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Assessment & Evaluation

 

The Ins and Outs of an HR Audit

Jodi Starkman

 

In today’s competitive business environment, every part of an organization must demonstrate its contribution to enterprise success. Conducting an audit can provide key insights into how well HR delivers its share of value creation while identifying areas of potential liability.

What is an HR Audit?

An HR audit is a systematic review of the HR function, its strategic direction, structure and resources, systems and procedures; cost and capabilities; and ultimately, its contribution to the organization. A well-designed audit provides a diagnostic tool to measure HR’s performance against organization expectations and leading practices, and target areas that would benefit from improvement.

The HR function is charged with building values, culture and a set of practices that recruit, retain, develop and motivate high-performing talent. An effective HR function also should be engaged in establishing work practices that allow the ideas and capabilities of all members of the workforce to become known and utilized effectively. Hence, an audit can help demonstrate to what extent the HR function contributes to organizational effectiveness as a whole.

How Is It Done?

The audit can be conducted by anyone with sufficient HR and business experience, but having the audit conducted by an external consultant — rather than an internal employee — can bring added value and credibility through a more objective view of the organization. Typically, the audit includes an extensive data-collection/discovery process that looks at organization structure, roles, processes, practices, technology and documentation.

Then, through a series of interviews with HR leaders, practitioners and customers, this data is reviewed in the context of what is needed by the business for the organization to be successful. A compliance/regulatory review also is important to manage risk and avoid litigation. The final outcome of the audit is a diagnosis of which practices are efficient and effective and which ones need improvement, as determined by HR’s customers, objectives and leading industry practice.

For instance, a recent audit for a large global service organization, henceforth referred to as Company A, surfaced a number of important findings. An outline of the project and select findings are described below:

• HR strategy is not aligned with corporate strategy (e.g., recruiting practices are not focused on acquiring skills that are most critical to the business or found in locations where business growth is planned).
• Compensation strategy is not aligned with the market realities of attracting talent or business demand for certain skill sets, which makes it difficult to attract and/or retain key talent.
• Roles and responsibilities in the HR organization are not clearly defined. It’s unclear who is accountable for decisions. There is duplication of roles among corporate, business and geographic units, leading to multiple points of contact and inconsistent decisions.
• The average cost of delivering certain HR services appears to be much higher than at comparable organizations.
• Excessive reliance on temporary/contracted workforce meets the need for flexible staffing, but negatively impacts the talent pipeline.
• HR processes are not clearly documented. The result is inconsistent policy application and risk associated with knowledgeable individuals leaving the organization.The use of technology to streamline HR processes is limited. This results in too many manual processes and multiple handoffs with negative impacts on cost and quality.
• HR is not seen as strategic. Based on an activity analysis, most activities being performed by HR staff are transactional in nature and not seen as adding value.
• HRIS does not track or maintain key pieces of employee data needed for planning and decision making.