HR return on investment: what is it, how can you prove it, and why does it matter? These are not small questions – but they’re ones worth answering. Especially if you’re looking to make a big impact, in a small-to-mid-sized business, with an even smaller HR team. Let’s cover that, and explore how people analytics can help.
Human Resources ROI: what does it mean?
What is HR ROI? HR ROI is a metric for measuring the value added from activities and initiatives led by the Human Resources team.
What investment are we talking about here? There’s you and your salary, as a member of staff – including the associated costs of onboarding, training, equipment provided, and so on. But there’s also all the money you’re asking to spend. Career development training, wellbeing programmes, even Tacos & Tetris Fridays – it all comes at a cost that must be justified.
Essentially you want to prove that:
- It’s worth having you
- It’s worth listening to you
In multinational corporations, with huge swathes of staff, having a HR department is a given. But for a plucky start-up, or financially struggling mid-sized business, it might not seem like a priority. Prove your ROI, and you make yourself a priority – and get the budget and backing you need.
Measuring HR ROI: what are the barriers to proving the financial benefits of HR analytics?
So we’ve covered the ‘why’, but what about the ‘how’? Now that’s the challenging part.
HR initiatives and activities can:
- Have intangible benefits, like the long-term development of skills
- Be difficult to match to clear metrics, or to collect data about
- Take a while to implement and see results, so there’s no immediate ROI
- Be impacted by external events, like changes in the economy
- Be unsuccessful due to resistance to change, even if generally sound
- Require technical data specialisms to measure the impact of accurately
All those factors, and many more, make measuring ROI incredibly difficult. Here’s a three-step approach to tackling it:
1. Defining HR ROI metrics
First things first, what metrics matter? You’ve got a lot of options – like “turnover rate” and “HCROI”, the return for all human capital-focused programmes. That last one is determined by dividing the financial benefits by the overall cost, so you need to have access to that information (or an agreement about how you get to both figures).
Consider which metrics are A) important to your leaders, and B) possible to measure. Some metrics won’t be feasible, when it comes to calculation, and some don’t really matter.
2. Calculating HR ROI
Once you know which metrics you’re using, how do you calculate them? On the most basic level, there’s a simple formula you can use:
Obviously, this only helps if you’ve already calculated the costs and benefits. The costs are easier – everything comes with an invoice, after all, and you have a rough idea of the cost of any responsible employees’ time too.
The cost benefits of HR initiatives can be less clear. If you’re working with a clear metric like retention, that’s one thing. But if it’s something like employee wellbeing or just general efficiency, it’s trickier. The most important thing is agreeing with your leadership team how you’ll measure success – and that might mean you need to be more demonstrative about the benefits.
3. Demonstrating HR ROI
Even large organisations struggle to “produce hard numbers” when it comes to HR initiatives – and that’s with all the data specialists and advanced technology anyone could want. So for small-to-mid-sized companies, providing a clear ROI is even more challenging.
What’s more, ‘fudging the numbers’ to provide an arbitrary measure can be more unreliable than not bothering at all. For HR teams with limited resources, demonstrating the benefits of their initiatives could be a safer bet.
That means telling a story. Here’s some ways to do that:
- Data visualisation: for the data you do have, lay it out in clear visualisations – as no-one wants to wade through spreadsheets. Think graphs, charts, word clouds
- Report the highlights: share the benefits both on a need-to-know, and just-have-to-know! basis – the highs, lows, and anything that gets the message across
- Employee feedback: words are powerful, and your employee’s feedback can paint a powerful picture – either positive or negative – so rely on them
- Action plans: stories don’t have to focus on past events – look to the future, and what next steps you’re planning to take, and that will generate some excitement
People Analytics & ROI: what’s the connection?
To demonstrate your value (or ROI, or whatever you want to call it), you need some level of data – even if it’s not the be-all-and-end-all, and even if your leadership team needs you to paint a picture. People analytics is about finding stories within your employee data.
By collating, analysing, and interpreting your people data, you can get to a point where you know the cost of not taking action.
Where Qlearsite comes in: the impact of HR technology on ROI in human resources
Proving HR’s value isn’t easy, but we can help. Our platform is designed for HR professionals in small-to-mid-sized companies, giving them an easier way to be a strategic part of the company. We believe in the role of HR ROI in workforce planning and forecasting, and our People Analytics Platform has been built with that in mind. Here’s how it works:
- Integrate your HR platform to pull in all available employee data
- Get ‘auto insights’, like trends and predictions about issues like retention
- Examine the reasons behind you data, by sending a survey using the platform
- Feedback is analysed for you, including text analytics to spot common themes
- Findings can be shared using the report builder, and copy-to-clipboard tools
- Actions can be identified and flagged for follow-up