WHITE PAPER

THE HR IMPERATIVE
FOR PREDICTIVE MODELING
Elevate recruitment and retention to strategic status with advanced analytics
Contents
Managing human capital today .................................................................................... 1
Beyond intelligence predictive modeling ............................................................... 1
Predictive modeling and employee turnover .............................................................. 2
Predictive modeling a scenario ............................................................................... 3
Which employees are at the greatest risk of voluntarily terminating? ......................... 3
Which are the most common reasons employees leave? ........................................... 4
What is the profile of employees most likely to leave? ................................................ 4
What is the risk to the organization if these people leave?.......................................... 5
Conclusion ..................................................................................................................... 7
About SAS.................................................................................................................... 7
The HR Imperative for Predicti ve Modeling
1
Managing human capital today
In todays competitive global economy, the staid, tactical human resources department of
yesteryear simply wont suffice. Instead, HR departments require a new breed of analytics and
modeling to tell not only what was, but what will be. Gaining that foresight means moving from
reporting and describing past events to predicting future events in time to shape those outcomes.
With more than 70 percent of todays workforce comprised of knowledge workers, the ability to
effectively manage the organizations investment in human capital can spell the difference
between success and failure.
These kinds of challenges require new ways of looking at data ways that are much more
sophisticated than the basic transactional reports that HR executives have had to live with for 20
years. The estimated cost of turnover for organizations is approximately 1-3 times the salary of
those employees who voluntarily leave. Other research has shown the cost of losing just one
salesperson is $300,000.
1
For most organizations, this loss can reach hundreds of thousands or
even millions of dollars as well as the intellectual capital that is lost.
Beyond intelligence predictive modeling
However, if the organization could predict which employees are most likely to leave, it could
implement programs to retain those identified employees and ultimately save the organization the
expenses associated with replacing valuable employees. Predictive modeling is the latest IT
advance that addresses these challenges. With predictive modeling, organizations can build on
the data of yesterday and the information of today, to forecast and respond to likely events
of tomorrow. Predictive modeling draws on several related disciplines data warehousing,
statistical analyses and sophisticated business reporting techniques to give business users
valid, credible forecasts of future events.
This represents a significant breakthrough for the HR function. Other areas of the enterprise
such as marketing or manufacturing have embraced the power of analytics to identify profitable
customers or streamline supply chains and inventory management. Now, that same predictive
power is available to HR professionals. Predictive modeling helps you identify essential insights
that allow organizations to proactively apply strategic human capital initiatives to help meet
corporate objectives, such as:
Identifying workforce trends and forecasting changes before they happen.
Quantifying the bottom-line impact of HR processes.
Discovering potential problems and unusual patterns before they materialize and adversely
impact the organization.
Modeling voluntary turnover and performance abilities to proactively identify key talent for
retention and/or leadership development.

1
Frederick F Reichheld, The Loyalty Effect, Boston: Harvard Business Schools Press, 1996. pp. 102-3.
The HR Imperative for Predicti ve Modeling
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Anticipating, forecasting and predicting changes in human capital resources within the
organization and in the changing economic environment.
Enabling HR to clearly demonstrate its contribution to achieving corporate goals. This is
especially important since HR executives cannot have a proportionate level of influence in
corporate decisions and policies until they offer compelling and clear data that supports fact-
based decision making.
Predictive modeling and employee turnover
Many HR professionals agree that the most important and challenging issue they face is in the
area of employee retention. While some turnover is unavoidable and perhaps even desirable in
certain instances voluntary separations carry a significant expense for the enterprise. For a
typical $400 million organization, replacing an average exempt employee represents a fully
loaded expense of approximately $60,000. For key employees, that cost can reach up to three
times the employees salary.
Whats more, voluntary separations also inflict hidden or intangible costs such as the loss of
intellectual capital, reduced customer satisfaction, and lower employee morale that can fuel a
new cycle of voluntary separations. These effects are most profoundly felt in industries where
innovation and intangible assets generate a competitive advantage (such as pharmaceuticals or
consulting) and in organizations where costs and services differentiate competitors (such as retail
and services).
The three keys for HR professionals are to:
Identify the patterns that lead to voluntary termination.
Apply those patterns to the employee population to identify employees likely to terminate.
Develop incentives to retain desired employees.
SAS now gives HR organizations the capability to benefit from predictive modeling through a
carefully designed, service-based offering devoted exclusively to uncovering the patterns that
underlie voluntary termination challenges. This customized solution offers a set of standard
reports that measure turnover, as well as depict relationships between selected employee
characteristics such as salary, educational level, skill, length of service, time in position, and other
factors. This solution also ranks employees based on their probability of voluntary termination
within a specific time period.
Once the behavioral characteristics of employees likely to leave are identified, you can accurately
anticipate changes and adopt plans to deal with these changes. Succession planning can improve
for lower-level employees and retention strategies can be developed for elite employees.


The HR Imperative for Predicti ve Modeling


As part of a true intelligence solution, predictive modeling capabilities help companies look
forward to prevent problems or encourage success. This type of analysis can help you answer
questions like:
Which employees are at the highest risk of voluntarily leaving the organization?
What are the reasons employees leave?
Which reasons have the most statistical significance to why employees leave?
What is the profile of employees most likely to leave?
What is the risk to the organization if employees leave?
Are the top performers leaving?

Predictive modeling a scenario
To get a better sense of the power that SAS can provide through its predictive model, consider a
fictitious example of a $500 million enterprise grappling with turnover issues. The company and
SAS collaborate to analyze its HR data and uncover voluntary-termination patterns.
Which employees are at the greatest risk of voluntarily terminating?
Through a simple Web browser, an HR manager can click on a Predicted Turnover link and view
a pie chart. In our example, the Predictive Model forecasts that about 4 percent of employees are
at high risk, while another 17 percent are a moderate risk.
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The HR Imperative for Predicti ve Modeling
Which are the most common reasons employees leave?
Next, our HR manager can examine causes of voluntary termination in a two-dimensional table.
He can see that length of service, age at hire, and current salary are the biggest contributors to
turnover. Note that length of service is the chief factor in all three risk classes.
What is the profile of employees most likely to leave?
The data both graphically and in the table show that employees at high risk of voluntary
termination are concentrated in the range of 5 7.5 years of service with a younger age-at-hire
value.

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The HR Imperative for Predicti ve Modeling

This is the first characteristic weve identified of likely terminations. Continuing on, we can see that
employees carrying salaries more than $30K are high-risk candidates as well.


Similarly, those with salary raises of less than 1 percent also indicate likelihood to terminate.

What is the risk to the organization if these people leave?
Now that we have a profile of likely voluntary terminations, its essential to understand the
organizational risk of these separations. Are they concentrated in a particular division, region,
product line or specialty? In our example, sales surpasses all other areas but this is to be
expected in a high-turnover function.
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The HR Imperative for Predicti ve Modeling


The technology function also shows a high number. By drilling down, we find that the R&D
department shows a large number of potential voluntary terminations.


Although Information Systems has a slightly higher level of potential voluntary terminations, the
company has traditionally not had difficulty in replacing those people. Research and Development
employees however, have traditionally been difficult to replace in a timely manner. This could
present a difficult challenge for the enterprise in the future if a concentration of researchers leaves
the company.
Collectively, then, the SAS predictive model shows that employees are at the most risk to leave
who have 5 7.5 years of service, are in higher pay brackets havent received appreciable raises
and are concentrated in Research and Development a group with critical skills needed for new
product development and future company success. So, while the top-line statistic of 4 percent
turnover seems low and well-managed, the deeper analysis shows the truer nature of the
problem.
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The HR Imperative for Predicti ve Modeling

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Using this information, an HR department could conclude that people come to work for the
company at a younger age for relatively lower starting salaries. Once theyve gained experience
necessary to pursue better job opportunities with other companies, they leave. Armed with that
information, youre ready to take the necessary interventional steps salary reviews, benefit
incentives, additional training, transfer opportunities or other measures to decrease turnover
and positively impact the bottom line through cost avoidance.
Conclusion
Contemporary HR executives require new ways of understanding the dynamic factors that affect
their organizations human capital investments. They require a new class of analytics and
predictive modeling to help them understand and appropriately respond to trends and future
events. The challenge is to move from reporting and then describing past events to predicting
future events in time to shape those outcomes.
This paper demonstrated how predictive modeling can help identify and reduce the cost of
employee turnover. This is just the beginning, however. Predictive modeling can be used through
the entire employee life cycle to answer other questions, such as:
Where can we find new hires that are more likely to be superior performers?
How would the costs of our benefit plan change if we added different options based on
employee demographics?
Who is most likely to select any new benefit offerings?
HR organizations can also use predictive modeling to better identify candidates for succession
planning and career development programs. The list of possible applications goes on, but as HR
professionals become more strategic in their activities, they will be better equipped to impact their
organization's bottom line.
About SAS
SAS is the leader in business intelligence and analytical software and services. Customers at
43,000 sites use SAS software to improve performance through insight from data, resulting in
faster, more accurate business decisions; more profitable relationships with customers and
suppliers; compliance with governmental regulations; research breakthroughs; and better
products and processes. Only SAS offers leading data integration, storage, analytics and
business intelligence applications within a comprehensive enterprise intelligence platform.
Since 1976, SAS has been giving customers around the world THE POWER TO KNOW

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