCM related costs e.g. costs related to conducting performance appraisal process. Used for benchmarking Used for measuring trendwithin a company

8. HC ROI (%) in the Bulgarian banking sectorfor the period 2002–2004 BestCEbanks Notes:HC ROI formula: (Profit before Taxation– Staff Costs) / Staff CostsProfit before taxation is adjusted with Net other operating income/expense, Net allowances for impairment and uncollectability and Net other income

9. Human Capital Productivity (kBGN/FTE)in the Bulgarian banking sector in 2004 Best CE banks100 kBGN/FTE Notes:HC Productivity formula: Profit before taxation / FTEProfit before taxation is adjusted with Net other operating income/expense, Net allowances for impairment and uncollectability and Net other income

10. MeasuringHuman Capital.

11. HC Metrics

12. Human Capital Management should be both effective and efficient... Effectiveness ... is doing the right thing. Efficiency ... is doing it in the right way.

13. Sample definition of a metric

14. Lessons learned from measuring Human Capital • Measure the right things • it‘s easy to measure the wrong things; just because we can count something, doesn‘t mean that it counts • companies frequently measure time and cost because it is easy to get these data; it‘s harder to develop measures for such meaningful criteria as quality, results and value • Choose fewer things to measure but do a better job • the tendency is: if it moves, measure it, because someone, somewhere, someday might want to know the number; the result is data paralysis and confusion • the art of metrics is to focus on a core set of meaningful things • Move beyond summary data • a statistic like „our turnover rate is 9%“ is useful to compare with competitors, but it could be more useful if, e.g. it looks at turnover by talent level, department, or by manager • averages can mask significant variations; segment data to look for more specific things • It‘s about what you do with the data • metrics are only valuable if they result in better decisions • gathering data that isn‘t used is a wasteof everyone‘s time and patience

15. Discussion.