Calculating ROI of HR initiatives
•Download as PPT, PDF•
8 likes•5,479 views
HR Return on Investment (ROI)
Recommended
More Related Content
What's hot
What's hot (20)
Similar to Calculating ROI of HR initiatives
Similar to Calculating ROI of HR initiatives (20)
More from Al-Qurmoshi Institute of Business Management, Hyderabad
More from Al-Qurmoshi Institute of Business Management, Hyderabad (20)
Recently uploaded
Recently uploaded (20)
Calculating ROI of HR initiatives
- 1. Human Resource - Return On Investment Dr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt) Professor Al-Qurmoshi Institute of Business Management, Hyderabad - 500005
- 2. Return On Investment (ROI) Benefit/Cost Ratio CostsProgram BenefitsProgram =BCR 100(%) x Cost CostBenefit ROI − =
- 3. Challenges in Calculating ROI Identifying Costs Quantifying Costs Identifying Benefits Quantifying Benefits
- 4. Basic Elements of Measurement Cost Time Quality Satisfaction (correlated with productivity) Performance vs. Productivity Effects on business priority (i.e., revenue) TTP (Time-to-productivity)
- 5. Measuring HR Efforts HR Measurement Operational Efficiency of HR Human Capital Health Financial Valuation methods Cost based approaches Market-based approaches Income-based approaches
- 6. Recruiting Recruiting Inputs: Recruiting costs Advertising costs Resume management Branding Organizational Influencers/Impact Variables: Higher retention (lower attrition rates) Reduced turnover Return: Cost per hire per level Revenue per employee
- 7. Selection Selection Inputs: Sourcing costs Hiring costs Person-job fit Time and productivity/Time of selectors Organizational Influencers/Impact Variables: Orientation process Assimilation Management Return: PBT (profit before taxes) per employee Productivity: individual, team, and organizational levels Productivity over time
- 8. Training Training Inputs: Needs assessments Cost of training and development per employee Cost of lost opportunities/work Cost of lost sales (for sales staff training) Project management costs Organizational Influencers/Impact Variables: Retention Technical competence Organizational commitment Return: PBT per employee with training vs. no training Productivity per employee Prevented cost of lost opportunities Prevented cost of future mistakes
- 9. Coaching Coaching Inputs: Costs of assessments Costs to do coaching Time away from daily work Organizational Influencers/Impact Variables: Financial impact/benefit because of behavioral changes in the coachee Improved business performance, communication, and leadership skills Motivation, employee morale, employee commitment Return: Cost of turnover Employee productivity Satisfaction and commitment of direct and non- direct reports
- 10. Factors Measured by Fortune 500 Companies Turnover costs Employee replacement costs Economic value of employee behaviors (absenteeism, smoking, etc) Economic benefits of: - developing a superior selection test - various training levels - additional recruiting - increasing job satisfaction, organizational commitment, or similar job attitudes - high, medium & low performance on a particular job
- 11. General List of Human Capital Success Metrics Average change in performance-appraisal rating overtime Climate surveys Customer complaints/praise Customer satisfaction/loyalty Employee commitment survey scores Employee competency growth Employee development/advancement opportunities Employee job involvement survey scores Employee satisfaction with advancement Employee turnover by performance level and by controllability Extent of cross-functional teamwork Extent of organizational learning Extent of understanding of the firm’s competitive strategy and operational goals
Editor's Notes
- Benefit/Cost Ratio: This is a basic definition of ROI. This is a quantification of the relation between the benefits of a program and its costs. When BCR is greater than one, the benefits outweigh the costs and the program is considered a success. When BCR is less than one, the cost exceeds the benefits and demonstrates that improvements or changes probably need to be made to justify continuation of the program. Another useful and often used definition/formula expresses the ROI as the percentage return on the costs incurred. This has the advantage of speaking to many investors and stakeholders in their language. A result greater than 100% means that the program has a net benefit after accounting for the costs involved in running it. For instance, an ROI% = 150% means that the program yields a 150% return on money invested; i.e., the program yields $1.50 for every dollar that the program costs. A result less than 100% means the program has a net cost. This means that the program does not recoup its cost after accounting for the benefit. When this happens, there may be a “hidden” or social benefit that is not quantifiable, such as an increase in employee morale. In these cases, stakeholders and decision makers need to ascertain whether the scale of loss is justifiable given the money spent. A loss of 3 percent of several thousand dollars may be worth it to realize a happier workplace, but 3 percent of several million may not; there may be easier or less expensive ways to create a happier workplace. This is where ROI really becomes useful. Used properly it can be an objective method to compare the benefits, costs and returns for two or more programs. Note – See Figure 2-2 on p. 37 and throughout the Phillips text for the model. This is a widely adopted and complete model for the process of calculating ROI for training and development.