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ROI – The Big Challenge for HR Specialists

Posted by Jessica Miller-Merrell

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Proving ROI (return on investment) in Human Resources is a lot harder than it is in other professional sectors. The metrics for HR aren’t always cut and dry, especially when you look outside of the recruiting realm. You want to prove that employer branding is worth the cost and time it takes. You also want to show higher-ups that the work your HR department does is making a valuable contribution to the company overall, or maybe that the cost of hiring a new employee to help with all of the duties your boss probably isn’t even aware of is justified.

Proving ROI in HR is determined by a number of factors, including the number of complaints and conflicts, the type of teamwork displayed, your employees’ overall commitment levels, and the levels of stress, job satisfaction, and engagement they evidence. There are no clear metrics on some of these items, but your HR department needs to make sure that all of them are at a level that benefits not only the company, but also the employees who work there.

Simple ROI metrics can be calculated using the following formulas:

  • ‘>Absence Rate: The # of days employees are absent in a month ÷ (average # of employees during a month times the # of workdays) times 100.
  • ‘>Engagement or Satisfaction Rating: The percentage of employees who are engaged or satisfied with the workplace overall, or with a given aspect of it.
  • >Cost Per Hire: Recruitment costs (external + internal) ÷ total number of hires in a given period.
  • ‘>Turnover (Annual): The # of employees exiting their jobs during a 12-month period ÷ average actual # of employees during the same period.
  • ‘>Turnover Costs: The total costs of separation + vacancy + replacement + training the new person.

All of these metrics can show that the programs your HR department is implementing are working to constantly improve the bigger metrics that are needed to run a successful company. Your cost-per-hire, engagement, and turnover rates are the important figures that prove that you’re not throwing away money when hiring new employees.

There is no direct strategy for implementing these metrics into your Human Resources department. Instead, you should work on lowering the above statistics by training your employees better, engaging them on a daily basis, and working to make your company culture positive and productive. All of these actions will improve these critical measures of what makes a company successful.

‘>What is your company doing to improve these critical metrics?

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About Jessica Miller-Merrell

Author

Jessica is listed as the 2nd most influential recruiter online and as the 8th most powerful woman on Twitter. She is the author of Tweet This! Twitter for Business, a how-to business guide for Twitter users. She also writes for a number of leading publications, including Fortune, HR Magazine, SmartBrief, and HR Executive Magazine.

3 COMMENTS Join the discussion
  • Barb Rachier January, 07, 2014

    ROI has always been the weakest spot in HR, nevertheless we are constantly trying to prove our worth and show that our job is effective. The problem is that not everything in HR can be measured in numbers – exactly the thing your boss usually assesses your department’s performance!

  • Jerry Tanaka January, 08, 2014

    I think that there’s a way to transform any information in numbers. For example, the effectiveness of a new health and safety program can be measured by the associated reduction in costs of work-related injuries. Without any type of human resource metrics, it is difficult to make proactive hiring decisions, and it is nearly impossible to identify how the results of those decisions are affecting your bottom line. That’s why ROI is that important for HR.

  • Ian Ruthwell January, 10, 2014

    I think that Human Resources is the most difficult area to develop metrics and show the return on investment. The idea of improved morale or greater employee satisfaction seems like a good thing, whether that translates to a significant increase in revenue or improved productivity remains questionable, because for some companies (especially smaller organizations) the data used to calculate these metrics may not be readily available. In fact, it takes time to identify sources of the data required and to develop a system to capture that information. 

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Guest January, 10, 2014